Are short-term home sellers screwed?
tenence.com
tenence.com
There's some selection bias here. Those who got lucky (e.g. they bought the house cheaply) found it easy to sell for a good price quickly. Those who got unlucky and couldn't find a buyer quickly are excluded from the "90 days" window so don't contribute to the statistic.
It might be true that homes sold within 90 days of purchase sold for an average of 15% higher than the purchase price, but it doesn't mean you can expect to sell a home within 90 days of purchasing it for 15% more than you paid.
As a real estate investor, I specially target homes going unsold after long durations on the market due to unrealistic expectations.
Right. So it's selection bias. The people who can get a price 15% more than they paid manage to sell within 90 days, the people who can't dont.
People only tend to drop the price after it's been sat around for a while. By definition, such sales are not very likely to happen within the 90 day window and therefore do not contribute to this average.
The point is that you can't calculate a probability of making +15% within 90 days just by looking at how many of the houses sold within 90 days were sold for +15%. Or any +X%. Or any time period.
If you really want to calculate such a probability, you need to buy a bunch of houses at random, then try to sell them, and then see how much you made and how long it took. The data used in the post is not suitable.
It is likely that it also "only" includes those that managed to buy a house at under market rates, and sold at, or above, market rates within 90 days. Anyone who is buying to live in is likely paying as much or more as the "sale" price.
This is further stated in the market, since the annualised rate of return is 650%, but house prices are _not_ going up that quickly.
Which, in turn, means that distressed buyers are not necessarily going to see a 15% increase in the price of their house in 90 days, nor are they going to see a ~30% in 180 days, since their property may not be "undervalued".
Also you need to factor in realtor fees on both the original purchase and then subsequent sale (I do not know what they are in the UK, but in Canada they can 3%-7% of the transaction, and this exclude lawyer fees and mortgage discharge fees) which means that you need to get a certain percentage of "gain" in the selling price compared to the purchase price to make any real profit at all. If this was Canada, a good percentage of these so called "profitable sales" would actually be breakeven or slight losses.
Assume realtor fees of 5% on both the original purchase and the sale, this completely wipes out the profit of $168M on the $1.5B of sales. Hmm...
Strange article. It is like the author is not at all knowledgeable at all about how realestate works, or maybe UK is very different than Canada.
I understand all of your points, and from what you're saying, with the fee levels you've described, it does sound like the UK is different from Canada.
- If I buy an house and resell it within a year, barring extreme circumstances, I'm probably a real estate investor/professional; maybe it's the fact that I was able to buy a property which I felt was underpriced, then maybe I did some minimal "rejuvenating" modifications, and sell it at a premium.
- We don't see the negative data; how many properties were on sale and were not sold? We're very likely to introduce a bias, otherwise, because I suppose very few people would sell at loss, hence we see few sales at less than purchase price.
You never ever want to sell a home you live in short-term. You only do that if you really don't have another choice. It's probably your biggest investment. You probably bought a bigger home than you can afford. Sell it for what it's worth and invest the time. The costs of selling too quickly might be retiring at 55 years of age or at 65 years of age.
And if you decide to go the easy route anyway then it was you who screwed you. As said before being in a f*d up situation otherwise might be an exception. But it might also be a sign that you do in general not the sensible thing.
That seems like an unwarranted assumption. How do you know any fixing was involved?
But that defies all logic. It's almost impossible to turnaround in that time by accident.
People who sell after 90 days were almost inevitably intending to do so all along. Fix and flip is a more reasonable starting assumption.
Humans have strong loss aversion and it’s common to come across properties where the offer price is clearly set at a point where the sellers will only be making their money back. You can make fair offers in this situation but we had them declined every time. This was most evident during the 2008-2010 housing bust when we had to look for 18 months for a house that was fairly priced — and after we bought, we got two calls from people we’d made offers to — offers which they declined — asking if we were still interested in buying at our offered price! In the case of one house I tracked, they ended up selling at over 10% below what we’d offered them!
Combine that with the lack of any kind of data on houses that didn’t sell, and I would take this analysis with a hefty nugget of salt.
Still, if you assume the broker got paid say 1.5%-2.0%, the stamp duty was 3.5-4.0%, there's still a sizeable margin in between.
Again, I’ve never bought/sold in the UK, but in the US you could easily see $100K in costs on a transaction of ~$2M, and the percentages will go up as you move down market.
After that you need to factor in your time as the flipper (time to do the purchase analysis, acquire the property, fixup the property, market the property, sell the property). Ultimately for flippers a 15% spread between purchase and sale would usually be a sizeable loss
For my last property it gave the wrong square footage and it's valuation method is ridiculous. For example, sold 2010 £200k sold 2017 £400,000 -> valuation £300,000?
Valuing a property based on the average of previous sold prices regardless of time-scale is nonsense and needs to be fixed. If not, I am looking forward to buying that Mayfair townhouse last sold in 1930 for £1,000 ;-)
Uh, well, what I think this probably means is that people who _aren't_ going to make money _don't_ sell a property within 90 days. Even if they were buying it as an investment/flip, if they aren't going to be able to sell it for a ~15% profit... they hold on to it longer. Until they can.
Realizing this confusion of correlation with causation makes the rest of the "advice" in the article somewhat suspect too.
It's interesting findings, that there are significant numbers of owners managing to flip a house quickly for profit. But I'm not sure it can be extrapolated into a "what you should do".
So .. why stop here? Isn't this just saying that since London houses are an extremely rising market, the longer you hold the more profitable it its?
But at the end of the day it's hustling in a zero-sum market. Holding on to your edge requires work. And doing the deals requires work. Not something you want to make a career out of if you value your sanity or free time.
If you just buy and sell, and don't do anything to the house, you're very likely to lose money (when factoring in transaction costs) unless you really know what is happening in the market. People see what you bought the house for a few months ago, why would they pay more than you did? Also, as many others have mentioned, there is a lot of selection bias. People are less likely to sell if they have to sell for a loss, if they have to hold onto a property they wanted to sell because they would lose money if they sold, they don't show up in this data.