Your fix & flip project is finally finished, now the fun part, get it on the market and sold for as much money as possible! But wait, while the idea of “as much money as possible” is very tasty, that high sale price chase can actually hurt your bottom line. Before you price your property, you need to understand these three relevant factors:
- What are the average days on market in your area?
- How much competing inventory is available?
- Have there been any external shifts that can affect Buyer behavior?
Average Days on Market is a key indicator to help you gauge demand. Average days on market less than 20 days, and you can be more aggressive with your pricing. Between 21and 60 days, a more moderate price point should be chosen. And anything over 60 days, should give you pause for concern and indicate a more conservative pricing approach should be followed.
The volume of competing inventory is a key indicator to help you measure supply. An over supply of inventory can mean a Buyers’ market with light showings, limited offers, and offers below ask. A low supply of inventory can mean a Sellers’ market with heavy showing traffic, multiple offers, and offers over ask. The best way to measure supply is to establish an Absorption Rate. You can do that by applying this formula:
Months of Inventory = Active Listings ÷ (Total Properties Sold in the Last 12 Months ÷ 12)
If you do not have access to your local MLS, you will need to rely on a realtor to help. Based on your findings, price accordingly.
External shifts can and do affect Buyer behavior, which in turn can affect how you market your fix & flip. These external factors include sudden drops or hikes in interest rates, large local employment centers announcing closures, the announcement of new large employment centers in your property’s market, special assessments, and of course, let’s not leave out pandemics. Basically, when any of the above is good news, you can be more aggressive, but conversely, when it’s bad news, price more conservatively.
By examining these three factors, you should have a good idea if it’s a Buyers or Sellers market, but there is still work yet to do. When you vet real estate investing opportunities, part of that process is to estimate what your finished fix & flip project should sell for once finished. Well now that it’s finished, it’s time to verify its value by searching recent comparable sales. This important task should not rise to the level of an appraisal; simply look at what like properties have recently sold for and translate that data into an indication of your property’s value. Active comparable listings should also be examined to ensure you are in the ballpark. Try to remember, when you’re trying to assign a value to your finished product, do so objectively and dispassionately.
So now it’s time to pick the price that you are going to ask when you introduce your latest flip into the market. Here’s what Turning Point Lending’s owners believe: the most important component to maximizing your profit is to have a significant amount of foot traffic through your property the first weekend. In a Sellers’ market you should ask 5-10% less than what you think your property is worth. In a Buyer’s market you should ask 10% less than what you think your property is worth. The goal is to create a bidding war, and bidding wars cannot be created without heavy foot traffic.
Apps like Showing Time allow Buyer Agents to see the amount of showing volume based on sporadically blacked out available showing time slots. When the showing sheet is full, they communicate this fact to their Buyers and signal that if interested, expect it to be competitive. When priced correctly, you should have at least 25 prospective Buyers through your property the first weekend, assuming the property is not located in a rural or semi-rural area. Trust us when we tell you that heavy traffic will create numerous offers over asking, some with escalation clauses. This has been tried and trued by owners in their extensive flipping days. And if after two weeks you have not gone under contract, YOU ARE OVERPRICED!
Our Owners’ experience and insight is one of the many things that sets Turning Point Lending apart from our competitors. Reach out to us with your next deal, and we’ll help you better analyze that opportunity. And if you have a fix & flip that’s been on the market for over 30 days, call us, and either Jim or Scott will give you their insights and help you get your property sold.