This famous quote “50% of something is better than 100% of nothing” by the financial guru Suze Orman has numerous applications in real estate. Orman shares that she passes on this sage advice that came to her from her father.
Consider an example that applies to sellers. The client determines that their ideal list price to be $500,000. If they do not receive an offer at that price and thus not sell the home, then they “lose” the entire $500,000. If the market price is actually $450,000 and the seller recognizes that dynamic, then they achieve their objective of selling. In fact, they achieve in effect 90% of their goal. This is significantly more than if they did not accept a market price and continued to sit on the asset. That is what is meant by “100% of nothing.”
The same applies to the purchaser as well. What if the purchaser could buy the home for $500,000 but decides only to pay $450,000, or 10% less. Then the purchaser loses out on the entire home, not just the 10% that he refused to pay. This is one of the strongest reasons for using an escalation clause in the case of multiple offers. It provides for a maximum amount that the purchaser would be willing to pay before she would not be upset about letting it go to someone else.
A home or actually any commodity is only worth what a buyer is willing to pay and a seller is willing to accept at any point in time. If in fact a buyer would not pay an amount, then the seller really never had anything. If the seller won’t accept a price, then the buyer loses out on the entire property.
Another scenario applies to rental property. In this case the landlord establishes the rent to be $2,250 per month, or $27,000 per year. If the property does not rent in one month, then the landlord stands to lose $2,250 in cash flow. Every month that the property is vacant the owner experiences the loss in cash flow of another $2,250.
Consider if the landlord follows the Orman counsel and offers the property for rent at a bit under market at $2,150. In this case the property is more likely to rent quickly so there is no vacancy for the month. The landlord receives $100/month less in rent per month for that year for a total of $1,200. Remember though because the landlord did not lose that one month’s rent in vacancy, the landlord gained 100% of the $2,150. Bottom line the landlord is ahead by $950 for the year.
Orman also shares this wisdom, which is relevant in these examples: “Calculating the price you “could have had or could have paid” is a dream.” The most common mistake people make is being greedy. In any market, both sellers and buyers often have expectations that are unrealistic. In the case of a seller it is better to have 50%, 60%, 70%, 80% or 90% of something than 100% of nothing. And in the case of the buyer, it is better to have 100% of a home then nowhere to live!
Karen Briscoe and Lizzy Conroy and their team are active and experienced Realtors® in the Northern Virginia, Washington DC and Maryland market place. Should you or someone you know desire guidance from a professional Realtor®, please visit our website for more information at: www.HBCGroupKW.com. Please contact via the means most convenient for you: 703-734-0192, Homes@HBCGroupKW.com