
Are short-term home sellers screwed? - faisalkhalid80
http://www.tenence.com/home-flipping-explained
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jstanley
> Data tells the story: on average, if you sell your home within 90 days,
> you’ll do it at 15% higher than what you bought it for.

There's some selection bias here. Those who got lucky (e.g. they bought the
house cheaply) found it easy to sell for a good price quickly. Those who got
unlucky and couldn't find a buyer quickly are excluded from the "90 days"
window so don't contribute to the statistic.

It might be true that homes sold within 90 days of purchase sold for an
average of 15% higher than the purchase price, but it doesn't mean you can
expect to sell a home within 90 days of purchasing it for 15% more than you
paid.

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toomuchtodo
If you haven’t sold in 90 days, your price is to high. There is always a buyer
at the right price.

As a real estate investor, I specially target homes going unsold after long
durations on the market due to unrealistic expectations.

~~~
jstanley
> If you haven’t sold in 90 days, your price is to high

Right. So it's selection bias. The people who can get a price 15% more than
they paid manage to sell within 90 days, the people who can't dont.

~~~
toomuchtodo
That’s not selection bias, that’s a functioning marketplace. Something is
worth what someone will pay for it. If demand is increasing, prices increase.

~~~
pwagland
The point that the op is making is that this is only looking at the
"successful" trades. It is not looking at the set of "attempted" trades. So it
is only looking a selection of the possible trades, and so there is a
selection bias involved in the data set. This is very much a form of survivor
bias.

It is likely that it also "only" includes those that managed to buy a house at
under market rates, and sold at, or above, market rates within 90 days. Anyone
who is buying to live in is likely paying as much or more as the "sale" price.

This is further stated in the market, since the annualised rate of return is
650%, but house prices are _not_ going up that quickly.

Which, in turn, means that distressed buyers are not necessarily going to see
a 15% increase in the price of their house in 90 days, nor are they going to
see a ~30% in 180 days, since their property may not be "undervalued".

~~~
toomuchtodo
Attempted transactions do not make a market. Completed transactions do.

~~~
phyller
No one is saying the market is wrong or the data is wrong. Just that the
implications the author makes based on the data are unjustified.

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bhouston
There is massive selection bias here. You are not showing how many homes were
listed but didn't close. This is measuring only successes, not all the
failures to sell.

Also you need to factor in realtor fees on both the original purchase and then
subsequent sale (I do not know what they are in the UK, but in Canada they can
3%-7% of the transaction, and this exclude lawyer fees and mortgage discharge
fees) which means that you need to get a certain percentage of "gain" in the
selling price compared to the purchase price to make any real profit at all.
If this was Canada, a good percentage of these so called "profitable sales"
would actually be breakeven or slight losses.

Assume realtor fees of 5% on both the original purchase and the sale, this
completely wipes out the profit of $168M on the $1.5B of sales. Hmm...

Strange article. It is like the author is not at all knowledgeable at all
about how realestate works, or maybe UK is very different than Canada.

~~~
faisalkhalid80
Limited by data here unfortunately. The data source I'm using is Land
Registry, which only shows successful deals. Regarding transaction costs, in
the UK its around 1.5% for broker fees, plus moving and legal costs. There's
also capital gains tax on profits generated on the sale, which is a complex
mathematic, and applies if its 'not your first home'. And stamp duty (varies
by price) which you pay on purchase.

I understand all of your points, and from what you're saying, with the fee
levels you've described, it does sound like the UK is different from Canada.

~~~
bhouston
1.55B * 0.03 = 46M in realtor fees. This reduces the expected profit by 1/4.

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alanfranzoni
I'm not sure whether I understand (or trust) this analysis.

\- If I buy an house and resell it within a year, barring extreme
circumstances, I'm probably a real estate investor/professional; maybe it's
the fact that I was able to buy a property which I felt was underpriced, then
maybe I did some minimal "rejuvenating" modifications, and sell it at a
premium.

\- We don't see the negative data; how many properties were on sale and were
not sold? We're very likely to introduce a bias, otherwise, because I suppose
very few people would sell at loss, hence we see few sales at less than
purchase price.

~~~
faisalkhalid80
Negative data would be very helpful, unfortunately its harder to get. The data
I used was from Land Registry UK which only captures successful transactions.

~~~
arethuza
Did you combine data from the 3 UK registries (England & Wales, Scotland and
Northern Ireland)?

~~~
faisalkhalid80
The analysis is just for London

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erikb
I really love articles like "are people who <do something totally ridiculous>
screwd?" This gives the impression for these people that they are doing
something totally normal, and that it is the world screwing them.

You never ever want to sell a home you live in short-term. You only do that if
you really don't have another choice. It's probably your biggest investment.
You probably bought a bigger home than you can afford. Sell it for what it's
worth and invest the time. The costs of selling too quickly might be retiring
at 55 years of age or at 65 years of age.

And if you decide to go the easy route anyway then it was you who screwed you.
As said before being in a f*d up situation otherwise might be an exception.
But it might also be a sign that you do in general not the sensible thing.

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codingdave
Homes that resell within 90 days are fix & flips. Yes, they sell for a higher
price, but there is also more investment put into them than just the purchase
price.

~~~
notacoward
> Homes that resell within 90 days are fix & flips.

That seems like an unwarranted assumption. How do you know any fixing was
involved?

