2015 SELLER CONSIDERATIONS
Using a Seller Pro-Forma
Since many sellers still continue to use the “Wait and See” strategy, it’s important for every agent to prepare a Pro-Forma in order to address the impact that waiting to sell could have on their finances. Nothing else that an agent does matters until the home is priced properly, because from an agent’s perspective, aggressively marketing a home that is overpriced can be a waste of time, money, and effort. The most effective strategy for seller price reduction is a seller pro-forma, with four key points. The four points are carrying costs, opportunity costs, potential depreciation, and a reasonable sales timeline. Listed below is a guideline that you can use:
1. Carrying Costs – Calculated over 1, 3, and 5 years including but not limited to:
– Principal & Interest
– Taxes & Insurance
– POA, HOA or Condo fees
– Repairs and Maintenance
2. Opportunity Costs – Equity in the home that could be invested if the property were sold, calculated over 1 year, 3 years, and 5 years.
3. Potential Depreciation – The average drop in value over the past 3 years, projected out over the next 1, 2, and 3 years.
4. Sales Timeline – The amount of time it could take before the sellers will realize their price. This number can be calculated by determining the current month’s supply of inventory for similar homes in their area and price point. Consider the example below:
- 600 homes in the same area and price point sold so far this year (homes sold).
- 1200 homes in the same area and price point are currently for sale (active listings).
- Divide 600 (homes sold) by 6 (months that have passed) =100 (average number of homes selling per month)
- Divide 1200 (active listings) by 100 (average number of homes selling each month) = A 12-month supply of homes for sale
A 6-month supply of homes for sales is considered a healthy market, so in the example above, waiting any longer to sell could cost the seller even more than they had in mind.