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Charting the market: Reporting deals that fall apart
Question of the Day
Did you know there are two ways of counting home sales? You can count how many contracts were ratified in a given month, and that will tell you how active the market was during that month.
For example, you can see in today’s charts that contracts were ratified (signed by both buyer and seller) on 6,611 homes in the Washington area in February 2011.
But only 4,011 properties went to settlement (when the sale legally and finally takes place) during February 2011.
The reason for the 2,600 difference in the figures is that the homes that settled in February were “sold” during the slow winter months at the end of 2010. The contracts likely were ratified in November or December, and went to settlement in February.
While those other homes were settling in February, a bigger batch of homes was sold (contracts were ratified) in February - the month when the annual real estate market often begins to pick up steam.
While the settlements data is more accurate if you want to know how many homes actually go to closing, it doesn’t tell you much about the pace of the market from month to month. That’s why I always have reported on contracts.
Some contracts fall through, of course. I’ve always known that, but have assumed the number falling through would remain relatively steady from month to month and year to year.
I was wrong. Metropolitan Regional Information Systems, the company that maintains the database for area Realtors, is now providing us with data on how many contracts fall through, or are “released” each month. And the number of released contracts has grown dramatically in recent years.
Today’s cover story gets into more detail about why more contracts are released these days than before. For the purposes of today’s column, I just want to get the numbers in front of you so you can see what’s been happening.
Here’s the takeaway: The number of ratified contracts does show us how active buyers are, but it can’t tell us definitively how many homes are selling. More than a quarter of the contracts on homes in Prince William County, for example, fell through last year.
This year, I’m going to continue giving you data on contracts because it tells us how busy buyers are, and that’s important. But I’ll also tell you more about settlements and released contracts so you can understand what happens after those contracts are ratified.
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