Percentage Open for Inspection (OFI%™)
What is the OFI%?
OFI stands for Open for Inspection. The OFI% is the number of properties listed for
sale with an open inspection date as opposed to other sale methods, calculated as a percentage.
So if there were 10 properties listed for sale and 3 had open inspections, then the OFI% would be 30%.
Why is the OFI% important?
Imagine you're a real estate agent trying to sell a property for your client.
You list the property for sale on the websites and wait for people to contact you.
If demand exceeds supply, you don't have to wait long to get your first interested buyer. They ask to visit the property to inspect it. So you contact the owner to arrange a time and then see if that is OK with the potential buyer too. You and the potential buyer turn up at the agreed time for the inspection.
Later the same day there is a call from another interested buyer. You ring up the owner and arrange another inspection later the same day. You get back to the office and get a call from yet another interested buyer.
You can see that if demand exceeds supply in the market, the agent will not be
using their time efficiently. And the owner will be sick of presenting the property again and again.
So, what would any sensible sales agent do? They'd arrange for an open inspection
of course. This can be advertised on the listing website. Now every interested potential
buyer can come through at the same time.
Real estate agents encourage their clients to have open inspections in markets where demand exceeds supply.
That makes perfect sense in a market where demand exceeds supply. But what if supply exceeds demand? As the agent you would turn up early on inspection day and set up signs outside the property and along the street.
The owner would have already spent hours tidying up, spraying air-freshener or baking bread. All the junk has been tucked away.
You and the owner wait patiently for the first visitor and nobody turns up.
So the strategy that works well in a market where demand exceeds supply, fails miserably in a market where supply exceeds demand.
As investors you want to buy in markets where demand exceeds supply since it is the only way in which prices rise. One way to gauge if demand is exceeding supply is to calculate the percentage of properties being listed for sale with open inspection as opposed to those listed for inspection by appointment only or other means.
The OFI% is a statistic that gauges the level of demand relative to supply according to how real estate agents at the coal face are reading it. A market with a high OFI% is most probably a market in which demand exceeds supply.
The OFI% is another stat investors can use to understand the nature of supply and demand in a property market. When hundreds of thousands of dollars are at risk, can you really afford to ignore this indicator?
The OFI is one of the statistics incorporated into
the DSR+.
Is the OFI% reliable?
An accurate OFI% requires a decent number of properties listed for sale. If there is only one property
listed for sale, then the only possible values for the OFI% are 0% or 100%.
Unfortunately, in many markets where demand exceeds supply, supply is the problem.
That means the OFI% may be inaccurate in the very markets it is intended to identify.
You may get a false negative indication from the OFI% in very good markets.
There may be only 2 for sale listings for example. One owner is a privacy whacko and doesn't want an open inspection while the other seller does. So the OFI% will be 50%. That might not be overly impressive even if the market is.
You can easily check for false negatives like this by examining the OFI% for tell-tale signs of low volume.
These are usually neat, well known percentages like:
20%, 25%, 33%, 40%, 50%, 60%, 67%, 75%, 80% and 100%
For example, 40% could be 2 out of 5 listings open for inspection.
This is low enough volume to be inaccurate. But one of those 5 listings might have a reason for not being OFI
that is not based on market supply or demand. Remove that property from consideration and the true figure is
50% (2 OFI out of 4 listings).
Base data and other sources
Some alternative sources for this kind of data include: