Why You Should Aim to Sell Your Property Quickly
Understand the Time Value of Money
This article is for those who have been trying to sell their property for long or are just embarking on selling their home or commercial property. We have said it before and we will say it again – Once you have made the decision to sell your house you should ideally be able to sell your house within 6 months. There are sellers who are able to sell their property quickly and then there are those who are unable to sell their property for a fair price quickly and efficiently. The most important aspect of the selling process that a seller has to remember is this – A dollar in your hand today is worth much more than a dollar tomorrow. This proverb also known as “a bird in the hand is worth two in the bush” is a timeless saying and refers to the “time-based” value of money. Primarily there are 4 main reasons for this.
- Sooner You Invest, Higher the Return
It is obvious that when you invest money today it starts earning interest right from today. The money that you earn in turn earns you more than the money you would get six months or a year from now.
- Inflation
Apart from the interest-earning aspects, rising inflation also makes your rupee worth more today than tomorrow. So a rupee tomorrow has less buying power. Even when the government says that that the rate of inflation is marginal it is still present. Even if the rate of inflation is less it does feel high when it comes to the increasing cost of say paying more for your child’s education, medical services for your family or filling up your car’s gas tank!
- Ongoing Expenses
Since we are talking about money being worth more today than it is worth tomorrow in relation to real estate and your own property in particular, it is important to factor in the ongoing expenses. Your home ownership expenses include the ongoing cost of general maintenance, property taxes, repairs etc. In a stagnant or declining market such as the one we are seeing in post-Covid months if you can sell your property today and not have to pay for those expenses. When you add a few months or a year of calculation the savings can be substantial. Structures in cities like Mumbai are subjected to tremendously strong winds and rainfall every year which results in heavy wear and tear of structures. Repair costs are considerable. Sell your property soon and those costs are now someone else’s headache!
The only time a dollar may be worth less than a dollar tomorrow is in a fast-appreciating market. But we know how rare that is! In the current scenario, do not expect markets to appreciate fast for the next 5 years atleast.
- Unexpected Repairs
You also realize why money is worth more today than tomorrow when faced with an unexpected repair and you need urgent funds. Just because everything is hunky dory today does not mean that there may not be emergency tomorrow. When it comes to homes always expect the unexpected especially when the seasonal monsoons unleases its fury! Say there is water leakage suddenly or a part of your false ceiling collapses. Now you cannot sell your house in this condition. You are faced with the expense of repairing the problem – costs which can run into lakhs of rupees. You cannot put off this expense if you hope to find a buyer in the future or even for your own and your family’s safety and security.
Use an Excel Sheet
Many unsophisticated home sellers will think in absolute terms when selling their house. They should instead think in terms of time-adjusted rupees. Their argument goes something like this – “I want twelve crores for my house. Even if I have to wait for two years to get that price, its better than selling today for ten crores.” But is it?
If the same buyer holds out for more than a year and finally sells it at 10.5 Cr. when you add up the property taxes and the “Investment Opportunity Cost”, the resulting net amount that lands in the hands of the seller will be less than what he would have got if he had sold the property quickly. What would be even worse is that the seller waited to sell the property for more than a year and finally out of desperation sold the property for Eight Crores or even less. The losses that the seller has now faced are huge. This is because over a year costs such as the mortgage, insurance and general maintenance pile up on a month-on-month basis. All of it adds up to the total expense that will be deducted from the sale price.
Investment Opportunity Cost
Apart from the general maintenance costs, let us consider the Investment Opportunity Cost which is pegged at 6 %. What exactly is Investment Opportunity Cost and why is it important to factor it in? Investment Opportunity Cost is what you could probably earn from investing the money you gain from the sale of your property.
Let us assume that you sell your property for ₹ 10 crores today. You would then calculate how and where you could invest that money to receive a high rate of return. If your house did not have any mortgage on it then you could invest the entire amount of ₹ 10 crores at the time of sale in various financial instruments after deducting taxes and you could earn 5 % or more interest. The Investment Opportunity Cost can thus be pegged at 5 – 6 % which is based on lost interests as well as added costs which is multiplied per month. The longer your property remains on the market the higher your losses in potential earnings!
Using this example it should be clear to a home seller about the importance of understanding the concept of time-value of money. It should be crystal clear to anyone that a crore earned today by selling your house is definitely worth more than a crore earned in the future down the road.
Change your Mindset
As we have seen the longer your property stays on the market without selling the lesser amount of money you actually receive in your hand after you finally make the sale. Which is why we encourage sellers to change their thinking from absolute terms such as ‘This is exactly what I want and I will not budge” to understand the time-adjusted sales price of a property and say, “I am willing to negotiate with a buyer who makes a reasonable offer and sell my property fast.”
