How to Sell Your Home Fast for the Highest Price: Timeless Methods That Work Even in a Slow Market
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About this ebook
The wisdom shared is rooted in the real-life experience of the world's top real estate professionals. Learn the main reasons why people buy anything, how to identify successful agents, and reasons why you can do it yourself.
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How to Sell Your Home Fast for the Highest Price - Philippos Nikiforou
CHAPTER 1:
THE SIMPLE RULE THAT HELPS YOU FORETELL THE FUTURE
In 1961, MIT meteorology professor Edward Lorenz outlined a fascinating concept that he called the butterfly effect. This is the idea that small changes can cause major shifts in everything from weather systems to the global economy.
Lorenz’s famous idea suggested that even the flapping of a single butterfly’s wings on one side of the globe could eventually cause a tornado on the other side of the world. Due to the globalisation of the economy and instantaneous interactions among world markets, the butterfly effect also applies to changes in the behaviour of real estate investors, buyers, and sellers. In the modern world, there is a growing sense of confusion among market players as to which factors affect the movement of real estate markets. Little things like the misbehaviour of a company’s executive in one country can affect the real estate market of a foreign country on the other side of the earth.
The most recent example of the butterfly effect is COVID-19. The original source of viral transmission to humans remains unclear. How did it all start? Nobody knows. But there is one thing that is sure: it began with a single person who had been infected by the virus. Something that initially seemed insignificant was destined to bring the world to its knees in just a few weeks. Governments all over the world were paralyzed, people were unemployed, and whole industries like tourism, hotels, and airlines collapsed. A huge number of other businesses closed forever.
The effects of the pandemic were so wide that the United Nation’s Framework for the Immediate Socio-Economic Response to the COVID-19 Crisis warned: ‘The COVID-19 pandemic is far more than a health crisis: it is affecting societies and economies at their core. While the impact of the pandemic will vary from country to country, it will most likely increase poverty and inequalities at a global scale’.
Let me give you one more example to illustrate how changes in one part of the world have huge impacts in faraway and seemingly unrelated markets. In the first half of 2008, the real estate market was booming, and none of the computerised models of any international financial institutions predicted the upcoming catastrophe. Then the United States’ subprime mortgage crisis in 2007–08 led to a domino effect of negative consequences throughout the global economy.
In their book The (Mis)Behaviour of Markets, Benoit Mandelbrot and Richard Hudson expand upon the topic of financial chaos. They estimate that in a few hours in August 2008 more than $1.6 trillion was wiped off the value of American industry—and $5 trillion worldwide.
In this case, the economic models proved to be dismally inadequate. No economic model predicted the upcoming catastrophe. Analysts try to include in their models as many variables as possible to predict market behaviour, but it is almost impossible to include every single event that could cause a major market shift.
When bank giant Lehman Brothers collapsed in September 2008, it triggered a global financial crash that led to a devastating recession that spread all over the world. With $639 billion in assets and $619 billion in debt, Lehman’s bankruptcy filing was the largest in history. Television, Internet, and social media outlets were full of news stories saying that the end was nigh. World leaders, economists, and academics were having to work together to stop the inevitable global financial collapse. The downhill trajectory of the real estate market continued. On October 7, 2011, the Daily Telegraph headline described the global financial crisis thus: ‘The world is facing the worst financial crisis since at least the 1930s if not ever,
the governor of the Bank of England said’.
The major news websites continued to publish regular headlines like ‘Risk of bank collapse’, ‘Worst recession since 1930’, ‘Reductions on government employees’ salaries’, ‘Banks will recover but who knows when?’ ‘Record layoffs’, ‘Almost every loan is a non-performing loan’, and ‘Record number of unsold homes on the market’.
A quick home sale at the best price under those economic conditions was considered almost impossible. As a real estate agent, I found my only option was to test what we had learned from our experience of selling thousands of properties over the years. We deeply researched the status of the local market. The situation was bad. There were thousands of unsold homes, and demand hit rock bottom. Many properties had been on the market for months or years.
