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 own 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 an aspect that is often overlooked, underappreciated and underestimated. 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 our home by considering clear and attainable evidence. For example, we can reasonably determine the value of our home to be at around, say £1,000,000 if the comparables realistically support that value.
However, inevitably there are occasions when some 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, over ambitiously pricing or overpricing their property!
Those sellers opting for such an approach may justify to themselves, ‘why don’t we just try pricing our home at £X (£X being 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 and certainly understandable from the seller’s perspective to want to sell the property for the highest price possible, 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 can put off, deter or discourage buyers and lead to our home missing our likely buyer pool (i.e. the most likely and promising buyers for our home).
Overpricing will likely land our home in the next price bracket above (where it doesn’t belong), where buyers who are looking in that higher price bracket will unfavourably compare it to higher-value properties belonging in the bracket, especially to those properties that are more realistically priced for their value. In other words, our home will likely land in the wrong price bracket where it doesn’t belong and will be competing with higher and better value properties, making our home 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 would generally have higher expectations (proportionate to the price) and tend to be looking in the next price bracket above (or at least be looking at truly higher-value properties in the same price bracket as our home), and are therefore generally the wrong type of buyers for our home!
Overpricing our home with the anticipation 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 are in a weak bargaining position. However, if we are 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 the 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 against one another, pushing up the price to meet or exceed a property’s market value, as it’s only natural to perceive something as being more valuable the more people that want it!
We cannot simply assume that with every buyer who doesn’t feel that the price is right, there will always be an opportunity to negotiate or for them to make a lower offer. 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. Simply put - for some buyers, our home only has one chance to make a great first impression!
The temptation to over ambitiously price 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 over ambitiously price or overprice our home. 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!
If we are wanting to truly and successfully achieve the best price possible, there is indeed a better way!
Time value - the relationship between price and timing
An extremely important and major element to consider is the pricing approach we want to take when putting our home on the market. Do we want to price our home correctly from the outset, or over ambitiously price it from the outset?
The simple answer is, I would always advise that we price our home correctly from the outset the moment we put it on the market.
Why is this?
There is an inherent relationship between price and timing, as far as a property on the market is concerned; 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 VALUE - THE RELATIONSHIP BETWEEN PRICE AND TIMING
As mentioned above, our home only has one chance to make a great first impression, and getting the price right the first time does indeed matter!
Time is an ally of the buyer and an enemy of the seller
Plenty of sellers underappreciate and underestimate 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, then it’s only a matter of time before the ‘right’ moment/buyer/offer/price 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 the scenario 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.
The driving factors behind the buyer activity spike
Buyer activity typically spikes during the early stage because this is the period when both existing buyers (who are already on the market in search for their next home) and the constant flow of new buyers (who are entering the market and starting to search for their next home) see a property that’s new and fresh on the market for the first time.
Some of those buyers may see our newly listed home from their active searches, whilst others may be alerted by the property portal our home is listed on (as portals will send out property alerts to registered buyers whenever a new property on the market fits their search criteria).
Also, some of those buyers may prefer to prioritise and view the most recent properties on the market and will sort their search results by ‘most recent’ or ‘newest listed’, pushing our newly listed home to the top or near the top of their results! Moreover, some portals, such as Zoopla, will sort the search results by ‘most recent’ as the default sort order - meaning that all of the buyers who are actively searching on the portal will see, as the default, the most recent properties first. The newest and freshest properties on the market, which at this stage includes our newly listed home, are therefore generally the most visible to the buyers!
Below we can see the search results on Zoopla sorted by ‘most recent’ as the default sort order. The newest and freshest properties will be at the top of the results as a default and therefore will be the most visible to the buyers who are searching on the portal.
SEARCH RESULTS ON ZOOPLA SORTED BY ‘MOST RECENT’ AS THE DEFAULT SORT ORDER
The spike and peak of buyer activity is our greatest window of opportunity to attract the most buyer interest
Buyer activity generally tends to stay at its peak for the first few weeks of the property’s marketing, which I personally call the hot period, before cooling down 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 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 pursue our home, and end up coming through our door for a viewing! This is why we should be pricing our home correctly from the outset!
