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Deciding to Sell Your Home in a Down Market

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My wife and I sold our home about a month ago, and unfortunately, we lost a lot of money on the transaction. We knew we would lose money before we even put our home up for sale – housing prices have dropped substantially since we made the purchase and the inventory in our market was flooded with foreclosures and other homes (there was a 15 month inventory on the market when we listed our home for sale). All signs were pointing toward us taking a big loss on our home – and we did.

Our story isn’t unique – people around the country are facing similarly depressed real estate markets and many people can’t sell their house for a variety of reasons. If they must sell, people are forced to sell at a loss, which brings both financial and psychological challenges. The difficult markets are even causing some people to walk away from their mortgage.

Wait it out if you can – but don’t let it stop you if you have to move

If ever ever there was a time to try and wait out a bad market, this is it. But not everyone can wait – you may need a larger home for a growing family, your job may take you elsewhere, or you may have to move for a variety of reasons.

Our decision to sell was two fold: We needed a larger home for our growing family and we wanted to relocate to be closer to my wife’s family. We didn’t have the luxury of waiting out the markets, and renting wasn’t a good option either. So we decided to sell our home.

Unfortunately, the real estate market took a huge hit since we purchased the home in 2005, and our area had a glut of foreclosures. So we were forced to initially list our home for $25,000 less than we had in it. Nothing like taking a $25,000 hit before you even sell your home!

Of course, it doesn’t stop at the list price – you also need to take other expenses into consideration – closing costs, real estate agent commissions, taxes, home warranty, and other fees. The initial estimate was that we would lose in excess of $40,000… and we were right.

Accepting the offer on our home

Fast forward 6 months. We received an offer on our home almost exactly 6 months after we listed it. The offer was for $40,000 less than we had in the home. This was the first real offer we received and we wanted to accept it. So we made a small counteroffer. They asked for a $10,000 price reduction from the list price, and we countered with a $7,000 price reduction. We didn’t ask to meet halfway because we didn’t want to lose the sale. In retrospect they probably expected to meet halfway and we probably would have gotten it. But at that point I wasn’t willing to lose a sale over $2,000. The buyers accepted the counteroffer right away, so we were good to go.

Wrapping it up. After we agreed upon a sale price we just had to dot the i’s and cross the t’s. We paid the closing costs, commissions, a few minor repairs found in the house inspection, taxes, fees, and other expenses.  Altogether, we ended up losing just over $50,000*.

*This isn’t a perfect calculation when you take into account factors such as time value of money, interest, etc. It’s simply a calculation of the purchase price minus the final sale price, commissions, fees and associated costs.

Losing money is a tough pill to swallow, but it isn’t the end of the world. Now that I’ve had a month to digest this, it isn’t as bad as it first appears. Yes, we lost $50,000. That’s tough to swallow. But we also get to move on with our lives – we aren’t locked into a house which is too small for us and we get to live closer to family, which is priceless. But there are several more reasons why I’m not too upset about losing $50,000. And I’ll tell you all about it tomorrow. ;)

Have you sold a home in this market? How did it work out for you?


Published or updated November 15, 2011.
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{ 9 comments… read them below or add one }

1 Mike Holman

Man that sucks!

Don’t forget that rent should be an imputed (I think that’s the word) value as well.

Had you decided in 2005 to rent the house instead of buying, you would have saved on interest, made some money (maybe) with your capital, but you would have had to pay a lot of rent as well.

Looking back, you might have been better off renting – but the difference is probably a fair bit less than $50k.

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2 Ryan

It sucks, for sure, but tomorrow’s article explains why it isn’t as bad as it first appears. (I had it all in one article, but then it was about 1500 words and I decided it made sense to break it into two articles).

I could probably sit down and determine exactly how much we lost on the sale or would have saved (or lost) if we had rented, but to be honest, it has too many variables, and probably isn’t worth my time to run the numbers. I would have to dig through our mortgage payment history to determine how many extra payments we made, money kept in escrow, determine what a reasonable rent would have been, calculate interest, then try to place an opportunity cost on the money, which means determining how our investment portfolio did over that time period….