It was during this difficult time when I started developing my toolbox for selling any property at the highest price, even in a slow market. The best things in life come out of unexpected events. Through the rest of this book, I will share with you what I did and how I kept selling homes despite those exceptionally harsh economic conditions. In fact, I used the exact same toolbox during and after the lockdown of the COVID-19 pandemic to continue selling properties.
The ancient philosopher Heraclitus of Ephesus (530-470 BCE) said that life is like a river. Heraclitus made the assertion that ‘Life is flux’. Everything is constantly shifting, changing. The nature, the economy, the law, relationships, and our body are constantly changing. You cannot avoid change and you cannot predict future disasters, but you can prepare for them.
The beauty of realizing that life is flux is that you are not surprised by unexpected changes because you naturally expect them. Nassim Nicholas Taleb, in his book The Black Swan: The Impact of the Highly Improbable, discusses our blindness with respect to randomness, particularly large deviations (Taleb 2007). Specifically, he says the unpredictable is increasingly probable.
You cannot avoid future changes or disasters, but you can do as Heraclitus would do: go with the flow. Enjoy the ride, as wild as it may be. And there is an even better strategy: the more things change, the more you need to depend upon the things that never change.
Reading this book, you will learn about the things that never change when selling your home. You will get timeless knowledge that you will use to sell your home under any circumstances.
CHAPTER 2:
THE TWO CATEGORIES OF HOME BUYERS
In the competitive real estate market, a home seller needs to acquire a deep understanding of economic demand for property. You need to know the answer to the question ‘Who is buying, and for what reason?’ When you know the answer to that, then it is considerably easier to understand how to market your property to achieve the best price without overexposing it or leaving it on the market for a long time. Overexposure has a significant negative effect on your selling price; we will analyse those consequences extensively in the following chapters, but first let’s try to find who your buyer is.
We will analyse the main categories of buyers and what motivates each of them. Generally, buyers fall into two main categories. The first category of buyers are people who buy a property to live in and use as their primary residence. The second category of buyers are the people who buy property for the purpose of getting rental income or reselling it for profit. We call the first category of people ‘retail buyers’ and the second category ‘investors’. Different types of features and property characteristics appeal to each category of buyers.
Retail buyers are people who buy a property to live in themselves. Retail buyers make up the majority of buyers, because every person on earth needs a house to live in. Even property investors need a home to live in, despite owning multiple other properties. The most common way to measure the demand for retail buyers is by using the population and the average household size in the area in which your home is located.
When population increases, the demand for homes increases because the number of households increases. Also, when households get smaller, the demand for homes increases. For example, when more young people decide to live alone instead of living with their parents, then the demand for homes increases even if the population remains the same.
High demand by retail buyers has a positive impact on the demand by investors, but the opposite is not true; high demand by investors does not have any positive impact on the demand by retail buyers. Changes in demand for real estate by households is the main factor on which real estate investors base their purchase decisions.
You must understand that the retail buyers’ market affects the investors’ market, but not the other way around. If investors dominate the demand for housing, then the market will eventually collapse, and prices will fall because there will be no real demand from retail buyers—the actual property users. When too many people are buying investment properties without sufficient actual demand from retail buyers for those properties, it is an early sign of a real estate bubble.
Retail Buyers
Although there are different types of retail buyers—for instance, first time buyers, working couples, young families, and retired people—they all buy for the same reason, which is to use the home as their primary residence. Each category of retail buyer is looking for property and location characteristics according to their individual needs, whether it be proximity to a job, distance to school, proximity to public transport, or any other property characteristic they require.
There is always a temptation to price your home high to test the market, but if your price can’t be justified by your property characteristics and location, you may end up with a house sale nightmare. When pricing your home, you always need to do some second-order thinking and examine what happens next. You should ask yourself: What will follow if I get an offer from a buyer?
Although property features are important to retail buyers, their initial decision is based on the home price and level of affordability. Most retail buyers require financing, which means a bank will be involved. The bank must estimate the market value of your home before granting a loan to your buyer. When a bank is involved, a property valuer is involved in the sale of your home. The role of the property valuer is to assess if your selling price is right and to provide their opinion about your home’s actual market value.
