One of the most important things a seller should consider is their plans for after their home is sold. Most sellers need to replace their home with another one.
If you are considering a larger home, create a financial pro-forma to determine if you may actually be saving more money on the home you’re planning to buy than what you may be losing on the home you’re selling. For example:
If you have to sell your $500,000 home at a 20% loss, you will lose $100,000. But, if you’re able to buy a $1 million home for 20% less, you will save $200,000. You end up saving $100,000 by buying the larger home now. Most Sellers think they will get their price and then steal the home they’re buying. That’s highly unlikely. If you discount your home due to market conditions, the same market conditions will allow you to get a better deal on the home you’re purchasing. If you wait to get your price, you’re going to pay more.
If you’re considering downsizing, create a financial pro-forma to see how much money you’re actually losing. It may be less than you think. For example:
You sell your home worth $500,000 for 20% less. You don’t want to lose $100,000, so you buy a condo worth $300,000 for 20% less, or $240,000, thus saving $60,000. Although you lost $100,000 on the sale of your home, you saved $60,000 on the purchase of your condo, so the net difference is actually only $40,000. This amount is much less than the $100,000 you may have originally calculated.
If you don’t plan on buying another home, use the same financial pro-forma to calculate your potential loss. For example:
You sell your home worth $500,000 with no mortgage for $400,000, a 20% discount. You think you’re losing $100,000, but you take the $400,000 and invest it at a 10% rate of return. You earn $40,000 each year you no longer own the home. Within 2-3 years, the money earned from your investment offsets your loss of $100,000. In this situation, you may actually end up ahead by selling.