Are You Ready to Sell?

People have many different reasons for wanting to sell their homes, such as:

Job change. You can’t—or don’t want to—commute to your new job from your old house.

Personal status or lifestyle change. You get married or divorced, move in with someone (or someone moves in with you), you have a new child, your daughter leaves for college, your spouse dies, your health argues against continuing to live in a house with stairs or in a city with very cold weather, or you’ve always wanted to try living in Hawaii.

Investment or lifestyle upgrade. You’re selling your existing home to move up to a nicer one. Your old house isn’t that bad, but now you can afford something you like more—because it’s bigger; closer to work; in a better neighborhood or school district; has a pool; is a better investment; or provides something else that’s important to you.

Financial needs. You can’t afford the mortgage payments. This doesn’t necessarily mean you’re headed for foreclosure or bankruptcy, but it does mean that an unreasonable share of your income is going towards housing payments, and you have other priorities—like paying your other bills, saving for retirement, or paying school tuition.

While some reasons are more urgent than others, many situations fit into the "the sale can wait if it needs to" category. This doesn’t mean your family isn’t cramped since the new baby was born or that it wouldn’t be better for your health or pocketbook to move. But it does mean that selling your house next week, or even next month, isn’t essential if you are not likely to get the best price.

But sometimes, selling feels like a necessity, no matter what the market conditions are. If you’re moving because you can’t afford your mortgage payments anymore, consider whether you can refinance the mortgage through your bank, borrow money from other sources, or work out an alternate payment plan with your lender. Because foreclosures are very expensive for lenders, they’re often willing to work with responsible owners who want to stay in their homes and are committed to paying the mortgage.

Likewise, remember that it’s often unwise to make major moves or decisions within at least a year or so of a serious emotional shock—for example, a sudden death in the family, divorce, or job loss—if the move can possibly be avoided or deferred.

If you’re in a similar situation, consider whether you can live without the immediate profit. You may be able to rent the property out for now, have a steady income stream, and sell the property for significantly more when you’re able to take a step back.

According to one of the basic axioms of the real estate business, a seller who is under abnormal pressure to act almost always accepts too little. Even if you can’t wait to sell, you can limit or avoid this pressure by timing your sale correctly and carefully marketing and pricing the property. For example, if you price your house too high, then drop the price several months later, buyers may think you’re desperate to unload it. You may end up getting lower offers than you would have if you’d started with the lower price in the first place, not only delaying your sale, but hurting your bottom line.

Moreover, if you anticipate financial trouble soon, and you’re sure you won’t be able to get out of it, it’s best to put your house on the market earlier rather than later. That’s because you have the potential to rack up more debt the longer the house sits unsold, and that will increase expenses and probably make you more anxious to sell it and again, accept too little.

Is It a Good Time to Sell?

Once you know whether you are ready to sell, how will know whether market conditions are good? First, you’ll want to look at whether it’s a buyer’s market or a seller’s market. Then you’ll want to consider some of the best and worst times to sell a house.

Market Conditions

In an ideal world, you’ll be able to sell your house for maximum profit, right away. Unfortunately, that isn’t always possible, especially when it’s a "buyer’s market." This happens when there are more homes on the market than there are interested buyers: in that case, buyers have the luxuries of time and choice, knowing that if they don’t buy your property, another one will come along soon enough. Unsurprisingly, when it’s a buyer’s market, prices tend to be relatively low, because competition among sellers is high.

On the other hand, in a "seller’s market," there are more buyers than there are desirable properties. In that situation, prices tend to be relatively high, and sellers have more bargaining power. In California in recent years, a combination of factors— including historically low interest rates and riskier loan options that made it possibly for many people to afford to buy—made many markets sellers’ markets.

When it’s a buyer’s market, it can be challenging to sell even the most beautiful home at a perfectly reasonable price. That’s why, if you’re able, it’s best to hold off until the market improves. You’re more likely to sell your house quickly and for a competitive price if many buyers are competing for a good deal.

