Make Up Selling Loss When You Buy
In the best case scenario when the housing market and home values are down, a seller may still have equity in his/her home. Let’s say they owe $125,000 on a house that could’ve sold three years ago for $165,000 (a $40,000 gross profit). Today, the same home is worth $145,000. (And let’s just forget about fees, commissions, etc. for now). To many sellers, this could feel like a $20,000 LOSS on the home - though they’ll still walk away with money.
The other very important consideration is what you would’ve paid in RENT on a comparable property… because rent or own you would’ve paid something either way. Let’s say Mr. Seller has lived there for seven years (just a random number) and it would’ve cost $1000 p/month to rent. That’s $84,000 that would be straight up gone without even $20,000 in capital gains to trumpet.
Finally, you’re selling in order to move up, down, or sideways. The potential savings on the next home purchased is where the seller will make up the $20,000 difference he could’ve earned by selling three years ago. Mr. & Mrs. Seller could possibly now get into a $210,000 home for $180,000, for example.
CNN Money.com illustrates what I’m saying with some tips for people looking to find a new crib.
Galdes, 43, may have to sell her condo — bought in 2003 for $287,000 — for less than she’d hoped. But the discount on a better place will more than offset the reduction on hers. And she’ll net $86,000 after closing even if she breaks even.
If you plan to sell but not to make another purchase, I’d advise to hold on for several more years until prices come back (if you can). If you plan to change homes, however, the time could be right for you!
