The cost of 'not' selling your home

So I couldn't sleep tonight because I have been thinking about 2 listing appointments I had earlier today with families who are selling 'by owner'. In both cases, I believe that the families are planning on marketing their homes with me. One of the families needs to get their home ready to market by staging the home and doing some touch ups. They plan on doing the paperwork to begin the marketing process on the 23rd of Feb (this shouldn't take 10 days but they are leaving town for a week). The other family needed the weekend to consider everything (obviously the brokerage fee) because I committed the sin of only having 1 of the 2 decision makers present during most of the presentation. The husband finally made it home after I had toured the home and made it through a majority of the presentation. If you have never done this, it is nearly impossible to catch the missing spouse up with the same buildup intensity as the original presentation. The simplified version of my presentation didn't have the same impact.

What is keeping me up tonight is the fact that both families are losing money. I wanted to find a way to quantify exactly how much each family is losing. It is late and I don't know if this will make sense but play along and see if you agree.

Assuming that there is a mortgage on the home, can't we agree that any interest paid on a home you are selling is money lost at this point? First, it doesn't go to principal. Next, you can't increase the price of your home by the amount of interest lost every month. It wouldn't be wise to start out at $150,000, for example, and increase your asking price by $750 each month to compensate for the money lost. In fact, the longer the house is on the market, the more pressure to lower your price, right? Now you may say that you would be paying interest on another home but any interest paid in a home you are planning on staying in is 1 more month off of the original term of the mortgage. You are closer to owning your home and have a finite number of payments. Interest paid on a home you are trying to sell is a complete loss because after the sale you are going to start over with another amortized mortgage from the very first payment. Agreed? Good.

Next we must consider our current market. I am being very cautious in my estimation that the Cache Valley real estate market is declining at a modest 3% per year right now. Some markets are sliding at a much faster rate. Nationwide the numbers are closer to 20% according to the Case-Shiller Index.

OK, so let's try to put the numbers together to see how much each of these families is losing per day.

Family #1:

Estimated market value = $245,000; Mortgage $160,000; Interest 6.5%; Estimated decrease in market value 3%/yr.

Interest cost is $160,000 * 6.5% / 360 = $28.89 per day

Depreciation cost = $245,000 * .03 / 360 = $20.42 per day

Each day that family #1 delays the sale of there home costs them about $49.31 By Monday they will have lost $147.92 Each month they will lose $1,479.30 that they will not recover.

Family #2:

Estimated market value $180,000; Mortgage $150,000; Interest 6.5%; Estimated decrease in market value 3%/yr

Interest cost is $150,000 * 6.5% / 360 = $27.08 per day

Depreciation cost = $180,000 * .03 / 360 = $15 per day

Each day that family #2 delays the sale of there home costs them about $42.08. By the 23rd they will have lost $$420.80. Each month they will lose $1,262.40 that they will not recover.

Now I realize that this is a simplified version of a complex equation. Sure, I didn't take into consideration that the interest cost should shrink based on principal reduction, etc. It doesn't matter. These numbers are going to be pretty close to accurate.

The longer a person delays in this market, the more they are going to lose. How critical is it to price a home right from the beginning? So much to consider. Well, now that this is on paper, maybe I can get some sleep.