Of course, it’s not always possible to wait for the market to turn, especially because it’s hard to know when that will happen. If you must sell soon, you must instead focus on aggressively marketing and pricing your home, so that it stands out in relation to what else is on the market. Even when that may mean a slightly lower price than you might have gotten a few years ago when the market favored sellers, it can be well worth it. After all, every month that you don’t sell means another month’s worth of mortgage payments, real estate taxes, and insurance.

The Best and Worst Times to Sell a House

Here are some of the best and worst times to sell a house.

1. When mortgage interest rates are low, the pool of potential buyers goes up. This is especially true because many people have been priced out of the market in the past and have been anxiously waiting for interest rates to drop low enough that they can afford to buy. Thus, even a relatively small decrease in interest rates may mean a huge increase in the number of people who qualify and are eager to buy your house.

2. When the economic climate of your region is healthy, people feel confident about the future and the pool of potential buyers widens. As a rule, when your regional economy is slumping, it’s best to hold on to your home until conditions improve. Despite ups and downs, investment in homes continues to be strong in California, particularly since they’re considered one of the safer places to put your money. No downturn ever seems to last very long.

3. At times when your area is considered especially attractive for any number of reasons, the pool of buyers widens and prices go up. If considerably more people are looking to buy than are looking to sell in a particular geographic area—for example, if a major local employer moves in—prices tend to rise (often quickly) and buyers must bid competitively.

The popularity of geographic areas, cities, and neighborhoods can change quickly for all sorts of reasons. For example, San Jose become hot during the Internet boom, and single-family homes were suddenly worth millions. And of course, significant changes in the desirability of particular areas can and do happen at the neighborhood level. Recently, for example, a number of older neighborhoods in cities such as San Francisco, Los Angeles, Berkeley, Stockton, Sacramento, San Diego, Oakland, and San Jose have become very desirable, and home prices have increased, sometimes dramatically. This is especially true of single-family homes of wood-frame construction that are on rocky soil and have survived well in California’s recent earthquakes.

My point is that you should do some strategic thinking of your own. There are many ways that your area might become more desirable: The large, loud, and filthy refinery nearby is about to close; new restaurants and retailers are moving in; or public transportation systems are improving dramatically. Check your local planning department for other upcoming changes. If you conclude that better times are just around the corner in your area or neighborhood, hold off your house sale if you can.

4. Certain times of the year are better than others. At the times of the year when most people are apt to make a move, prices usually increase, sometimes significantly. Two generalizations apply:

• Spring and summer are traditionally good times to sell. House prices usually jump in the spring, absent some major external factor such as a recession. Families with children are anxious to buy so they can move during summer vacation, before the new school year. And your garden may enhance your home’s attractiveness, if flowers are blooming.
• From mid-November through mid- January, the market is slow and the pool of people wanting to move begins to shrink. Most people don’t think about buying a house during the holiday season. (Then again, those who do are likely to be serious and motivated buyers.)

Remember that the trick to selling anything, from doughnuts to jewelry to a single-family house, is to market your property when most folks are apt to buy. There can easily be good reasons for anyone to pay top dollar for your house at any time of year, especially if economic conditions are favorable and interest rates are low.

Selling One House and Buying Another

If you plan to sell your home and buy another, questions of timing inevitably arise. Is it better to sell your old house before buying a new one? Or should you focus primarily on buying, even if it means that you may have to sell your present house quickly to close on the new one?

Skip Ahead: If you’re not buying another house, you can skip this section. Also, homeowners looking to sell who can afford to own two houses at once (even if for just a short period), don’t need to worry about perfectly timing their purchase and sale transactions and can go on to "Success Stories: Homeowners Who Timed It Right."

If you sell first, you’ll be under time pressure to find another house quickly. This is stressful, and rarely results in your finding a truly good new house at a reasonable price. Even if you do find a great house, you’re likely to overpay in an anxious effort not to lose out to another purchaser.

On the other hand, buying a new house first and then scrambling to sell your old one is no fun either— especially if you’re trading up substantially and need to sell your old house for top dollar to make the down payment on the new one. Selling a house fast and getting the best possible price are normally mutually exclusive concepts. Too often, people accept a lower-than-optimum price on the old house so they can make a quick sale.