Once your property valuation report goes to the bank, the genie won’t be going back into the bottle. If the home valuation report isn’t at least close to your asking price, then you are out of luck. At this point, your potential buyer will usually withdraw their interest in buying your home and will work with their agent to find another house which is affordable and on which he or she can obtain a mortgage.
Investors
The second category of buyers is investors. Usually, they fall into two groups, depending on the duration of their investment: short-term investors and long-term investors.
Short-term investors are also known as flippers. They constantly search for properties that are below market value in a specific area. Usually, they buy properties that need renovation. They restore and resell those properties within three to six months for 10 to 15 percent overall profit.
Short-term property investors rely on buying and selling properties instead of holding them for their income. You should target a short-term investor only if you have an urgent need to sell and time is more important than money. Flippers hunt for buyers who are in the unfortunate situation of having to sell their property below market value and are thus ready to lose money to achieve a superfast sale.
The second group of investors are long-term investors, who are the most sophisticated group of buyers. Their target is to buy and hold a property for a long time. Their purpose in buying any property is to generate income from rent during the holding period and then eventually resell it for profit. Long-term real estate investors use financial planning and investment analysis to estimate their future income and capital returns.
Long-term real estate investors can be individual or institutional. Anyone, including you or me, could become an individual real estate investor. Institutional real estate investors are large firms with specialised departments that invest millions or billions in real estate. Both individual and institutional investors base their real estate buying decisions on two components: risk and return. Their goal is simple: maximise return and minimise risk.
Long-term real estate investors aren’t going to bother checking your fancy lighting or home automation system. They will focus on the income return of your property and its potential for future capital appreciation. Long-term investors start from their estimate of how much rental income your property can achieve, and then they estimate your property value based on their required return.
For example, let’s assume that in your area the yield for rental prices is 5 percent and you own a house that generates €25,000 per year in rental income. You find an investor who has studied the market and requires at least 5 percent income return. The investor will be willing to purchase your home for a maximum of €500,000. If you price your home higher than €500,000, then you won’t attract any investors.
If you are targeting a real estate investor, your home selling price and rental income must meet the investor’s expected return, within their risk tolerance level. Specifically, the income and capital return of your property must be similar to or even better than other properties in your area. Otherwise, the investor has no reason to consider buying your property. They aren’t going to be ones living in your property. An investor will buy any property on the basis of the expected income and capital return.
The bottom line is that you should place yourself in the buyer’s shoes instead of pricing your home with your head in the sand, feeling exhilarated by a high asking price. Both retail buyers and investors are price sensitive, albeit for slightly different reasons. Understanding your buyer will drastically change the way you handle the sale of your home. Fortunately, seeing things from the buyer’s point of view can help you avoid the tears, stress, and drama of trying to sell at a price nobody wants to buy.
CHAPTER 3:
TWO ESSENTIAL QUESTIONS TO ASK YOURSELF BEFORE SELLING YOUR HOME
Who is your buyer?
The first thing to do when selling your home is to define who your buyer is likely to be. You should be specific about who your target group is. Are you selling to families, singles, retired people, locals, foreigners, investors, or some other group?
We all agree that you can only sell to people who want to buy. You can’t create a market if it doesn’t exist. This book is about how to use the existing demand in the market and channel it to your property. You can take the hopes, desires, fears, and dreams that already exist in the hearts of prospective buyers into focus and apply those desires and fears to your own property.
The first thing to do is to make sure that the people you are talking to are potential buyers. You can’t sell to people who don’t want to or can’t afford to buy. If you try to sell to the wrong person, you are wasting your time and money, and heading to a big failure.
Before you expend any time or effort on someone, you should make sure they really are a potential buyer and can afford to buy your home. Otherwise, move on as quickly as possible. If there is no demand for your home because it is in poor condition or in an area where nobody wants to live, then there isn’t much you can do. However, if your home is in an area where other people succeed in selling and you can’t sell, then you should identify the reasons why.
To become a successful seller, you should spend time with people who want to buy property in your area and are looking for a property similar to yours. Do not try to convince a buyer to buy what you have if that person isn’t looking for the type and price range of your home. You can’t persuade a buyer with a budget of €100,000 to buy your villa for €500,000. I know it sounds like common sense, but you can’t imagine how many property sellers waste their time with buyers who can’t