The Time Value Of Our Home
Introduction
In a tough and competitive property market, the amount of time a property sits on the market matters a great deal to its value, and the seller’s chances of achieving the best price! The time value of our home on the market is perhaps the single most important aspect of selling the home, yet is often an aspect that is underestimated and underappreciated. Here I take a deep dive into this important aspect, as I believe that any homeowner/seller listing their home on the market should be fully informed. As we will find out in this discussion, time is an ally of the buyer and an enemy of the seller!
The general pitfalls of overly ambitious pricing or overpricing
In previous sections, I’ve discussed that we can reasonably determine the value of a property by considering clear and attainable evidence. For example, we can reasonably determine a property’s value to be at around, say £1,000,000 if the comparables realistically support that value.
However, 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 property closer to their own expectations, which in many cases, means pricing it above the market value; in other words, overpricing it.
Those sellers opting for such an approach may be wondering, ‘why don’t we just try pricing our home above the market value to begin with; because we may be able to find buyers who are prepared to meet our asking price; or this will give us a buffer if buyers try to negotiate us down on the price, and we can anticipate accepting a lower offer; plus, we can always reduce the price later down the line if we receive no interest or offers?’
While it may be tempting to test the market with an overly ambitious price, I must bring to attention the following points below before diving into the main discussion concerning the time value of our home:
Overly ambitious pricing; including baking in a buffer to allow room for a lower offer or a price reduction, is still a form of overpricing, which is almost always counterproductive to its intended purpose. Overpricing our home leads to missing our likely buyer pool (i.e. our most likely and promising buyers).
Overpricing will likely land our home in the next price bracket above (where it doesn’t belong), where buyers will unfavourably compare it to better value properties belonging in that bracket that are more realistically priced for their value. In other words, our home will likely land in the wrong price bracket where it will be competing with higher and better value properties, making it less saleable or even unsaleable in that bracket!
The type of buyers whom we believe have the means to meet our overly ambitious asking price tend to belong to the next price bracket above, and tend to be the wrong type of buyers for our home!
Overpricing our home only to reduce later down the line diminishes buyer confidence due to social proof affirmation.
Buyers will most likely try to negotiate us down on the price if they believe that we’re in a weak bargaining position. However, if we’re in a strong bargaining position, then buyers are much less likely to try to negotiate us down. In fact, if our home is priced correctly, buyers will be more inclined to meet our price even if we refuse to negotiate down. Buyers are able to understand and recognise the true value of a property, thanks to the wealth of property resources and data that are readily and freely available. No serious buyer will decline to meet a fair and reasonable price simply because we refuse to negotiate down. In fact, when spurred by strong enough competition and demand, buyers are prepared to contest eachother, pushing up the price to meet or exceed a property’s market value, as it’s natural to perceive something as being more valuable the more people that want it!
Not every buyer is prepared to negotiate or make an offer in the first instance, and can be immediately turned off by the overly ambitious asking price. In fact, buyers may be dissuaded from making enquiries in the first place, simply writing off the property as overpriced - opting instead to move on and turn their attention elsewhere to similar properties that are more realistically priced. On the other hand, if we price our home correctly, allowing buyers easier access to engage with our asking price and our home, and to progress further in our sales progression, only then they may be more invested and prepared to negotiate or make an offer.
The temptation to overprice may stem from seller sentiment and bias, which can not only greatly hinder one’s chances of being able to sell for the best price, but also one’s chances of being able to sell at all!
Based on these points, I would never advise that it’s a good idea to price our home above the market value. Rather, I would advise that it’s far better to price our home correctly from the outset, as this is the more effective and prudent strategy to not only maximise our chances of securing a sale, but also for the best price, especially from a time value standpoint!
Time value - the relationship between price and timing
An extremely important and major element to consider when deciding how to price our home on the market from the outset: correct pricing versus overly ambitious pricing, is the relationship between price and timing, in that price can affect timing, and timing can affect price. This is referred to as the time value of a property on the market.
