DOM (Days on Market) is one method using which you judge your real estate investment. Here is everything you need to know about it.
What Do You Mean by DOM in Simple Language?
DOM stands for Days on Market. We commonly know it as “Time on the market” in real estate.
A DOM is a statistical measure that represents the time during which the property:
- Listed on the MLS (Multiple Listing Service)
- Not sold
An MLS represents a database prepared by the real estate brokers operating in a particular region. This database contains information on all the real estate properties available for sale in that region. It is a collective effort to boost the sales and let both the brokers and buyers notice the new listings and properties.
Hence, we can infer from the above that a DOM is a period that states “how long a property was up for sale.”
How Do You Calculate the DOM Period?
The DOM period starts from the day the property got listed on the MLS. It ends with the day an “agreement to purchase” or a contingent offer.
You will use the following formula for calculating DOM if the information available is as “dates”:
DOM (Days on Market) =Closing Date − Listing Date
However, in case the information available is as days, then you will use the following formula:
DOM (Days on Market) =Closing Day−1
This second formula can be further understood through the image below
The DOM period in the above case would be 24 days (25 days-1). Usually, we calculate the DOM period, excluding the day when the contingent offer.
What Is the Usage of DOM in The Real Estate Sector?
DOM is an efficient tool which is to measure:
- Whether a particular region or neighbourhood ideal for investment?
- Whether a particular real estate property ideal for investment?
Let us now understand the practical usage of DOM in both the scenarios mentioned above.
1. Usage of DOM in Assessing Investment Regions
DOM is a statistical tool widely used by real estate investors and brokers to conduct trend analysis. We usually infer that:
A rise in the DOM suggests that:
- The investment region is losing its spark, and there are chances that the real estate properties in the place will fall in value in times to come.
- The region is losing investor interest and is experiencing low demand.
- The real estate of this place represents lower liquidity and reduced chances of gaining from capital appreciation.
A fall in the DOM suggests that:
- The region is gaining investor confidence, and properties are getting closed fast.
- It portrays a robust demand and sustained investor interest that could cause the prices of real estate properties to go up.
- The real estate of this place represents high liquidity or high property turnover ratio where properties get sold quickly.
- There are high chances of gaining from capital appreciation.
The usage of DOM in assessing investment regions could be further understood by analyzing the chart mentioned below, which represents the DOM period of the four major Canadian cities:
2. Usage of DOM in Assessing Real Estate Properties
Not only regions, but DOM can also assess the price trends of specific real estate properties. It can tell the investors and buyers several things, such as:
- Is the property over-priced or under-priced?
- Whether it is a new listing?
- How does the property compare to the DOM of the neighbourhood?
Further, there are chances of a mismatch between:
- The DOM of the region of the property
- The DOM of the property
In such a situation, an investor must consider all the other vital aspects of the property.
For example, a property in Toronto might include a higher DOM because:
- A dispute in the property and have several unpaid loans or government dues
- The property is high, and the asking price is not in line with the reasonable value or current trends
What Are Cumulative Days on Market or CDOM?
A CDOM represents a period or a period that is distinct from DOM. The starting points of both these methods differ from each other. However, the closing points are the same.
A DOM period starts or begins from a listing or re-listing date, whereas a CDOM takes off from the date we list the property on the MLS.
Let us understand this with the help of a practical example:
- The real estate agents operating in the Greater Toronto Area listed a fresh property in January 2022
- The property remained on the listing portal until May 2022, and agents removed it because of the non-availability of buyers.
- The real estate dealers will reduce the DOM and make it more attractive, re-listing the property in July 2022
- The property finally got sold in September 2022
In such a scenario, we will do the calculation of DOM and CDOM in the following manner:
|July (the month of re-listing)
September (the month of actual sale)
|January (the month of first listing)
September (the month of actual sale)