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