The Cost Of Waiting For The Market
Introduction
It is not uncommon for some sellers to overly ambitiously price their home and choose to stick with their asking price without wishing to reduce it at any time, believing that the ‘right’ buyer and offer will eventually appear. Here I discuss the very probable consequences of waiting for the market.
Believing that the ‘right’ buyer and offer will eventually appear
In the previous section, I explained that there are occasions when sellers will disagree with the determined value of their property despite the evidence supporting such value, particularly if the value doesn’t quite match up to their own expectations. In such circumstances, those sellers may decide to not go with the determined value or the supporting evidence; opting instead to price their home closer to their own expectations, which in many cases, means pricing it above the market value; in other words, overpricing it.
Some of those sellers may choose to stick with their overly ambitious asking price without wishing to reduce it at any time, believing that the ‘right’ buyer and offer will eventually appear.
Those sellers opting for such an approach may be thinking, ‘I’m not desperate, I can wait for the right price’, as a reason to keep their property priced above the market value indefinitely. They may have a certain price in mind that they want to achieve and see no reason to consider a lower figure. Those sellers are essentially waiting for the market to catch up to their asking price.
Any seller who believes this to be a sound pricing strategy should be aware of the following: the time value of their home on the market, social proof affirmation working against them, as well as the cost of waiting for the market itself!
But before diving into the main discussion concerning the cost of waiting for the market, I must bring to attention the following points:
As stated in the previous section - time is an ally of the buyer and an enemy of the seller!
Factors that influence the seller (e.g. the seller’s financial commitments, gut feeling of the value, or sentimental value etc) to determine an asking price that’s above the market value rarely succeed in selling for that price. Only factors that are relevant to the buyers, in particular, the comparables, and the value that they get out of the property, can realistically be reflected in the asking price, as they can be supported by clear and attainable evidence.
What is the cost of waiting for the market?
Any seller wanting to keep their property priced above the market value indefinitely is, as already stated, essentially waiting for the market to catch up to their asking price, which can possibly happen in a rising market.
But please be aware that in a rising market, although it’s possible that we can achieve a higher price for our home, we may end up paying a higher price for the next home that we intend to purchase, especially if we are planning to upsize our home! Because in a rising market, property values will increase in many areas (with values in some areas increasing more than in other areas). Therefore, any increase in value we gain from waiting for the market before selling our home can be partially or entirely lost in the higher price we pay for our next home! And this is assuming that the market does eventually catch up to our asking price!
Are there any merits to waiting for the market?
In order to answer that question, let’s take a look at a few scenarios in the images below, and assume for the purposes of those examples (and for simplicity) that the market rises or falls at the same rate of 5% across the country.
Indeed there are potentially partial merits to waiting for the market. According to the above scenarios (assuming that the market rises or falls at the same rate across the country), it may be beneficial to wait if we’re downsizing our home in a rising market, or upsizing our home in a falling market.
There are of course further scenarios and factors to consider when weighing the merits of waiting for the market. For example, we can potentially gain if:
In a rising market, the property value of our area has risen more than the property value of the area that we intend to move to.
In a falling market, the property value of our area has fallen less than the property value of the area that we intend to move to.
And if we are wanting to gain from a rising market, we need to be aware that:
A rising market can be caused by certain economic or political influences, but this is too unpredictable to rely on or time.
We can try to rely on a more predictable fundamental property cycle to reach the recovery or boom period. However, depending on what stage we are at in the cycle, we may still have to wait several years for the market to eventually catch up to our asking price, even during a boom period!
We are allowing our home to become stagnant and grow stale on the market while we are waiting for the market to catch up. A rising market isn’t guaranteed to overcome diminishing buyer confidence due to the diminishing time value of our home and social proof affirmation working against us!
Although one does indeed acknowledge that waiting for the market has potentially partial merits, I must stress that all of the above scenarios that we’ve looked at are simplified examples and we cannot feasibly account for all of the real world variables and intricacies of the market.
Personally, I would recommend against waiting for the market, as I do not believe this to be a worthwhile endeavour. Doing so would involve too many variables in the market, as well as require unnecessary risk, patience, and precision of timing - all for a potential reward that I am not of the belief is worth the risk and the wait. In general, waiting for the market rarely pays off!