~~~
jrochkind1
How do you know it _wasn't_? We basically have a _whole bunch_ of possible
hypotheses here that the data/analysis here does not allow us to distinguish.

~~~
notacoward
I don't know, and made no claim implying knowledge. The "what about" attempt
(more formally _tu quoque_ ) fails.

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sulam
Wait, we are supposed to ignore transaction costs? I kept waiting for them to
be factored in, but it never happened. I have a simple reason for the 15%
number — you need to make ~ that much to be breaking even!

Humans have strong loss aversion and it’s common to come across properties
where the offer price is clearly set at a point where the sellers will only be
making their money back. You can make fair offers in this situation but we had
them declined every time. This was most evident during the 2008-2010 housing
bust when we had to look for 18 months for a house that was fairly priced —
and after we bought, we got two calls from people we’d made offers to — offers
which they declined — asking if we were still interested in buying at our
offered price! In the case of one house I tracked, they ended up selling at
over 10% below what we’d offered them!

Combine that with the lack of any kind of data on houses that didn’t sell, and
I would take this analysis with a hefty nugget of salt.

~~~
faisalkhalid80
You're right, I should do the math on trxn costs in my next update - the main
ones are stamp duty on purchase and broker fees on sale. The minor ones are
moving costs and legal fees on buying and selling. Capex I'll have to ignore
because I have no data on this.

Still, if you assume the broker got paid say 1.5%-2.0%, the stamp duty was
3.5-4.0%, there's still a sizeable margin in between.

~~~
sulam
I don’t know UK laws, but you also get dinged in the US on property taxes (pay
half a year), home insurance (can’t close without it), HOA fees ($500 selling
our house this year despite our HOA being otherwise meaningless), warranty
(not consistently required) and various local costs that are associated with
the municipality or state — not to mention mortgages are deliberately designed
to make their money even if you pay them early.

Again, I’ve never bought/sold in the UK, but in the US you could easily see
$100K in costs on a transaction of ~$2M, and the percentages will go up as you
move down market.

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alva
A warning to those taking these numbers seriously. I had a go of Tenence
service after reading and it's property valuation service gave Very dodgy
results for my previous properties.

For my last property it gave the wrong square footage and it's valuation
method is ridiculous. For example, sold 2010 £200k sold 2017 £400,000 ->
valuation £300,000?

Valuing a property based on the average of previous sold prices regardless of
time-scale is nonsense and needs to be fixed. If not, I am looking forward to
buying that Mayfair townhouse last sold in 1930 for £1,000 ;-)

~~~
faisalkhalid80
Sorry about that, will look into this particular case and fix. For square
footage we rely on EPC certificates which sadly are not always accurate.

~~~
alva
Thats alright, thanks for taking a look at it. I can see why it is very hard
to get a good reading of square footage. I was a bit too harsh in my last
comment. The valuation algo however is concerning. Perhaps take a look at the
Savills local house price indices, I know a number of valuation algos use that
heavily alongside Land Reg data. Good luck!

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jrochkind1
>on average, if you sell your home within 90 days, you’ll do it at 15% higher
than what you bought it for.

Uh, well, what I think this probably means is that people who _aren't_ going
to make money _don't_ sell a property within 90 days. Even if they were buying
it as an investment/flip, if they aren't going to be able to sell it for a
~15% profit... they hold on to it longer. Until they can.

Realizing this confusion of correlation with causation makes the rest of the
"advice" in the article somewhat suspect too.

It's interesting findings, that there are significant numbers of owners
managing to flip a house quickly for profit. But I'm not sure it can be
extrapolated into a "what you should do".

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soVeryTired
You should label your axes properly. You haven't defined 'price change' and
'gap' anywhere in the text, so we have to try to deduce the meaning from
context. I'm still not sure if the units are percentage change or thousands of
GBP.

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pjc50
> If you can wait till year-end, then you're even better off

So .. why stop here? Isn't this just saying that since London houses are an
extremely rising market, the longer you hold the more profitable it its?

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vinceguidry
The relevant factor in short term asset holds is transaction costs. Whether
you're buying stocks or houses. If you can account for them and make a profit
anyway, you're making money. Generally you need a market edge to lean on.

But at the end of the day it's hustling in a zero-sum market. Holding on to
your edge requires work. And doing the deals requires work. Not something you
want to make a career out of if you value your sanity or free time.

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phyller
This story gives the impression that you can somehow magically make a profit
by buying a house, waiting a few months, and selling it. This is completely
ignoring the concept that most of the data is going to be from house flippers
who don't just buy and sell houses, but renovate houses. If you are a
professional who buys fixer-uppers that no one else wants the hassle of
dealing with, then put a lot of money and work and skill into them, yes you
have a good chance of selling it for more than you spent on it.

If you just buy and sell, and don't do anything to the house, you're very
likely to lose money (when factoring in transaction costs) unless you really
know what is happening in the market. People see what you bought the house for
a few months ago, why would they pay more than you did? Also, as many others
have mentioned, there is a lot of selection bias. People are less likely to
sell if they have to sell for a loss, if they have to hold onto a property
they _wanted_ to sell because they would lose money if they sold, they don't
show up in this data.

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masto
There's an obvious strategy here to make an infinite amount of money!

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zwily
What about property tax, which (AIUI) is paid in a big lump sum on purchase,
and not annually like in the USA?

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rtb
[https://en.wikipedia.org/wiki/Selection_bias](https://en.wikipedia.org/wiki/Selection_bias)

