Top 10 Seller Considerations for 2011
As the economy and real estate market begin to show signs of recovery, homeowners that are either selling their homes, or that are considering listing their homes should be very sensitive to the risks involved in “waiting” for prices to recover. Sellers should carefully weigh the following considerations:
1. Carrying Costs- What is the total cost of homeownership? The total monthly costs of all housing expenses from now until the house is sold should be deducted from the purchase price to determine the net price of waiting to sell until later. These costs include such items as, mortgage principal and interest, property taxes, homeowner’s insurance, repairs & maintenance, association dues, special assessments, utilities, pool costs, etc. By deducting these costs, if it were to take another 1-5 years to sell, a homeowner can determine whether it makes sense to sell now or wait.
2. Opportunity Costs- Sellers should also consider the investment value of the equity they have in their home. If their home is paid for, and they were to invest the proceeds from a sale, how much would that money earn over the next 1-5 years? The answer will help a seller determine how much they may be losing by keeping a home that is not increasing in value.
3. Risk of Depreciation- For the past several years, homeowner’s have held on to the belief that waiting to a later date would lead to a higher sales price. By averaging the total loss in value experienced by similar homes in their neighborhood since the height of the market, they can determine what the risk of depreciation could be during the coming years. Given the great uncertainty of both housing and economic recovery. This risk must be considered and also deducted from the amount a seller could sell for now. If depreciation does occur, as it has for the past 4 years, it will not come as a surprise to the seller.
4. Sales Timeline- Most sellers relate the price of their home to the price they could have received at the height of the market. They expect the value of their home to reach that price in the short-term. If a seller were to take the appraised or actual value of their home today and multiply that number by the average annual appreciation during normal market conditions (approximately 5%), it could easily be 5-10 years before that value at the height of the market is once again reached.
5. Emotional Considerations- Seller should answer the single-most important question when selling a home: “If I were to sell today, what would that mean to me?” The answer to this question, is likely to be far more revealing than an intense focus on the bottom line.
6. Apples to Apples- Many sellers have every intention of purchasing another home, once they’ve been able to sell their existing home. In many cases, the savings that a seller will realize from their next home purchase will offset the loss they feel they are taking in the sale of their home. If they wait until they can get the price they want on their existing home, they will have to pay extra for their next home.
7. Supply of Homes- Although inventory levels are dropping in many active markets, they are still well above the 6 month level found in a normal market. When this level is as high as it is now, (16 months supply of homes on the market nation-wide according to Corelogic), most markets still experience price depreciation.
8. Shadow Inventory- Many potential sellers have been waiting to sell their homes. According to the National Association of Realtors, as many as 20% of all homeowners would consider selling their home if the real estate market were good. Additionally, there is a significant back-log of bank-owned properties that will be released over the next several years. The problem may be compounded when more Adjustable Rate Mortgages reset beginning in April of this year. World-renowned Housing Expert and Yale Economist Robert Shiller has indicated that there could be another 5.6 million homes waiting in wings in addition to the 4 million homes for sale now. An overabundance of homes is one of the leading reasons home prices have depreciated.
9. Economic Considerations- From US deficit spending, bleak unemployment outlook, housing woes and risk of inflation at home, to Middle East turmoil, natural disasters, and European financial problems, there is substantial evidence that points the likelihood of very long, drawn out real estate and economic recoveries that could take years.
10. Window of Opportunity- Despite frustrating news that is being delivered on an almost daily basis, there have also been silver linings that for the first time in years are countering the negative effects of all the bad publicity. Issues from very low interest rates and housing affordability, to the stock market and auto industry recoveries, and even job market improvement, have created a “selling window of opportunity”. Sellers should exploit this window and avoid “future risks” by selling their homes and moving on with their lives.