The Real Estate Industry’s
10 Most Critical Metrics

down-arw-green

Share this Post

In this article you’ll learn the most critical metrics that companies in the Real Estate Industry should track.

The article does not include metrics such as Profits and Sales that are critical to companies in all industries; rather the focus is on metrics more specific to the Real Estate Industry.

By tracking your metrics, you will dramatically improve your business results.

Why? Because not only is the old saying “If you can’t measure it, you can’t improve it” true, but visibility into your metrics allows you to identify WHERE you can make the easiest and most impactful improvements.

For each metric, we will answer the following questions:

– What is the metric?

– Why is this metric important?

Let’s get started…

1. Average commission per sale

What is this metric?
This is the average amount of money a real estate office makes for each transaction.

Though it is considered Price Fixing for realtors to discuss their commission rates, mortgagecalculator.biz reports that the average commission fee is about 6% of the typical home purchase price. This commission is split between the buyer’s agent and the seller’s agent, so the average commission is 3%. According to census.gov, the average purchase price of an existing home is $188,900. Therefore, the average commission per transaction in the US is $5,667.

average_commission_per_sale-20151111

Why is this metric important?
Because commissions vary significantly depending on the price of the home and the negotiated commission rate, it is important to understand how profitable the average transaction is across the agency.

2. Average commission per salesperson

What is this metric?
This is the average amount of money a real estate agent makes for each transaction.

According to The US Department of Justice, the dollar amount of commission fees appears to have increased closely in line with rising housing prices between 1991 and 2005.

average_commission_per_salesperson-20151111

Why is this metric important?
This metric helps to evaluate an agent’s performance over a specified period of time. It can be applied to strategic planning of the future salary costs of the real estate agency.

3. Number of properties advertised per real estate agent

What is this metric?
Measures the ratio between the number of properties listed and the number of agents in the agency.

number_of_properties_advertised_per_real_estate_agent-20151111

Why is this metric important?
The number of listings you have is nearly always a direct result of your marketing efforts, and is a key area to focus on. You most likely use a diverse set of marketing tools and techniques to generate listings—for example, a Zillow profile page and email marketing messages—or you might use targeted campaigns with URL-specific calls to action (CTAs).

Do you currently know how you’re performing on each of these key metrics?
Click here to schedule a free demo with one of our dashboard builders. They’ll show you how we can build a dashboard that automatically calculates all your key metrics in real-time.

4. Sold homes per available inventory ratio

What is this metric?
This metric tracks how many homes were sold out of the total listings in a given market.

A.L. Wagner Appraisal Group explains the Inventory Level as the relationship between the total number of listings available and the absorption rate. It is reported in “months’ supply.” (i.e. if there are 10 on the market, and the absorption rate is 5, that results in a 2 months’ supply of inventory.)

The months’ supply is an important number, which calculates the inventory of homes available in relation to the number of homes to sell per month. A balanced supply would be 4 to 6 months’ worth of inventory. Greater than 6 months would be an oversupply, and less than 4 months would be an undersupply.

sold_homes_per_available_inventory_ratio_-20151217

Why is this metric important?
This metric can be used to show the overall health of a market, but can also be used to track neighborhood desirability. The lower the inventory, the greater a seller’s advantage, as homebuyers are motivated by a scarcity of choice.

  • Less than 2 Months of supply will place strong upward pressure on prices that could result in as high as double digit appreciation.
  • 3 to 4 Months of supply will place pressure on prices upward, resulting in appreciating values.
  • 5 to 6 Months of supply is generally considered a balanced market with little to no fluctuation in value.
  • 7 to 8 Months supply is going to result in downward pressure on prices, leading to declining values.
  • Over a 9 Month supply is an extreme oversupply, placing strong downward pressure on prices, potentially at a double digit annual rate.

5. Year-to-year variance on average sold price

What is this metric?
This metric compares home price fluctuations in a given market.

year_to_year_variance_on_average_sold_price-20151111

Why is this metric important?
This is helpful in strategic planning and setting sales goals.

6. Year-to-year variance on dollar volume of sold listings

What is this metric?
Year-to-year variance compares the total value of real estate sold over a 12-month period to the total value of real estate sold over the previous 12-month period. This comparison may be done at a market level, an agency level, or an individual realtor level.

year_to_year_variance_on_dollar_volume_of_sold_listings-20151111

Why is this metric important?
This metric is used to track an agency’s growth or decline.

7. Year-to-year variance on sold average dollar per square foot

What is this metric?
This metric compares the average price per square foot in a given market over a 12-month time period.

year_to_year_variance_on_sold_average_dollar_per_square_foot-20151111 (3)

Why is this metric important?
This metric provides a more granular view of price fluctuations, and can be applied to different property types (i.e. Residential, Commercial, etc.). It is helpful in estimating a property’s value.

Want to discuss the specific metrics you’re tracking (or want to track) for your company?
Click here to schedule a free consultation and demo with one of our dashboard consultants.

8. Number of Days on Market

What is this metric?
This is the average number of days a property remains in inventory (from listing to closing).

According to a Realtor.com analysis of the residential real estate listed on its site, the median age of residential inventory is 80 days.

number_of_days_on_market-20151111

Why is this metric important?
When buyers see extensive days on market, they figure the seller is desperate to sell because the home is still on the market. Buyers also believe there might be something wrong with the home that caused other buyers to pass it up. Both of those assumptions, however, can be wrong. Homes can linger on the market due to overpricing or a down real estate market.

9. Number of visits per real estate sale

What is this metric?
This is the average number of times a realtor shows a property to potential buyers before the property sells.

number_of_visits_per_real_estate_sale-20151111

Why is this metric important?
This is helpful in monitoring a whether a home is priced correctly.

For example, one agent posted the following on a real estate message board:

“In my MLS it shows that about 25% of listings sell within 30 days at 103% of asking price. What does it take to do that?

“- properly priced home
– correctly marketed
– 10-12 showings in the first two weeks or one offer

“If we do not see that result, then we lower the price, 3-5%, in order to get that amount of showing activity.

“No showings, lower the price.

“Showing, but no offers, lower the price.

“So it is not only how many showings per week, but how many weeks on the market. The best way to see this live, as it happens, is for your Realtor to provide you with a weekly summary of market activity. You can see that the properly priced listings will sell (in Realtor-speak that means that they get an offer which is accepted) within the first few weeks.”

10. Percent difference between asking and selling prices

What is this metric?
This KPI is for measuring the % difference between the asking and selling price of the properties the real estate agent is selling. As asking prices tend to be higher than the selling prices, this KPI is looking at how much lower the property was sold at, compared to what the buyer wanted to sell it for (or asked for). This is calculated by measuring how much lower the selling price is as a % from the asking price.

According to Business Performance Consultancy Winning KPI, there is a general market % difference, sometimes as low as 3-10%, and companies generally try to reach this %, or even achieve a lower one.

_difference_between_asking_and_selling_prices-20160415

Why is this metric important?
The lower this KPI is, the higher is the ROI.

However, other factors may be taken into consideration, such as time period for the sale. A company may take 1 year to sale a property and have a % difference of 10%, or it may be able to sell it in 1 week with a % difference of 20%. Depending on the property value and circumstances, the seller may benefit more from selling it faster at a lower rate. Lots of other factors may be taken into consideration such as economy state, currency value, asset deterioration etc.

Share this Post