Here are some constructive steps to minimize the financial and psychological downsides of selling one house while buying another.

Check the Housing Market Carefully

Before you put your house on the market or commit to buying a new one, carefully investigate the selling prices of houses in the areas where you’ll be selling and buying. It’s essential that you have a realistic idea of how much you’ll get for your house, and how much you’ll pay for the one you buy, so you can figure out how to sell high and buy low. (See Chapter 5 for more information on accurately pricing a house.)

Also focus on whether the market is a cold (buyer’s) market or a hot (seller’s) market. Understanding market conditions is important to buyers and sellers, and is crucial for people who are both. Your dual position lets you adopt a strategy of protecting yourself in your weaker role while letting your stronger role take care of itself.

Strategies in a Seller’s Market

If homes are in high demand in the communities where you both now own and plan to buy, it follows that selling your current house will likely be easier than buying a new one. Thus, you want to compete aggressively in purchasing a new house, while insisting on maximum flexibility as to the date you move out of your present house.

You can guarantee yourself this leeway by stipulating that the sale of your current house be contingent upon your finding and closing on a new house. When a buyer makes an offer on your house, include a provision spelling this out in your written counteroffer. Although few buyers will agree to an open-ended period, some will be so anxious to buy your house that they’ll agree to delay the closing until you close on a new house or until a certain number of days pass, whichever comes first. (See Chapters 9 and 10 for more on offers and counteroffers.)

Strategies in a Buyer’s Market

In a buyer’s market, where the supply of houses outstrips the number of buyers who can afford to purchase them, you’re in a stronger position as a buyer than as a seller. Consider protecting yourself by making your offer to buy a new house contingent upon selling your current one. A seller having a hard time finding a buyer is likely to accept this contingency, even though it means waiting for you to find a buyer for your house.

Resource: How to Buy a House in California, by Ralph Warner, Ira Serkes, and George Devine, contains practical, up-to-date information about the financial realities, legal rules, and real estate customs of buying a house in California. It covers homebuying from start to finish, including defining your home needs and budget, finding a house, working with a real estate agent, arranging financing, making an offer, negotiating, going through escrow, and dealing with potential problems. Sample contracts for all aspects of homebuying are included. You can purchase the book on Nolo’s website at www.nolo.com, which also contains free resources for homebuyers.

Bridge Financing: How to Own Two Houses Briefly

Unfortunately, no matter how carefully you time things, you may be unable to perfectly dovetail the sale of one house with the purchase of another. You may own no houses for a time, in which case you’ll have money in the bank and need a temporary place to live. Or, you may own two houses at once, in which case the following suggestions should help you:

Raise as much money as possible for the down payment on a new house. Many people rely on the profit from the sale of their old homes to make down payments on their new homes. But if you have any savings, you may want to apply that cash, even temporarily, toward your new purchase. If your savings put the second house within reach, you can maximize your cash by charging living expenses or getting an advance from your employer. Of course, you’ll only want to utilize this strategy if you’re confident your existing house will sell quickly, because interest rates on credit cards are usually high and you don’t want to accumulate such debt indefinitely.

Borrow down payment money from family or friends. Point out that you need help for only a short period, and offer a competitive interest rate. Keep in mind that it’s easier to borrow short-term money than to borrow a large sum for 20 or 30 years. If, for example, your parents have money put aside for retirement or your sister is saving to take a year off from work, either may be willing to tap savings to help you for the short time it will take to buy one house and sell another.

Tip: Getting a loan from a family member or friend can be just as formal as working with an institutional lender. If you’re considering asking someone you know for help, but want the deal professionally structured, consider working with CircleLending. It’s a company dedicated to helping individuals structure private party and intrafamily loans, and can help you make important decisions like choosing the interest rate, structuring payments, and understanding tax consequences. You can get more information at www.circlelending.com.

If you follow this approach, give the lender a promissory note, secured by a second mortgage (deed of trust) on your new house. This arrangement can often mean no monthly payments are due until your first house sells and thus no negative effect on your debt-to-income ratio. (See Chapter 8 for more on second mortgages.)

