GRANGER, THAGARD & ASSOCIATES, INC.
This Month's Article Can Have Up to Three Titles
1) Every Property Has a "Bell Curve"
Do you have a crystal ball to predict the future? Neither do I.
My decisions must be made in the "here and now" because that's where I live.
Now let's begin…
So many times when liquidity (cash) is sought from the sale of a property, the first factor the seller usually addresses is the price tag. Often the hopes/wishes/prayers of a seller is to "will forth" a buyer that will automatically agree with the established wish price. If that prayer is answered, all is right with the world. Usually however, reality replaces fiction and wishes…. pretty fast.
(But for the record, I wish I had a 32" waist and I wish I were 21 years old again and I wish the Rockefellers had added my name to the inheritance list of their family).
I wish I could predict the future.
Every property has a "season" (see Bible-Ecclesiastes) as does a seller. Some property needs to sell immediately because it's the "season" for the property. Some sellers need to sell sooner than later because it's their "season" to utilize the funds from the sale.
Those all-important funds that arrive at the time of the transaction will establish the value of the transaction and the property. It is those funds and the terms of the sale that are the transactional value of the property. (Liquidity)
Should a seller have an offer of cash but the terms have "contingencies", there will be no cash coming forth if the contingencies are not solved. Should the seller "hang his hat" on an appraisal, which is a guarantee from the past based on other property sales, as the guarantee in the future, then that seller has to understand that no two "SEASONS" are alike for different properties or sellers.
Let's look at the bell curve below and determine the seasons for both property and seller.
The first quarter (in red) could be called your point of acquisition. The rise of the bell curve can be very fast from this point for some property and slower for others. (The faster the rise, the more important the term of price tagging is to be avoided for the main reason of encapsulation). (Caught in a trap)
A seller would use an auction to assemble his buyers under his terms to sell at this time for some of the following reasons:
1) Seller can use the purchase funds more effectively now than later.
2) Seller understands that more investment money will be needed to develop property.
A seller in the blue section could have different concerns. This seller has to be "the judge and jury" on the arrival of the apex of the curve. This is also the area when the seller sees more competition come into the market on the supply side or a lot more sellers on the bandwagon. This can lead to a diluted market (demand side) that has more choices on the menu. This seller now sees that his property must be more appealing than his neighbor's property that is for sale. At this point, the seller would use an auction-marketing plan to make the buyers forsake other property owner's for sale signs. The best salesperson never tries to sell but allows the market to come and buy.
Understanding how to motivate buyers to come and buy rather than continuing to try to "sell" is using reverse psychology. The best seller allows the market to come and buy. The lure of the bargain psychology empowers the market to accelerate the inspection of this seller's property in order to be ready for the auction. Do you think many, if any, of the competing properties will be sold while the auction campaign is in place? Doubtful.
This seller also may see those local government agencies, engineers, city council, etc. suddenly change laws that could affect the sale of the property. (New sewers may mean more generic interest but could also mean having the "subdivision book thrown at you" for any future plans to subdivide the property).
The green apex of the curve is wonderful if you know when it will occur. This is the time to let the bidding begin. Every person attending your auction will know every transaction sale price in the area of your property. I promise.
The wise seller sets the terms but refrains from attaching a price tag to the "front door" of the property. The scarcity factor comes into play. Appraisals have little value.
The orange zone seller is getting 20/20 vision… fast. Nearby sales of property may have brought in new external factors that can affect values of property still for sale. This seller may have taken the "long way around the barn" to realize that the market will, as it always does, set the price. That's why it's called market price. The auction can hold the sales price closer to the apex of the curve.
This seller learns that you can run out of buyers before you run out of property.
The purple phase may be the seller that is living far away from the property and is just not in tune to the highest and best use or the season to sell. Often this area has sellers that are of a committee nature (estate, joint ownership, partners, hostile co-owners, etc.) that either choose or are forced into slow decision-making. The auction is the seller's best friend to help avoid any further price erosion.
Taking chances…is not good.
Every transaction has risk and every transaction has reward. A savvy seller learns to minimize his risk. Waiting for a solitary buyer is not only risky but is taking chances.
Which would you prefer?
Waiting for that sole buyer to come to you OR
Motivating through reverse psychology any genuine or remotely interested prospective buyer to come to you, under your terms, with qualified funds, and making him compete with other buyers that have all come under the same terms.
Personally, I would rather have many competing against each other than me competing against the one that brought the money.
Remember …Price does not create demand, demand creates price!!!
AND…He who brings the gold will make the rules (set the price).