Market Velocity

Bill and Diana Miscellaneous Leave a Comment

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Market Velocity. What is it?

The most important goal of every small builder is to insure that their product will be sold upon completion. The same principles apply to the resale of single family homes.

Years ago, when I was representing a half dozen small builders’ speculative [“spec”] new construction projects, I endeavored to help them appreciate the importance of maintaining clean construction sites throughout the building process. Along with selecting good building sites, good floor-plans, proper finishes, colors, landscaping, etc., there was something that most small builders missed:

Their best marketing opportunities were usually overlooked or ignored during the construction process.

I could readily gauge the interest in their respective projects by the frequency of inquiries I would receive from agents and prospective buyers while construction was underway. Invariably, interest would increase as the construction process progressed. The builders that maintained the cleanest, most organized construction sites received the most interest. My successful builders made sure that their projects were inviting and safe to enter, especially by the end of work on Fridays, so that folks could enter newly framed or sheet-rocked homes over the weekend. Oftentimes this approach would yield offers to buy come Monday morning.

We were taking advantage of the market velocity generated by the construction process. As homes neared completion this velocity would often crescendo with a good offer to purchase. I found that no amount of marketing is more compelling than prospective buyers seeing other prospective buyers go through and inspect a home that they like. This holds true today for resale properties more than ever.

There is also a downside to market velocity. As buyer interest and frequency increases with every component completed in a new home it just as quickly decreases with every day that passes once the house is completed. Any new construction house is rarely worth more than the day it is completed. It begins losing value every day thereafter. An unsold finished house can spell disaster for a small builder. In a competitive market the slightest miss-calculation on price can spell the difference between success and failure, between moving on to the next project, or being trapped by the one that isn’t sold.

I learned to counter slowing velocity by urging my builders to not quit, to not sit and wait. I asked them to add fencing, add more landscaping, replace “builder-grade” light fixtures with quality components, keep making it better until a buyer can no longer resist the value. I would urge them to do everything that they could BEFORE considering a price adjustment. Sometimes price adjustments are unavoidable, but it should be a last resort.

You may be wondering, “how does market velocity apply to me?” Granted, you are not building a home and folks are not visiting to see if they like it while you are preparing it for the market. The market velocity all home sellers need to be concerned with is the velocity decrease that occurs after your house has been on the market without selling. How long is too long? Consider this:

Your home is never worth more than the day the for-sale sign goes up in the yard.

Your value is effectively going down every day thereafter. Thus it is paramount that sellers understand the importance of preparation and timing that goes into an effective marketing plan. It has nothing to do with pointer signs, magazine ads, newspaper ads, search lights or free beef. There is no amount of marketing that will overcome the wrong price and poor property condition.

Successfully selling real estate today is a far different process from just ten years ago. The extent of exposure a property receives on the first day it is listed is incredible. It is on the general public’s computers, laptops, tablets and phones within minutes, replete with fabulous color photos, videos and descriptions. What marketing is more powerful than that? Answer: THERE ISN”T ANY! Every new listing goes off like a nuclear reaction compared to ten years ago, yet home-sellers still ask, “what are you going to do to ‘market’ my home?” Really? I guess you weren’t listening…

With most competent brokers marketing is no longer the issue. Preparation and price is the issue. Your broker either knows how to prepare and price your home, or he/she does not. You either accept how your broker instructs and guides you to prepare and price correctly, or you do not. Sure, there are compromises in the process, but why would you disagree with a broker that sells 40 houses a year when you sell maybe one every 5 to 10 years?

No matter how you get there, know that the market velocity decline is waiting for you. You only have to go about 14 days on the market before you’ll know that something is not in sync…and your value is declining…quickly.

Remember that houses that sell for the most money i.e., closest to their list price, ALWAYS sell quickly. That’s a fact, not speculation, that has held true for decades. It is acutely more true now than ever.

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