Time is an ally of the buyer and an enemy of the seller
Plenty of sellers are guilty of underestimating and underappreciating how time on the market can increasingly diminish the price/value of their property if left unchecked. Those sellers are under the belief that time is on their side, in that as long as their property is kept on the market for all to see, it’s only a matter of time before the right buyer comes along. But in fact, time is an ally of the buyer and an enemy of the seller!
How does the time value of our home play out once it comes onto the market?
To understand how this plays out, let’s explore this with the help of the image below.
THE TIME VALUE OF OUR HOME ON THE MARKET
When our home comes onto the market, buyer activity typically spikes (towards the market value of the property) and is at its peak during the early stage of our home’s marketing. Buyer activity typically spikes because this is when both existing buyers (who are already on the market for their next home) and the constant flow of new buyers entering the market see a property that’s new and fresh on the market for the first time.
Some of these buyers may see it from their active searches, whilst others may be alerted by the portal (as portals send out alerts to registered buyers whenever a new property on the market fits their search criteria). Also, many buyers, as well as the portals themselves, sort the search results by ‘Newest Listed’, making the newest and freshest properties the most visible at the top of the results.
Buyer activity tends to stay at this peak for the first few weeks of a property’s marketing, which I personally call the hot period, before cooling off afterwards.
Our job is to harness this spike and peak of buyer activity, as the hot period presents to us our greatest window of opportunity to attract the most buyer interest!
We can harness this by choosing to position our asking price from the outset in such a way to captivate buyers, in other words, presenting a price that is sufficiently compelling to encourage strong buyer engagement, exciting buyers and stimulating their interest to want to come through our door for a viewing!
Doing so will enable us to attract a strong crowd of buyers through our door, in turn creating the strong level of interest, competition and demand we’d need to achieve the best price (i.e. the market value or above).
At this early stage of our marketing, our home is at its freshest, which buyers generally tend to favour and prioritise the most; and so the pool of interested buyers for our home will be at its strongest!
You may be wondering what is considered to be the correct asking price to harness the spike and peak of buyer activity, to captivate buyers and encourage strong buyer engagement.
I have covered the approaches to correct pricing in more detail from the perspectives of saleable pricing, accessible pricing, buyer enquiry pricing, and band pricing, elsewhere in this guide - click the links to jump to those sections.
After the hot period is over and begins to cool down, buyer activity starts to taper off and fall steadily below the market value. From this point, if our home wasn’t sold and remains on the market, then we’re now mostly relying on the constant flow of new buyers entering the market, as a significant portion of buyers during hot period who have already seen our home and rejected it are not likely to come back and give it a second chance, having already moved on and turned their attention elsewhere to (and prioritise) newer and fresher properties on the market (i.e. new competition).
Although our home can still be seen for the first time by a constant flow of fresh eyes, even new buyers entering the market generally tend to largely favour and prioritise fresher and more recent properties on the market. So the longer our home remains on the market, the less favourably it’s looked at by both existing buyers and new buyers entering the market (see diminishing buyer confidence from social proof affirmation).
Also, buyers, as well as the portals themselves, sorting the search results by ‘Newest Listed’ means that our home will become less visible in the results over time, as each newer and fresher property coming onto the market will push it further down on the list. And so, the longer our home remains on the market, the more opportunities there are for newer and fresher properties coming onto the market to push our home further down on the list, diminishing its visibility in the search results, in turn causing it to remain on the market even longer! (See the stigma cycle below)
The real price (to the seller) of overly ambitious pricing
If we choose to come onto the market with an overly ambitious asking price from the outset, hoping to attract the type of buyers who are prepared to meet our price - not only are we relying on a small pool of buyers (if any); but more importantly, we will miss out on the buyer activity spike and its peak, since our asking price will be too far above the peak, pricing out a significant portion of our likely buyer pool, i.e. our most likely and promising buyers, that could have been converted into offers down the line!
In other words, the consequence of our overly ambitious price will be that we miss out on the crucial hot period (where interest for our home will be at its strongest) and therefore, miss out on our greatest window of opportunity to attract the most buyer interest and engagement, and more importantly, our best shot at achieving the best price!
