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.

Investors/Builders/Home Flippers

Real Estate Investors, Builders, and Home Flippers fully understand the urgency to sell an investment property quickly. The best way to sell investment property is by auction. An auction is fast; 30 days or less from the listing date to the auction sale date. Properties are sold in “As-Is” condition and there are no contingencies. The Buyer pays most, if not all of the recordation and transfer taxes along with interest on the sale price from the auction date until the closing date, usually 30 days.

Every single day that goes by without a sale and a quick closing decreases the profit an investor can earn due to the cost to carry the property. Loan fees, real estate taxes, utilities, etc, all add up fast and a property sitting on the market for a long time will turn a profitable deal into a loser for the investor.

The longer an investment property goes unsold, the less profit the investor will earn, if any profit at all! Investors, Builders, and Home Flippers cannot afford to wait the lengthy time the traditional sales method takes, which allows a Buyer to be in control with time as a tool to negotiate the sale price down.  An auction puts the Seller in control of the sale date, sale price, and the sale terms. An auction offers competitive bidding with no limit to the sale price. An auction also puts the Seller in the position to watch the sale price go up, not down, and often exceeds “asking price” found in the traditional sales method.

Vacant Property

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.

Opportunity Value

A Seller cannot ignore the negative effect that time has on the value of money along with the cost of lost opportunity. A great example is to a stock in a company sold on The New York Stock Exchange.  Some people owned stock in America Online (AOL) and when the stock crashed years ago, lost 90% of their value. Some people held it thinking it would rebound, but it never did. Other people sold AOL stock and invested in a little-known company called Apple and not only made back the money lost on AOL, they realized huge returns with their Apple stock.

Real Estate and stocks are both investments and must be looked at similarly. Often, it is better to sell a property that is not maintaining or increasing its value and reinvest the proceeds into another property that will produce better results. Holding out and waiting for the market to change or for a better price is often the wrong answer!

Emotion

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.

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