Sell with Confidence
Read More

The Opportunity Cost Of Delay

By Dan Sowden

If you are selling your home, consider this question: would you be better off with an extra $500 added to your ultimate sale price or having the sale settled 2 weeks earlier?

If you answered that you would prefer the money it is likely that you have just lost money.

While for some people it may work out well to stay in their homes longer, it is important to understand what holding out for more means in dollar terms to most people. 

‘Time is money’ is a cliche that in this instance is likely to be true. In financial jargon, this concept is called ‘opportunity cost’. It refers to the amount you have lost by not having the money for a certain period of time

Ask yourself what you would be doing with the money if you already had it in your hand. For example if you sell for $500,000 you could be earning 7% interest in the bank – that is $675 a week.

Or you could put the money against your mortgage at say 9% and you would be saving yourself $865 a week. 

There are two ways you may be likely to have your settlement delayed. One is when a buyer asks for an extended settlement, the other is when the seller holds out for a high price that may or may not happen.

In the first settlement delay scenario, a buyer making an offer may work with whatever time component you have stipulated in your contract or they may ask for a delay in settlement. The offer itself may seem OK, but as you can see from the above figures, if you could be doing something else with the money, then their long settlement needs to be balanced by a higher offer. 

The second delay scenario is usually caused by the seller holding out for an arbitrary price  that is based not on market research but on ‘we need to get $x in order to buy what we want’. If the market is turning and prices are dropping then such a seller could end up getting a lower price by holding out too long, and this too must be added to the ‘opportunity cost’.

Bridging finance expands the cost of waiting even more as short term bridging finance is one of the most expensive home loan packages.

It is so easy for people to get tunnell vision when it comes to understanding that ‘more’ in price terms is not necessarily ‘better’ in net financial  status. Time and pricing factors need to be taken into account when assessing financial strategy to maximise financial outcomes.

Source: Local Property News.Net

Up to Date

Latest News

  • Young gun agent takes on the Gavel

    Auctions have always been the lifeblood of Australasia’s largest real estate group, and it was with this in mind that encouraged Sunshine Coast agent Sarah-Louise Anderson to become one of the region’s first female auctioneers. “Becoming an auctioneer for the Ray White Group has been a goal in the back … Read more

    Read Full Post

  • Teamwork makes the dream work at Ray White Maroochydore

    When it comes to case studies in real estate, often the sale price is the hero of the story. In this case however, it’s the team behind the $1.3million sale who are the true heroes. When the owners of 16 Chardonnay Court in Buderim were looking to sell their beloved … Read more

    Read Full Post