Not in recent history has there been a more uncertain time in the real estate market. We have record numbers of foreclosures, some of which are being challenged because of unclear documentation and possible fraud, as well as the introduction of short sales on a massive scale. Short sales bring uncertainty because none of the parties involved know exactly what the bank will do as far as accepting the terms of the contract and releasing the homeowner from any future liability. We have homeowners “under water” meaning that they owe more on their homes than the homes are worth and many of these people are simply choosing to walk away. We have home sitting on the market longer and selling for less if they sell at all. When was the last time that the terms ‘house’ and ‘depreciate’ were mentioned in the same sentence?
It is in this environment that I am frequently asked by homeowners if they can still sell their home given today’s market. My answer is “YES” but only in certain circumstances. If the seller can answer ‘yes’ to three of the four following questions, then they are in a position to sell their home; otherwise they have to stay put and wait for the market to fully recover. (Whatever that means).
Question #1 – Do you have sufficient ‘equity’ in your home? We used to include appreciation in our calculation of equity meaning that your equity was the difference between what the home could be sold for on the open market and what was remaining on the loan. This is still the calculation of equity but now we have to be realistic about the value of the home. Very few people have any equity if they purchased their homes in the last 5-8 years and marginal equity if they purchased in the last ten unless they had a substantial down payment. However, if you have owned your home for a while and know for sure that you can answer ‘Yes’ to having sufficient equity, then you are one step closer to being able to sell your home.
Question #2 – Do you have substantial savings to cover a shortfall? If you did not answer ‘yes’ to the first question but can answer ‘yes’ to this one, you are still in business. Perhaps you have enough money saved to cover any shortfall at the closing table meaning that if your home sells for less than your loan balance, you can make up the difference. Some people will pay the difference because they are getting a tremendous deal on the home they are moving into.
Question #3 – Can you price your home aggressively and continue to adjust the price until the home is sold? When a home is priced correctly, it will attract buyers and ultimately an offer. When it is priced above the current market, it will sit without notice. As a matter of fact, an overpriced home will actually help to sell other homes as buyers will use it for comparision purposes. If you can afford to price your home aggressively (at or slightly below market) and can also afford to adjust the price until an offfer is received, then you can still sell your home. By the way, price adjustments are usually in increments of at least $5,000 per adjustment depending on the price point of the home and community.
Question 4 – Can you afford to modernize/update your home? One of the hardest jobs of a realtor is to market a home that is not in ‘show ready’ condition particularly in this market. Outdated wallpaper, light fixtures, personal photos, massive collections all amount to clutter and expense to a potential homebuyer. If you can not afford to have the home professionally cleaned (particularly carpet) and freshly painted, then at a minimum remove all clutter including personal photos, collections, etc. When a buyer goes through a home that is outdated, they begin to see massive costs in modernizing it. As realtors, we used to be able to offer allowances but many lenders will not allow this. If you have lived in the home so long that you can no longer be objective, bring in a friend or ask a realtor for an evaluation. Be ready for the truth and be ready to take action. Remember your overall goal.
If you have answered ‘Yes’ to three of the four questions, then you are in a position to sell your home. A properly priced updated home will draw attention and offers. In this world of uncertainty, a buyer may welcome a chance to purchase a home without the risk associated with a foreclosure or the wait associated with a short sale.