Make More Money By Selling At A Discount
by Kalinda Rose Stevenson, PhD
One of the hardest concepts to grasp is why you can make more money by selling at a discount now rather than waiting to get a better price. The reason concerns the time value of money.
This is an example of the time value of money at work. Last year, a real estate agent listed a house in my neighborhood for $950,000. Even at the time, that seemed like much too high a price for the immediate area. For more than a year, the house stayed on the market.
PRICE REDUCED was added to the sign in front of the house. Then the prices started to go down, slowly and steadily as the house didn't sell.
$950,000, $929,000, $899,000, $869,000, $849,000, $799,000, $780,000, $760,000, $739,000, $725,000
As soon as the prices started to go down, my husband wrote a letter to the seller. He asked if the seller would be willing to take a note to sell the property. In other words, he asked if the seller would be willing to owner-finance.
The real estate agent intervened to convince the owner that owner financing would require the owner to discount the property. On the agent's recommendation, the owner was unwilling to consider owner financing.
Finally, a SOLD sign appeared. By this time, the asking price had been reduced to $725,000. Considering that the original price was $950,000, the difference was $225,000. This is a quarter of a million dollars. And this assumes that the buyer was willing to pay the full $725,000.
While the house was unsold, the expenses on the property continued. The seller had to make mortgage payments, pay taxes and insurance, and maintain a vacant property for more than a year. This leads to an important question: How much of a discount in price did the seller take because the seller was unwilling to discount a note?
The real estate agent was simply following the most typical advice for sellers in difficult markets. Keep reducing your price, so that someone will eventually buy.
There is a much better solution. If the owner had agreed to owner finance, by carrying a note, the seller could have sold the house at least a year earlier, for a much higher price. And the real estate agent would also have earned a higher commission. Before you agree to lower your asking price again and again, find out why you'll come out ahead by owner financing.
Why owner financing is the safest way to increase profit, sell quickly, and increase cash flow. Discover how to think about money with No Money Limits. Click here to get your own unique version of this article.
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