Why You Must Know About Liquidity When Selling A Home
In most areas of the US today, homeowners are enjoying a seller's market.
Even with a highly active market however, sellers who do not understand liquidity are leaving money on the table.
What many home sellers fail to understand is that they should be getting top dollar right now for their homes. Most do not.
A lack of understanding of what they should do and what they should expect make for a continuous stream of sellers who aren't getting the full equity from their homes.
It really shouldn't be this way.
A simple understanding of liquidity in the real estate market can move a home seller from a position of unconscious ignorance to one of conscious competence.
Real Estate Liquidity Defined
Investopedia defines liquidity as the degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can by easily bought or sold, are known as liquid assets. Simply put ... the more times things get sold, the easier it is to sell them.
So how does this all factor into pricing a home to sell in today's real estate market?
Understanding How Liquidity Impacts The Value Of An Asset
In order to fully understand what liquidity is and how it impacts your ability to fetch top dollar for your home, consider this common scenario in the stock market.
Let's say you own 1 share of IBM, and you decide you want to sell it. How hard will it be to sell your share?
Assuming you do some simple research and discover that yesterday, more than 2.5 million shares of IBM changed hands, and shares sold at values from $154 to $156 per share. It's likely that millions of shares will also trade today (high liquidity), and your share is no worse (nor better) than any share that traded yesterday. Thus, if you price your share correctly, it should trade right away. This is very common for a high liquidity market.
- If you price it at $150, will it likely sell today?
- If you price it at $160, will it likely sell today?
Of course, the answers for the above questions are 1) Absolutely! and 2) Of course not! Why put yourself in the #2 position?
The key is understanding the current ask and bid and determining how fast you want to sell.
Why put a future price on something you want to sell today?
High liquidity markets, such as you would have for 1 share of IBM, are easy to evaluate and have a very tiny margin of error when it comes to forecasting current trade values.
So understanding this stock market scenario, how do we apply it to the real estate market?
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Determining Liquidity In Your Housing Market
In real estate, it takes more experience and analysis to determine liquidity.
Since most sellers and most agents have no understanding of liquidity, they use the wrong price and fail to attract the most/best buyers for the home. Just as in the stock scenario above, using tomorrow's price will not sell a home today!
We measure liquidity in real estate across price ranges, areas, neighborhoods, etc.
When you have a home to sell, much like in the stock market scenario above, you need to measure the liquidity in the market for homes like yours. Will a million of them sell today in your neighborhood? No! More than likely, maybe a handful will sell this month.
A home is going to trade in a far less-liquid market, so there will be a larger margin of error in pricing for the sweet spot.
Don't Make This Typical Home Seller Mistake
The one thing that ALL homes have in common is that they are unique ... no two homes are exactly alike.
Unfortunately, homeowners have a tendency to take this to an extreme, believing the uniqueness of a home makes it more valuable (remember, all homes are unique, right?). Instead, seller's should be looking at what makes their home similar to other homes that have sold as well as to other homes for which they will be competing for buyers.
Avoid the mistake of thinking you have the "one and only" home, as you'll net more money from a sale that draws more than the "one and only" buyer.
What Home Sellers Should Do To Maximize The Money They Receive For Their Homes
Failing to grasp the real liquidity for your home will likely cause you to either accept the wrong offer or ask the wrong price.
Do not put your home on the market until first determining its true market value and the liquidity in the market that leads to that valuation.
It's going to have to come down to trust. Find a real estate agent that is on top of the market and who spends the kind of money it takes to draw ALL the buyers to your home.
If you have your agent explain the liquidity in the market for your home, choose the correct asking price, the vigorously market the home across all channels, then you'll likely be in a position to enjoy the full equity from the home you are selling.
If you would like to sit down with a professional to talk through market conditions for your home, give us a call at (850) 366-8917 or drop us a note and we'll be in touch right away to schedule a time to talk.