Seller Closes – Apples-to-Apples
One of the most important pieces of information that a trusted advisor should consider is what the seller plans on doing once their home is sold. Most sellers find it necessary to replace their home with another one.
If a seller is purchasing a larger home, create a financial pro-forma to show the buyers that they are saving more money on the home they’re buying, than they’re losing on the home they’re selling. For example:
- The seller has to sell a $500,000 home at a 20% loss, they lose $100,000. But, they are able to buy a $1 million home for 20% less, and save $200,000. They end up saving $100,000 by buying the larger home now. Most sellers think they will get their price and then steal the home they’re buying. That is highly unlikely. If they discount their home because of market conditions, the same market conditions will allow them to get a better deal on the home they’re purchasing. If they wait to get their price they’re going to pay more.
If a seller is downsizing, create a financial pro-forma that shows them they’re losing less than they think. For example:
- The seller sells a $500,000 home for 20% less. They don’t want to lose $100,000, so you show them it’s not that much. When they buy the condo for $300,000, they’re getting it for 20% less, too, so they’re saving $60,000. The net effect is $100,000 loss, less the $60,000 savings, or a net difference of $40,000. This amount is much less than the $100,000 they had calculated.
If a seller isn’t buying another home, use the same financial pro-forma to show the loss is much less than they are calculating. For example:
- The seller sells a home with no mortgage for $500,000 at a 20% discount. He thinks he is losing $100,000. He takes the $400,000 and invests it at 10%. He earns $40,000 for each year he doesn’t own the home. Within 2-3 years the opportunity cost offsets the loss of $100,000. If the market doesn’t recover soon, he actually ends up ahead by selling.
This approach can also be very beneficial when negotiating an offer, as it shows what the real net benefit or loss is.