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Are short-term home sellers screwed?

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Re: Are short-term home sellers screwed?

#41

Post by jstanley »

toomuchtodo wrote: post #36
dpwm wrote: post #35

Earlier quoted context omitted.

There is clearly selection bias in the quoted figure of houses sold within 90 days, because people try to maximise what they'll get. People only tend to drop the price after it's been sat around for a while. By definition, such sales are not very likely to happen within the 90 day window and therefore do not contribute to this average.

What window of time would provide better data if not 90 days? 3 months? 6 months? A year? Anything more than 90 days and it’s stale market data.

There's selection bias at any time scale. Those who manage to sell their property at all are getting better prices than those who fail to do so.

The point is that you can't calculate a probability of making +15% within 90 days just by looking at how many of the houses sold within 90 days were sold for +15%. Or any +X%. Or any time period.

If you really want to calculate such a probability, you need to buy a bunch of houses at random, then try to sell them, and then see how much you made and how long it took. The data used in the post is not suitable.

Re: Are short-term home sellers screwed?

#42

Post by jstanley »

toomuchtodo wrote: post #40
pwagland wrote: post #37

Earlier quoted context omitted.

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 abov…

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

Exactly

Re: Are short-term home sellers screwed?

#43

Post by faisalkhalid80 »

sulam wrote: post #34

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 th…

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.

Re: Are short-term home sellers screwed?

#44

Post by sulam »

faisalkhalid80 wrote: post #43
sulam wrote: post #34

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 th…

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.

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.

Re: Are short-term home sellers screwed?

#45

Post by 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.

Re: Are short-term home sellers screwed?

#46

Post by phyller »

toomuchtodo wrote: post #40
pwagland wrote: post #37

Earlier quoted context omitted.

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 abov…

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

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.

Re: Are short-term home sellers screwed?

#47

Post by jrochkind1 »

notacoward wrote: post #18
codingdave wrote: post #12

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.

> Homes that resell within 90 days are fix & flips. That seems like an unwarranted assumption. How do you know any fixing was involved?

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.

Re: Are short-term home sellers screwed?

#48

Post by notacoward »

jrochkind1 wrote: post #47
notacoward wrote: post #18

Earlier quoted context omitted.

> Homes that resell within 90 days are fix & flips. That seems like an unwarranted assumption. How do you know any fixing was involved?

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.

I don't know, and made no claim implying knowledge. The "what about" attempt (more formally tu quoque) fails.

Re: Are short-term home sellers screwed?

#49

Post by moocow01 »

faisalkhalid80 wrote: post #43
sulam wrote: post #34

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 th…

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.

Your missing another big one which is the cost to hold the house. If you're an average flipper that investor money is going to cost you about 1% per month of the purchase price so you can probably assume another 3% or so there.

After that you need to factor in your time as the flipper (time to do the purchase analysis, acquire the property, fixup the property, market the property, sell the property). Ultimately for flippers a 15% spread between purchase and sale would usually be a sizeable loss

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