Giving up control and bargaining power to the market
I must point out that waiting for the market means that we are effectively giving up a degree of our control to the market and allowing external forces to have a say in when we decide to sell. Not only are we allowing our home to become stagnant and grow stale on the market while we are waiting for the ‘right’ moment/buyer/offer/price, but the power of determining market value is already held by the buyers (see buyer sentiment), and so if we give up a degree of our control to the market, we are in fact further empowering the buyers’ bargaining position, while diminishing our own bargaining position, hampering our own ability to achieve the best price or the market price!
Instead of waiting for the market to catch up, it would be far better for us that we take charge and control of the sale, and aim to achieve the best price in the market that we’re currently in.
Our home is susceptible to the ever-changing nature of the market
Another important aspect I must bring to attention is that, the property market is ever-changing, so the longer our home remains on the market while we are waiting for the ‘right’ moment/buyer/offer/price, the more susceptible it is to the shifts and changes in the market.
So far, I have mostly covered the factors that we should consider when we are waiting for a rising market to catch up to our asking price, with only brief mentions of a falling market. I want to now turn our attention to the factors that we should consider when there is a falling market, because of course, the longer we are waiting for the market, the more susceptible our home is to a falling market as much as it is to a rising one.
Reassessing the value and asking price amidst the shifts and changes in the market
The longer our home remains on the market, the more it needs to be reassessed to ensure that its value and asking price accurately reflects the market that it’s in - perhaps every 8-12 months for as long as it remains on the market. The value and asking price would need to reflect the most recent shifts and changes in the market, especially the most recent sold and available comparables.
Particular attention ought to be given in the event that we wait long enough to find ourselves in a falling market, in which we’re most likely to end up selling for less than anticipated (perhaps considerably below the market value), assuming we’re able to sell at all!
Adjusting our asking price to reflect the falling market
Even if our home wasn’t already overpriced to begin with but was in fact priced fairly at its initial market value, the asking price would certainly need to be adjusted accordingly, i.e. reduced (or market repositioned), to reflect the falling market.
Otherwise, if we choose not to adjust our asking price; our home, even if it was priced fairly to begin with, would certainly now be overpriced amidst the falling market. In fact, our home will end up falling far behind the market, especially if the competition decides to adjust their asking prices accordingly! If our home was already stagnating and growing stale on the market, our inaction would certainly exacerbate the problem!
If we are in fact in a falling market, how long would it be before we start noticing and adjusting our asking price accordingly?
If we wait too long before we start adjusting our asking price, our home will continue to stagnate and grow increasingly stale on the market as an overpriced property! (Assuming that it wasn’t already overpriced to begin with) And the longer we wait, the bigger the price reduction (or market reposition) we may need to make to correlate with the falling market!
However, even if we do adjust the price, we should be aware of the following:
A price reduction can lend itself to negative buyer perception and diminishing buyer confidence from social proof affirmation.
In fact, a price reduction can contribute to the stigma cycle.
Given that our home is most likely to have been on the market for quite some time at this point due to waiting for the ‘right’ moment/buyer/offer/price, the price reduction is likely to be the first in a line of successive price reductions that may be necessary to correlate with the already declining buyer activity and diminishing buyer confidence for our home!
FALLING MARKET
Avoiding a plethora of problems
Hopefully, we can now see that if we choose to wait for the market to catch up to our asking price, we stand to face a plethora of problems that can be difficult to overcome or escape from, not to mention burdensome. Not only does waiting for a rising market carry its own set of problems, but we also leave ourselves susceptible to a falling market!
Fortunately, we can stand to avoid such problems if we choose to price our home correctly from the outset, where we’d only need to concern ourselves with the current market and the immediate upcoming months, where the market conditions are more foreseeable and therefore easier to deal with.
As stated in a previous section, although we cannot control the market, we can certainly control the marketing!
Getting in touch with me
If you would like to discuss any of the above points with me further, or if you need help or have any questions in general, click here to get in touch with me.
Throughout this section, I’ve touched on social proof affirmation, as diminishing buyer confidence can have an adverse impact on the time value of our home on the market, severely hindering our ability to achieve the best price or the market price!
Although social proof affirmation plays an important role in the success or failure of one’s ability to sell their home (and for the best price), it is an often overlooked aspect that should be brought to attention and understood.
And so, I invite you to join me in the next section, where I go over social proof affirmation in more detail.