Too much work to figure out something that has absolutely zero basis on what will happen in the future, which at this point is all that matters! :)

So my plan now is to focus on how we can make this work to our advantage and write the loss off as just that – a loss. It’s a pain, but it’s in the past and time to move forward. :)

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3 Money Beagle

If you’re buying another home, you can offset a good portion of the ‘loss’ by virtue of the fact that you’re likely getting the other home for cheaper. Many people want the best of both worlds. I heard someone who was looking to downsize a bit lament ‘Boy, prices are so low that it’s a great time to buy but I just can’t handle taking the loss on my house now.’

I remember when I sold my condo a couple of years ago, I was livid when I got an offer for $15k lower than the asking price and my realtor advised me to accept it, but then I realized that we got the home we ended up moving to for $30k less than I would have in the peak market.

Being realistic and realizing that you can’t have it both ways is the biggest part of this process.

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4 Ryan

Money Beagle, that’s our exact line of thinking. We are planning on buying a larger home, and in our area the larger homes have dropped by a larger dollar amount than the smaller homes (which makes sense if everything dropped by the same percentage).

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5 Pete

We were in the opposite situation a few years ago – buying and selling a home at the top of the market. We sold our townhouse for $205,000, making a $60,000 profit on our purchase price from 5 years earlier. We also bought a home for $275,000 – which is now appraised at around 235,000 after the market drop. Recently saw that the approximate value for our old townhome is back down around $150,000. So in the end, we did well on the townhouse, and the house we moved into has lost less value than the townhouse did.

If we were to sell today we wouldn’t be underwater in our home, but it would definitely hurt to see that we weren’t getting anywhere near the $275,000 we paid for it.

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6 Becky

We just listed our house in mid-January located in NW Ohio/SE Michigan. Great timing, right? At this point, we have it listed just slightly below what we paid for it in 2003. We’ve had a lot of activity, which I thought was promising considering the time of year, but no offers. It’s kind of depressing when people comment that a 2200 square foot house with a finished basement (not included in the footage) and over 700 sq ft of unfinished bonus room (again not included) as “too small”. Also, we knew we’d like to sell fairly quickly, so we priced our house at the lowest amount in our neighborhood (3 other houses for sale, all 10k to 40k higher).
We are selling because of a job transfer, so hopefully everthing works out in the end. We’re currently renting in the new city until the house sells.

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7 krantcents

What you describe is the bad side of the story! The other half was you bought in the same crummy market where you were in the driver’s seat. Hopefully you received a good deal on the other end! Another choice may have been to rent your house , refinance and bought another home. That scenario may have allowed you to gain if your house gained in value. I rented out my house when i bought my current home 13 years ago. I sold it a year later and enjoyed a gain in value.

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8 Ryan

We thought about renting out the home, but there were several factors that made us decide not to rent it out: we were moving out of state, so we would have had to pay a property management company to handle any issues that came up, we lived in a townhome with fairly large monthly association dues, and we had a 15 year mortgage. The combination of these would have caused us to run a substantial deficit based on the market rate for renting out our home. Refinancing might have made renting it more palatable, but even then it would have been running close to a deficit. Selling our home allowed us to cut ties with the property and start fresh. Now the hope is that we can find a good deal in our new location and make up for the loss we experienced on our last home!

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9 Allen

I am afraid that I am headed for the same outcome on the upcoming sale of my home. I bought my home in the middle of the housing crash and now I am afraid that my job is about to move to another city….Too far to commute.

I am simply horrified of what my house might be worth today. I felt like I was getting a good deal at the time, but two and a half years later, I have my doubts. There are houses for sale close to my neighborhood that were for sale when I bought mine nearly three years ago.

The one bit of good news is the fact that my company usually offers some sort of financial assistance in relocating to a new home, but it just won’t be enough to ease the pain.

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