It is well known that more “Days On Market” (DOM) work against Sellers for a multitude of reasons. If a property is not sold quickly, buyers will shy away and this delay will affect the net proceeds from a sale due to the carrying cost Sellers incur, such as mortgage, taxes, and upkeep.
A vacant property typically deteriorates faster than an occupied property. Because of this, the value is directly impacted which results in a lower sale price and lower net proceeds from at the closing. Builders and Property Flipper’s net profit is impacted every single day a property is not sold due to the financing cost, taxes, and other operational expenses.
In general, the Real Estate market is extremely sensitive to the time of the year, the weather, and any unexpected changes to the economy from things such as the stock market and world events. The Coronavirus, for example, destroyed the entire Real Estate market in the middle of the prime selling season.
TIME IS MONEY
Price has little to do with demands, and multiple Buyers do not often arrive all at once. Any price reduction is proven to undermine the value of your property and frequently cause Buyers to sit back and wait. Research shows the largest factor in determining the price of a property is the number of days your property has been on the market for sale. Days on the market are your enemy! Like toxic Ultraviolet sun rays on your skin, the longer you are exposed, the more harmful they become. Every day your property is on the market, it depreciates in value, driving down the sales price. Days on the market are expensive. When your property has been on the market for a prolonged period, not only does it suffer from a negative perception, but there is an inherent cost associated with the accumulated days. Each day it goes unsold, you are most likely paying the mortgage along with the cost of upkeep, real estate taxes, and insurance. These costs add up to nearly 10% of the value of the property on an annual basis. If the property is vacant, it is more likely to deteriorate and drive the value down even further. Sellers also must consider the time value of money and the loss of opportunity by having funds tied up for a long period.
Days On The Market
Cost to Carry
Sellers must recognize that the longer a property goes unsold, the less a Seller will realize from a sale. Selling a property today for $500,000 is better than selling the property a year later for $550,000. When a Seller considers the cost to carry the property, the decrease in the value of money over time is a lost opportunity by not being liquid. The average cost to carry a property is nearly 10% of the value of the property annually, considering, mortgage payments, taxes, insurance, utilities, and upkeep.
Imagine if you listed your property for sale and obtained a purchase contract in the first 30 days of being on the market and then weeks later, the contract is terminated due to a contingency. You must start the entire sales process all over and incur additional carrying costs. What if the “Hot” Sellers’ market you were in goes cold? You lost the best opportunity to sell the property at the highest price and now you are stuck carrying the property and decreasing the net proceeds you will obtain when the property is sold. A real estate auction ensures a Seller that the property will be sold quickly at the highest market price.
Cost to Carry A $500,000 Property for 12 Months
When real estate is sold at auction, properties are sold in 30 days from the time the property is put on the market with no contingencies and in “As-Is” Condition. 97% of all real estate auction sales close quickly and without a single contract contingency.
*Calculations based on $3500 Monthly Mortgage Payment & $1500 Monthly Upkeep (Taxes, Insurance & Maintenance)
Disappearing Equity for A $500,000 Property Over 12 Months
The traditional sales approach can linger for months and even years without ever obtaining a single purchase offer. When an offer is made, contracts are almost always riddled with contingencies that result in the termination of nearly 30% of all traditional sales contracts.
*Value decreases over time. The best time to Auction is in the first 60 days of placing the property on the market.
Best Time to Auction
Auctioning a property when it first comes on the market has tremendous advantages over the traditional sales method. Statistical data indicates that the highest amount of interest in a newly listed property is in the first 30 days of when a property is first placed on the market.
An auction of a property in the first 30 days will often deliver better results for a Seller over the traditional sales method. Auctions do not cap or limit the sale price that the traditional sales method does. The excitement that comes with an auction delivers completive bidding that will drive up the price often beyond the traditional “fixed” asking price determined with the traditional sales method. Auctioned properties are sold in “As-Is” condition with no contingencies and close in 30+/- days from the auction date. Auctions eliminate the Sellers carrying cost and the entire auction process takes 60 days+/- from the listing date to the closing.
If a property is vacant, Sellers must recognize that the property can and will deteriorate very quickly, driving any potential sale price down. Vacant properties are also prone to break-ins and vandalism. A small problem such as a leaky toilet, in a vacant property, can turn into a flood resulting in major damage and cost to repair. The cost to carry a vacant property while it is deteriorating will drive the potential net proceeds from a sale down 20% or more annually. Vacant properties should be sold quickly to preserve value.
Selling Real Estate can be a difficult process for some Sellers because they may be too emotionally attached to a property. This can cause a Seller to hesitate and lose out on the best opportunity to sell the property. Human emotion is a factor that can outweigh a prudent business decision. To maximize value, emotion must be separated from the business decision process.