Time Kills Negotiations.
Maybe You’ve Heard This One, that time kills negotiations. Sound familiar?
The momentum of real estate deals, and maybe all deals, either builds, or it sputters. And deals either happen or die based on that momentum. It’s a rare thing when very lengthy negotiations end up being helpful to successful deals. I can think of one a few years ago, where a seller took about two months to come around to a price we were offering. But let’s just say that it’s very rare when deal time is measured in weeks, and not days. Time heals all wounds, but it suffocates deals.
Time Also Feeds Negotiability.
If you don’t follow the Urban Digs guys, I recommend that you do. They are unbiased and have strong views- a great combination if you’re looking for rock-solid information to consider. You don’t have to agree with everything they say, even if I think they’re right much more often than they’re wrong.
Last week, they came out with an incredible chart I wanted to share with you here. It has to do with the time on market for property, and negotiability on property. That is, how long it takes for a property to go into contract and how it relates to final sale prices.
They looked at three factors:
- Original Listing Price
- Time To Go Into Contract
- Final Price
What Did They Find?
Not surprisingly, the longer a property is on the market, the bigger the gap between the original asking price and the final sale price. But the nuance is really important to look at. Right now, when some think the sky is falling, the negotiability is not as stark as you might think. OR much, much more drastic than you think. It’s a barbell, like our friendly philosopher/investor Nassim Nicholas Taleb always talks about in his investment strategy:
- If a property is on the market for less than 30 days before going into contract, there is ZERO negotiability on the asking price.
- Between 30-60 days, that grows to 3% negotiability
- 60-90 days: 5.5% negotiability
- 90-120 days: 8% negotiability
- 120 days or longer: 10.7% negotiability
How do I read this?
Pricing is more critical than ever, at a time when price discovery is a challenge. If you hit the mark, there are buyers eager to purchase. If you miss the mark, the consequences can be dire. The average time on the market last quarter was 84 days. That would indicate a market that is down about 5.5% as of October.
And that number of days on market is growing. So where is the market going? On average, it’s softening.
I also takeaway that the market is in much better shape than some people are claiming. Is it down 10% on average? Not sure it is.
It’s Not An Exact Science
Average days on market usually indicates the strength of the market, not the pricing levels. But’s a very convenient rule of thumb to look at where we are, as days on market generally correlates to whether a market is strengthening or softening. There are lots of moving parts to consider, but it’s easy enough to see that people aren’t just negotiating to negotiate, regardless of your asking price. That should give you some comfort.
What I Know With Certainty
You need a very steady hand, and an experienced agent to guide you in this market. Overpricing can be a disaster. If you miss the mark at the start, you can adjust. But adjust quickly, or beware.