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Home | Work And Money | Real Estate

Discount Your Price Now Or Lose More Later?

By: Kalinda Rose Stevenson, PhD

Even though it seems counterintuitive, you can often make more money by selling at discount now than you can by waiting for a better price. This is based on the concept of the time value of money.

This is an example of the time value of money at work. Last year, a real estate agent listed a house in my neighborhood for $950,000. Even at the time, that seemed like much too high a price for the immediate area. For more than a year, the house stayed on the market.

The house didn't sell. Then the first PRICE REDUCED sign appeared and the steady decline started.

$950,000, $929,000, $899,000, $869,000, $849,000, $799,000, $780,000, $760,000, $739,000, $725,000

As soon as the prices started to go down, my husband wrote a letter to the seller. He asked if the seller would be willing to take a note to sell the property. In other words, he asked if the seller would be willing to owner-finance.

The real estate agent intervened to convince the owner that owner financing would require the owner to discount the property. On the agent's recommendation, the owner was unwilling to consider owner financing.

After more than a year on the market, a SOLD sign finally appeared in front of the house. At this point, the seller's asking price has gone down from the original $950,000 to $725,000. Even if the buyer agreed to pay $725,000, the difference between the original listing price and the final listing price was a quarter of a million dollars, $225,000 to be exact.

Add to that, the seller paid mortgage, taxes, insurance, and maintenance on a vacant property for more than a year. The question then becomes: How much did the seller lose because the seller wouldn't discount a note?

The real estate agent was simply following the most typical advice for sellers in difficult markets. Keep reducing your price, so that someone will eventually buy.

The fact is there was a much better solution to the problem than simply reducing prices. If the seller had agreed to sell the house with a note, it is very likely that the house would have sold months before, and the seller would have made more money on the sale. The real estate agent would also have earned a higher commission. The point of this little story is that a strategy of reducing prices simply means that you will get less for your property. Before you agree to a PRICE REDUCED strategy, take the time to understand why owner financing with a note can be a much more profitable way to sell your property.

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