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 will 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 price to harness the spike and peak of buyer activity in order 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.
What happens after the hot period cools down?
After the hot period is over and begins to cool down, the buyer activity starts to taper off and fall steadily below the market value of our home, as our home is no longer new and fresh on the market. From this point, if our home wasn’t successfully sold and remains on the market, then we are now mostly relying on the constant flow of new buyers entering the market, as a significant portion of the 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 newer and fresher properties on the market (i.e. new competition)!
Although our home can still be seen for the first time by the 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 over older properties. So the longer our home remains on the market, the less favourably it’s looked at by both existing buyers and new buyers! (See diminishing buyer confidence from social proof affirmation).
New and fresh properties push our home further down in the search results
As mentioned earlier, some buyers may prefer to prioritise and view the most recent properties on the market and will sort their search results by ‘most recent’ or ‘newest listed’, pushing the newest and freshest properties to the top of their results. But more crucially, portals such as Zoopla will sort the search results by ‘most recent’ as the default sort order - meaning that all of the buyers who are actively searching on the portal will see, as the default, the most recent properties first.
Once our home is no longer new and fresh on the market, it will no longer be close to the top of the search results, at least not for the results sorted by ‘most recent’ or ‘newest listed’. In fact, with each new and fresh property coming onto the market/portal, it will push our home further down in the results, becoming less visible to the buyers over time! The longer our home remains on the market, the more opportunities there are for new and fresh properties coming onto the market/portal to push our home increasingly further down in the results and diminishing its visibility, causing it to remain on the market even longer! (See the stigma cycle below). The less visible our home becomes in the search results, the less exposure it has to the buyers - consequently, our home will lack the buyer engagement, as well as the interest, competition and demand we need to achieve the price that we want!
The images below show an example of a standard search result on Zoopla (the top and bottom of the page).
We can see that the search results are sorted by ‘most recent’ as the default sort order and that there are 259 properties in the results. Naturally, based on the sort order, the older properties are pushed down in the search results in favour of newer and fresher properties, causing those older properties becoming less visible to the buyers who are searching on the portal.
We can also see that the search results are spread across five pages. Over time, as newer and fresher properties continue to enter the market, those older properties that remain on the market are increasingly pushed further down in the search results, becoming increasingly further away from page one, diminishing their visibility. Some buyers, due to shortage of time and/or attention, are generally less likely to see properties that are further away from page one, sometimes not even clicking beyond page one! Consequently, those properties that are further away from page one are not visible to those buyers at all!
If our home remains on the market and is increasingly pushed further down in the search results by new and fresh properties to the extent where it appears further away from page one, it will become barely visible, or worse, not visible at all, to the buyers!
THE TOP OF THE PAGE OF THE SEARCH RESULTS ON ZOOPLA
THE BOTTOM OF THE PAGE OF THE SEARCH RESULTS ON ZOOPLA
The ’price’ we pay for overly ambitious pricing or overpricing
If we choose to put our home on the market with an overly ambitious price from the outset, hoping to attract the type of buyers who are prepared to meet the asking price - not only are we relying on a small pool of buyers (who are likely the wrong type of buyers if at all); but more importantly, we will miss out on the buyer activity spike and its peak, since the asking price will be too far above the peak, pricing out a significant portion of our likely buyer pool, i.e. the most likely and promising buyers for our home, 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 all-important hot period and therefore, miss out on our greatest window of opportunity to attract the most buyer interest and engagement (where such interest and engagement for our home will be at its strongest); 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 be 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.
In essence, the ‘price’ we pay for overly ambitious pricing or overpricing is that our home will receive less (or even no) buyer interest and engagement, particularly during the hot period, compared to if it was priced correctly from the outset, leaving our home much more likely to remain unsold when the hot period ends! Once our home is no longer new and fresh on the market, it will be much harder to sell, especially for the best price or even for the market price, as newer and fresher properties continue to enter the market.
This problem is of course not helped by the fact that, as discussed earlier, buyers generally tend to largely favour and prioritise fresher and more recent properties on the market over older properties, which at this stage now includes our home - with some of those buyers and even the portals themselves (as the default) sorting the search results by ‘most recent’ or ‘newest listed’, pushing those newer and fresher properties to the top of the results, while pushing our home further down in the results, diminishing its visibility!