Get a bridge loan from a financial institution. If you have no other choice, you can normally borrow money from a financial institution to "bridge" the period between when you close on your new house and when you get your money from the sale of your old one. This loan is a short-term home equity loan on your existing house that you’ll repay when your first house sells.

We say "no other choice" because bridge loans can be expensive. Lenders often charge a host of upfront points or fees for things like credit checks, appraisals, loan origination, or inspections. Interest rates are generally high, too. This wouldn’t be unreasonable if you needed the money for a long time and spread the cost over many years, but it’s very expensive for a loan that usually only lasts a few months.

Success Stories: Homeowners Who Timed It Right

Here are a few examples of homeowners who used creative solutions to take advantage of market conditions.

Jon and Penny Timed a Job- Related Sale to Their Benefit

Jon was transferred by his company to Eureka in the middle of November, a thousand miles away from his former job in San Diego. Jon and his wife, Penny, realized that houses often sell for less in the winter and thought that because the economy was stagnant, interest rates were likely to fall in the spring. They guessed that their San Diego house might go for $15,000 to $20,000 more in May or June. Also, they didn’t want their kids’ schooling interrupted. So Jon and Penny decided to put off the sale until spring. Fortunately, when Jon explained the problem, his employer was willing to help, including putting him up in a company-owned condominium in Eureka for very reasonable rent, and agreeing to pay for his airfare to visit his family in San Diego on alternate weekends. This not only allowed Jon and Penny time to pick out a home in Eureka, but also let them wait until March to put their existing home on the market. When their house sold in April, with a June closing, Jon and Penny got a very good price. Although not everyone has an employer as cooperative as Jon’s, your boss may be willing to help take some pressure off you.

Ann Minimized the Financial Trauma of Widowhood

Ann was widowed unexpectedly. Her first impulse was to sell the home she and her husband had lived in for many years. "I had to get away from the memories," she said. Ann talked to a good personal counselor and learned that it is usually a mistake to make a major decision like the sale of a house within so short a time of such a shock. Her counselor even showed her one of several studies indicating that human beings’ decision-making abilities seem to be short-circuited by grief and shock for at least a year—often two. Nonetheless, Ann felt that living in her house was too much to bear. After checking with her tax advisor concerning the timing of her transaction, Ann rented her home to a friend’s son and lived elsewhere for several months. Then, when she was ready to cope with business details, she sold the house and got at least $20,000 more than she would have had she sold immediately after her husband’s death.

Fred Saved $50,000 by Waiting Patiently

Fred wanted to purchase a larger house and sell his old one. He realized that he wasn’t under time pressure to sell. Accordingly, the first thing he did was work out his finances so that he had enough money to close on the new house without selling the old one immediately. This involved arranging a short-term loan from a friend. When Fred did find the house he wanted to buy, it was priced fairly, but at least $30,000 more than he could afford.

When Fred got friendly with the seller, he learned that she was extremely anxious to sell quickly so as to avoid losing a deal to purchase her custom-built dream house. As it was just after Christmas and houses weren’t selling, Fred decided to make what he thought was a ridiculously low offer. As soon as the seller saw that he had the money and that his offer was not contingent on selling another house, she accepted. Fred held on to his old house for three months and priced it $15,000 more than was suggested to him, which was at least $20,000 over the current market. He figured that since he wasn’t in a hurry, why not test the market for a while and hope that a little spring sunshine would cause a general price increase? The happy result was that Fred’s house sold for his asking price at his first open house.

In short, by planning ahead, Fred estimated that he made about $50,000 more than he would have had he not used timing to his advantage.

Introduction

Before rushing to put your house on the market, it’s a good idea to think about whether you’re ready to sell. Many factors can affect your decision— perhaps you have no choice, because you simply can’t afford your home anymore. Or maybe you’re ready to retire and move out of the area, and are anxious to cash out your equity and move on.

To decide whether now is the right time for you, you’ll want to take into account your own personal reasons and the market’s condition.