IN THE world of real estate, we are constantly swamped by statistics.
There is no question that the quality and quantity of data available to real estate professionals has increased over the past few years. This provides an opportunity to look at old industry staples in a new light. And there is one statistic in the real estate world that I have always been uncomfortable with – average hold period.
From the first day that I started in the real estate industry, the widely quoted statistic of average hold periods has been seven years. Now, obviously this is a generic statistic. However, even if it were the average for Australia, it doesn’t stack up. Why?
Because if every property sold every seven years, even on average, that means that in a market of 100 homes, 100 sales should occur across seven years – meaning that there would be 14.2 sales per year in that market, or a 14 per cent annual turnover rate. If you apply this logic to Australia, where there are roughly 7.8 million occupied dwellings (this doesn’t include land either!), then there should be on average, 1.1 million homes sold each year.
What we do know is that on average, there are only 500,000 property transactions nationally per year. Even in the boom periods this figure did not exceed 600,000. Now, we’re only talking residential re-sales here.
So, what is the average hold period?
I’ve done an analysis of sales in the suburb of Taringa in Brisbane. We looked at all house and unit sales over the last 20 years (over 1,000 properties).
In this sample, the average number of years between sales for these properties was 5.93. This is not unusual for an inner-city market. And, it’s not that much different from the average of seven years, so what are the problems?
To start, there are only 1,000 records. Taringa has over 3,000 occupied dwellings. So what happened to the other 2,000 properties? Well, it’s either that they have never had a sale recorded against them, or the data was not recorded.
Whatever the reason, there is obviously a flaw in just using properties that have sold – even over a 20-year period – to calculate the average hold periods.
If we assumed that the other 2,000 dwellings all transacted at least 20 years ago, then the average would jump out to around the 15-year mark.
That would bring the turnover rate to a more believable 6.6 per cent (the average turnover rate for Australia is around 6.4 per cent).
This research indicates that there are two distinct groups of holds – long-term holds and short-term holds.
In Taringa, short-term holds of between two and six years make up an average of 50 per cent of the transactions each year.
So what are the possible advantages of knowing this?
1. TARGET YOUR PROSPECTING
If only 1 in 10 properties sold have a hold period of less than two years, you can probably safely exclude them from your ‘Thinking of selling?’ messages. Likewise, if the property doesn’t fit within the ‘short-hold’ profile, then the owners may be in it for the long haul. If the property has never transacted before, this may also be an opportunity. Improving your targeting will increase your conversion rates and improve your ROI.
2. PAY CLOSE ATTENTION TO YOUR AFTER-SALES COMMUNICATIONS
It costs five times as much to acquire a new customer as to retain an existing one. If 10 per cent of people who buy properties are going to sell them again within just two years, it is critical that you leave a good impression on your purchasers and remain in contact with them for at least five years.It need not be an expensive retention program, just the basics of a phone call and anniversary letter are a good place to start.