Reducing the price later down the line if we receive no interest or offers
Once the hot period cools down and the buyer activity for our home begins to taper off, it's mostly too late at that point, if we had over ambitiously priced our home from the outset, to reduce the price hoping to still achieve the market price (or close to it). This is the stage where our home is no longer new and fresh on the market and no longer prioritised by the buyers in general!
In fact, as soon as the buyer activity tapers off, it will steadily fall below our home’s market value and continue to decline the longer our home remains on the market!
Our only response would be to reduce the price to correlate with the buyer activity, essentially chasing the price down to meet the declining buyer activity! Even if our overly ambitious price 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 considerably lower and 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?
Our home falls into the stigma cycle
The market moves on fast, and so if our home continues to remain on the market long after the hot period has ended, it can become a stagnant and/or stale property!
I’ve already discussed earlier that the longer a property remains on the market, the less visible it becomes to the buyers, as newer and fresher properties coming onto the market push the older properties further down in the search results. This is especially true for stagnant and stale properties, where they are most likely to be barely visible, or worse, not visible at all to the buyers!
However, what if the buyers do come across a stagnant and/or 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 the property gets rejected, the longer it remains stagnant, eventually becoming stale on the market!
This creates the problem of what I personally refer to as the stigma cycle (or the stigma trap).
THE STIGMA CYCLE
Even a price reduction can play an undesired role in the stigma cycle, as this can also contribute to diminishing buyer confidence, again from social proof affirmation!
In fact, continued buyer rejections compounded by continued stagnation on the market, as well as compounded by a price reduction, can lead to further rejections, further stagnation, and further price reductions, i.e. successive price reductions!
THE STIGMA CYCLE INCLUDING PRICE REDUCTION
I discuss more on the stigma cycle elsewhere in this guide - click here to jump to that section.
Our home will be competing against heavier competition
The problem is compounded further by the constant flow of new competition. 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, which our home has to compete with and overcome! Remember, both existing buyers and new buyers entering the market generally tend to largely favour and prioritise newer and fresher properties over older properties! The longer our home remains on the market and the heavier the competition it has to contend with, the less desirable it becomes 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!
We are strengthening or empowering the buyers’ bargaining position
One should also be aware that continued buyer rejections compounded by continued stagnation on the market, as well as compounded by a price reduction (especially successive price reductions), only serves to strengthen or empower 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 highly motivated to sell and could therefore possibly accept a lower figure than the reduced price. And so, an overly ambitious price with a built-in anticipation of effecting a price reduction or taking a lower offer, will only serve to hand the buyers a ‘licence’ to negotiate the seller down to a lower figure than the reduced price with a decent chance of succeeding!
Hopefully, we can now 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 or overpricing - 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.
Not underappreciating or underestimating the time value of our home
The traps and pitfalls of overly ambitious pricing or overpricing and/or underappreciating or underestimating the time value of one’s home on the market is unfortunately rather commonplace and apparent. 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 even 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 even 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 importance of not underappreciating or underestimating 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 most 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 all-important 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’ moment/buyer/offer/price to eventually appear, then we will be playing a long waiting game, allowing ourselves to be presented with unnecessary problems and challenges while we wait that we are better off avoiding altogether! Even then, the ‘right’ moment/buyer/offer/price isn’t likely to appear; leaving our home becoming stagnant and stale on the market, and ourselves with little choice but to accept a (perhaps considerably) 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!
Competition between buyers drives up the price, time on the market drives it down
What it all comes down to is that: a correct price stimulates competition for our home (as it is an accessible price), whereas an overly ambitious price keeps our home on the market!
Competition between buyers drives up the price, whereas time on the market drives it down!
Ultimately, in deciding the pricing approach we want to take when putting our home on the market - an important question we need to ask ourselves is: do we want to sell our home for the best price sooner (particularly during the early stage), or wait and end up selling it for a (perhaps considerably) 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 all of 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, firmly believing that the ‘right’ moment/buyer/offer/price will indeed 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.