Selling your current home is often the first step in your real estate transaction. Because of this it is easy to focus on the first burning question of “How much money can I get for my home?”
While a solid financial return on your investment is a legitimate concern, too much focus on the price of your current property can potentially skew your outlook of the whole transaction. Many people want to wait to sell until home prices go up.
However, when prices are low that may actually be the best time for you to maximize your opportunities between both sides of the transaction.
How can selling your home in a market where prices are down possibly be your best option? Let’s do a little math.
Assume your home is currently marketable at roughly $200,000. If your home appreciates 3% over the following year it will then be marketable at $206,000. Many home owners view this as a win as they see the $6,000 in profit from one year to the next. However, what many people lose sight of is the fact that they will be buying a home on the other end of the deal that is also likely to go up in value.
If you are moving into a more expensive property, and are currently qualified up to $300,000, the same 3% appreciation puts these properties around $309,000 within the following year. There are two drawbacks to this situation.
#1. If you wait to sell for an extra $6,000 in this scenario you will also pay an extra $9,000 on the purchase of the new property. In other words, you are actually losing $3,000 because you waited to sell your home at a higher value.
This may not matter to you as you will get the $6,000 up front from the sale while the loss of $3,000 may be wrapped into a mortgage over 30 years. However, that brings us to the second drawback.
#2. Interest rates change. Notice the interest rate chart below. If you are qualified to pay up to $1,350 per month in principal and interest you can currently afford that $300,000 home you’ve been eyeing up. However, if rates rise just .5% you lose about $20,000 in purchase power. In this scenario by waiting to sell for an extra $6,000 you have lost $20,000 in what you can afford.
#3. As home prices increase and interest rates rise there are fewer buyers eligible to buy your home. Buyers eligible for up to $900 in monthly principal and interest also lose roughly $15,000-$20,000 in purchase power for every .5% increase in rates.
So when is the right time to sell? It always depends, but the answer is clear that it isn’t always best to wait.