As a Trusted Advisor, every agent should prepare a written Seller Pro-forma that identifies the impact waiting to sell could have on their finances. It’s important to use the “What if…” and “Is it possible…” arguments to manage the seller’s risk. Every Pro-forma should include 4 key considerations:
1. Carrying Costs – Calculated over 1, 3, and 5 years including but not limited to:
A. Principal & Interest
B. Taxes & Insurance
C. POA, HOA or Condo fees
E. 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.
- 1200 homes in the same area and price point are currently for sale (active).
- Divide 600 (homes sold) by 6 (months that have passed this year) =100 (average number of homes selling per month)
- Divide 1200 (active listings) by 100 (average number of homes selling each month) = A 12 month’s supply of homes for sale
A 6-month supply of homes for sales is considered a healthy market. So in the example above, waiting even longer to sell could cost the seller much more than they had in mind.