We will miss out on our most likely and promising buyers, either because they will come across our home and consider it to be beyond their price range and/or not offering the best value in its price bracket (i.e. less saleable or even not saleable) and therefore ignore it; or our home will not visible to them at all in their search results because it falls outside of their search/price criteria.
Thanks to the wealth of property resources and data that are readily and freely available, buyers are informed and savvy to the market and can easily compare and recognise which properties are appropriately priced and which are overpriced.
Why can’t we just reduce the price later down the line if we receive no interest or offers?
Once the hot period cools down and buyer activity begins to taper off, it's mostly too late at that point to reduce the price hoping to still achieve the market value (or close to it).
In fact, as soon as buyer activity tapers off, it will steadily fall below the market value and continue to decline the longer our home remains on the market!
Our only response would be to reduce our asking price to correlate with the declining buyer activity, essentially chasing the price down to meet the lower buyer activity! Even if our overly ambitious pricing had a built-in anticipation of effecting a price reduction or taking a lower offer later down the line, we are most likely to end up taking an offer that’s far less desirable than anticipated to necessitate a sale (assuming we receive an offer at all!).
A price reduction can contribute to diminishing buyer confidence, which I discuss further below.
What happens if our home continues to remain on the market?
The market moves on fast and so if our home continues to remain on the market, it can become a stagnant and stale property!
As mentioned earlier, both existing buyers and new buyers entering the market generally tend to largely favour and prioritise newer and fresher properties over older ones, so stagnant and stale properties especially diminish buyer confidence due to social proof affirmation!
The longer a property is stagnant on the market, the more likely and often it is to get rejected by buyers over newer and fresher properties, again due to social proof affirmation. And the more it gets rejected, the longer it remains stagnant, eventually becoming stale on the market!
This creates the problem of what I personally call the stigma cycle (or the stigma trap).
THE STIGMA CYCLE
Even a price reduction itself can play a role in the stigma cycle, as this can also contribute to diminishing buyer confidence, again from social proof affirmation!
In fact, a price reduction compounded by continued stagnation on the market, as well as continued buyer rejections, can lead to successive price reductions, further stagnation and further rejections!
THE STIGMA CYCLE INCLUDING PRICE REDUCTION
I discuss more on the stigma cycle elsewhere in this guide - click here to jump to that section.
The problem is compounded further by the constant flow of new competition - so not only does our home have to compete with properties that are already on the market, it also has to compete with the constant flow of newer and fresher properties entering the market! Each and every new and fresh (comparable) property entering the market is a new alternative option for buyers to consider. Remember, both existing buyers and new buyers entering the market generally tend to largely favour and prioritise newer and fresher properties over older ones! The longer our home remains on the market and the heavier the competition it has to contend with, the less desirable it is in the eyes of the buyers!
Even if our home does tick the boxes for the buyers who come across it; diminishing buyer confidence from social proof affirmation, especially the stigma cycle, can come into play and work against our home when viewed alongside new competition that equally ticks those boxes!
All of these problems I’ve described can severely influence our asking price to fall even further, even below the buyer activity, to necessitate a sale!
One should also be aware that a price reduction compounded by continued stagnation on the market, as well as continued buyer rejections, only serves to strengthen the buyers’ bargaining position - opening up the opportunity for buyers to be able to make weak or less competitive offers, or to negotiate the price down, to even below the reduced asking price, assuming the buyers are prepared to make an offer at all - hence why time is an ally of the buyer and an enemy of the seller!
It’s quite possible that a price reduction sends a signal to the buyers that the seller is very likely motivated to sell and could possibly accept a lower figure than the reduced price. And so, overly ambitious pricing with a built-in anticipation of effecting a price reduction or taking a lower offer, will only serve to hand the buyers a ‘free card’ to negotiate the seller down to a lower figure than the reduced price with a decent chance of succeeding!
Hopefully, we can now fully understand that a property becoming stagnant and stale on the market and/or selling for a lower than desirable price is almost always an inevitable consequence of overly ambitious pricing - placing one’s property in a problematic position on the market, plagued with unnecessary challenges that’s best avoided altogether!