Also lets look at another aspect of not being able to sell your property quickly. Apart from ongoing expenses that are piling up every month there is also the irritation and aggravation that you and your family experience during this process. Every time your real estate broker brings in another potential buyer, you and your family will have to again and again go through the process of cleaning up your house and making it look perfect – dirty clothes must be picked up, teenagers might have to leave the house and go someplace else while the buyers are seeing the property, beds must be made, dishes put away and so on. The stress of constantly being on call to have your house ready in a ‘Showpiece” state for months or years can take its toll on you and your family. It can drive anyone crazy!
There is also something we discussed in an earlier article on why you must ensure that your property sells within 6 months of it being listed in the market. The longer your property remains unsold the more “shop-worn” or jaded it becomes. Property agents and brokers in every area are a tight-knit community. They will question why your house is taking so long to sell. Maybe there is something wrong with it. Agents and brokers also do not want to waste their own time. They would rather spend their time working on a sale that actually makes them money. They may start avoiding your house. Apart from agents and brokers you have to remember that the pool of potential buyers for your house is also small and if all potential buyers have come and seen your property and you haven’t managed to make a sale then you are in trouble! Buyers and investors are also not very keen to buy a property when they hear that its not been selling for years. Just like the seller is waiting for a buyer to offer a higher price the potential buyer is also waiting for a big discount! So no headway is made in the sale!
Keeping Your Ego in Check
This may seem highly strange and counter-intuitive but I have spoken to home owners and explained this position to them but many a times they simply refuse to understand this concept and often to do not care! They would rather receive a high figure a year or two from now even if they actually made a much smaller amount in hand – just so that they can boast to people that they got that kind of money! Experienced home sellers know better than that. The more slow the real estate market is the more important this fact is. When the market is in decline as it is now in post-Covid world, the negative effect of carrying costs of the price your property are multiplied many times over!
Do remember though that prices have to be increasing at very high rates – much higher than the opportunity costs in such a scenario. Do the math again. If your mortgage rate is 7 % a year plus all your expenses you will have to hope that your property appreciates at 9 – 12 % a year for it to make sense leaving your house unsold on the market for a long duration of time. Now just sit back for a bit and think – When in the distant future do you think that property prices are going to go through another bubble period?! If you thought not in your lifetime you could be right! Prices go up when there is optimism in the air. The way the world and the environment is headed with global warming, rising sea levels and economic fallouts being more the norm than the exception, it could be a really really long time before people are optimistic again about the future!
What You Do with the Money
The next point we are going to discuss is what the title of this section says – What to do with the money that you get from the proceeds of the sale of your house? Most home sellers rarely consider this point. Successful sellers of properties are very clear about this. For them, the money they get from the sale of this property is of lesser importance than what they plan to do with the funds from the sale.
For example in the current soft market situation in India’s metro cities where there is a large supply of housing and many unsold inventory, buyers have a chance to get a very good deal on a new home because of the sheer desperation of some sellers. In such a situation and one that is amplified by the Coronavirus pandemic it is better to sell your property quickly and use that money to get back into the market quickly. Because of the current situation being a buyer’s market you too have a great opportunity to grab a wonderful deal on another property that has suffered a drastic erosion in it’s price. That way what you gave up on the sale of your home will be more than compensated in the purchase of your next property. You can understand this point when I say:
What you sell your house for today does not matter as much as what you can buy for tomorrow.
Let us say you plan like most people to buy a larger house than the one you are selling once you sell the property and received the funds. In a typical situation, when families tend to upgrade they will tend to invest 50 % more to buy the more expensive property unless they are moving towards a cheaper suburb. This means that if you were selling your house for 5 Cr your next purchase would be 7.5 Cr. Now if the market keeps going up as it usually does, this gap will continue to widen with every passing day.
Do Not Miss the Boat
It would be a good idea here to imagine the market as a ship that is leaving the dock. The gap of water between the ship and the dock is gradually increasing. The longer you wait to make money from the sale of your house so that you can invest the money in your next home, the wider the gap becomes and the bigger the jump!
Achieve Your Goals
To achieve success in any endeavor you have to set a goal. To achieve your goal of selling your property you can realize your goal of selling it sooner and more efficiently if you sell your property at the appropriate price that the market can currently support.
On the other hand if you assume that you can arbitrarily put a high price on your house and hope to solve all your financial problems with the sale – that will not happen. Property buyers will not want to solve your financial issues by overpaying for your home.
To summarise what I have said in this entire article: To get the best value for the property that you are selling, aim for the best price that the current real estate market can give you for your property. And after that just execute the sale and move as quickly as possible. That ensures that you invest your money, get rid of the outstanding loans, stop the monthly expenses on this property and go ahead and start the next phase of your life :-).
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One thought on “Why You Should Aim to Sell Your Property Quickly”
thank you for sharing such nice blog information with us.
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