What do other property professionals say about correct pricing versus overly ambitious pricing?
In an article published on Property Industry Eye, Colby Short, co-founder and CEO of GetAgent.co.uk, commented:
‘It has always been clear from data that pricing a property inappropriately makes a successful sale far, far less likely. For a buyer, seeing a price come down makes the property seem less appealing and often leads to a lower selling price than if the property had been priced appropriately from the start’
Click here to read the full article.
And in an article published on This is Money, Charlie Lamdin, founder of BestAgent, commented:
'Only when competing buyers are bidding on a property will you find its true maximum market value, as they are fighting over each other to win their dream home’
'You never get a bidding frenzy when testing the market. Potential buyers are put off by the perception of it being too expensive’
In the same article, Carl Howard, group chief executive of Andrews estate agents, also commented:
'My advice to sellers is always to list at an attractive asking price. When your property offers value for money, every buyer looking in that area in that price range will want to view it’
'This creates multiple viewings, leading to multiple offers. Fear of missing out can then lead to offers quickly coming in over the asking price’
'It is rare that the modern buyer will only view one house, and with access to a huge amount of house price data they will soon decide if a property has been listed above the current market rate’
'Properties listed for an over-ambitious asking price can sometimes end up selling for less than they would if they were listed correctly in the first place, due to becoming stale in the market after weeks of marketing'
'The danger of setting too high an asking price for your home is that it will stagnate on the market, appearing increasingly stale as buyers wait for the inevitable price reduction’
'As our research shows, pitching too high is a false economy that can leave sellers in limbo and may even lead them to miss out on their next property’
Click here to read the full article.
Sell for the best price earlier or sell for a lower price later
The traps and pitfalls of overly ambitious pricing and/or underestimating or underappreciating the time value of one’s home on the market is unfortunately rather common and apparent for all to see. Simply visit Rightmove or Zoopla (or any other property portal) and you will be able to observe plenty of properties that have become stagnant and grown stale on the market, with many having had a price reduction or successive price reductions!
For your reference, I've put together a PDF document of a standard property search on Rightmove showing the search results, by way of an example. The search results include the price history for each listing where available. From the document, you will notice examples of properties that have become stagnant and grown stale on the market, with many having had a price reduction or successive price reductions! Many of those properties remain on the market as a result of overly ambitious pricing or overpricing. Click here to open the PDF document.
Those examples clearly demonstrate the need to appreciate the time value of one's home on the market!
If we are able to appreciate the time value of our home on the market, then we will be at least one step ahead of the competition in recognising why it’s so important to price our home correctly from the outset! We stand a far better chance of achieving the best price if we choose to harness the buyer activity spike and its peak and take full advantage of the window of opportunity presented to us during the hot period. This also means that we stand a far better chance of achieving the best price sooner during the early stage of our home’s marketing!
Otherwise, if we choose to overly ambitiously price our home from the outset and wait for the ‘right’ buyer and offer to eventually appear, then we will be playing a longer waiting game, allowing ourselves to be presented with unnecessary problems and challenges that we’re better off avoiding altogether! Even then, the ‘right’ buyer isn’t likely to appear, leaving our home becoming stagnant and stale on the market, with little choice but to accept a lower than desirable offer, to necessitate a sale, assuming we receive an offer at all! As Carl Howard of Andrews estate agents commented above, such pricing strategy is a false economy!
Remember, competition between buyers drives up the price, whereas time on the market drives it down!
Ultimately, our decision to price correctly from the outset versus to price overly ambitiously from the outset comes down to whether we want to sell for the best price during the early stage, or wait and end up selling for a lower price later down the line!
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.
Notwithstanding the points I’ve covered in this section, it may be tempting for some sellers to still want to opt for an overly ambitious asking price and choose to stick with that price without wishing to reduce it at any time, believing that the ‘right’ buyer and offer will eventually appear. Those sellers are essentially waiting for the market to catch up to their asking price.
And so, I invite you to join me in the next section, where I discuss in more detail, the cost of waiting for the market.