Negative Home Equity, The Cost Of Putting Life On Hold

Real Estate Agent with Diamond Partners Inc 00244377

So, you need to sell your house?  Okay, maybe you don't NEED to sell, but maybe you want  to sell.  For whatever reason, you're selling - because of a job opportunity resulting in relocation, a divorce, a lifestyle change, your retiring or perhaps getting remarried.  But, wait.  What happens if you owe the bank more than what a buyer is willing to pay?  Do you wait to sell?  Why put your life on hold and be miserable? 

To sell, do you NEED to get X number of dollars just to break even on what you owe the lender? 

Of course if you sell below the loan amount, you'll have to pay your lender out of pocket at closing.  It's called negative equity.  Even if you aren't in a negative equity situation, you still need to pay the fees and expenses associated with selling your house.  So, you're crunching the numbers and things just aren't adding up.  It looks like you will not have proceeds left from the sale to pay the expenses associated with selling (transfer tax, broker & attorney fees).  You might not even break even.  Now what? 

Go ahead, apply pressure.  Just tell your Realtor you NEED X number of dollars - and, to work his or her magic.  But, your Realtor is telling you that a buyer does not want to pay X number of dollars in this market.  Don't shoot the messenger.  Your Realtor will probably not be able to pull a rabbit out of a hat.  It's the market, not your agent.  You need to give consideration to what other homes are selling for, how many other properties you are competing with ...and, you have to understand that in order to sell - what you REALLY NEED is to price your house competitively. 

What you NEED - might not be what a buyer is willing to pay. 

This might seem a little insensitive, but a buyer really does not care what you OWE.  So, now what do you do?  Put your plans on hold?  Postpone your life as you want it to be?  Perhaps there is a solution.  But, you have to WANT or NEED to sell bad enough.  Just how motivated are you?  Are you motivated enough to take a loss?  What - you don't think you are in a position to do so?  Think again.

Can you be creative? 

Do you have other investments?  Do you have money set aside in a savings account?  Is there a retirement account you might be able to tap into early?  Do you own stock?  As a Realtor, I once had to be creative and daring enough to tell my unemployed single homeowner that he should probably sell the Mercedes that was sitting under cover in his carport because it was January and he only drove his winter rat during the snowy months to keep his trophy car in mint condition. 

A few months ago, another seller who had his house on the market way too long, came to me and told me his strategy for dealing with his negative equity situation.  There were no assets but he had great credit.  He was financially strapped.  The only way out of the mess was to sell at a loss and use his good credit to apply for a loan which would pay off the negative credit at closing. The monthly payment on a $25,000 loan was a small fraction of what he continued to pay each month for this vacant house.  Don't have good credit to be able to implement this strategy?  How about borrowing from a family member?

Can you borrow from Peter, to pay Paul?

Let's face it - by now, everybody has lost money in every market.  Real estate was just the first market to be hit in this national economic disaster.  But, those caught with negative equity who placed all their eggs in one basket (their personal residence) are feeling it the hardest.  It's like being placed under house arrest as one blogger describes it.  Judy Chapman, REALTOR® ~ Short Sales / Luxury & Lake Properties (Coldwell Banker Residential Real Estate) summed it up so eloquently when she wrote a post titled Homeowners Under House Arrest - it's a sad but true dilemma. 

In Judy's post, broker Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc explains from personal experience how sometimes there is money that can be paid at closing when one has to take a loss on sale. Yes, sometimes we have to cut our losses to be able to move on. Sometimes we even have to be creative.  Unfortunately, not everybody is positioned financially to do this because the one and only investment is - THEIR HOUSE.  No money in the bank, poor credit, no rich uncle.

Can you rent that property?  Perhaps you might need to become a landlord to be able to move on.

When, there are no options the homeowner and the home are like a ball and chain. There's resentment and the house becomes an unhappy place.   

While more and more people are finding that putting their eggs all in one basket is a very poor investment strategy, others are realizing that there are options.  They've found solutions.  And, those buying homes today are hopefully learning that it's okay to live modestly to be able to save wisely for the future.  Perhaps it's a lesson learned too late for many.  But, I sure hope most of us can learn from mistakes made in the past.

Nobody should feel like a prisoner in their own home

Posted by



Carol Culkin - Licensed Real Estate Salesperson for ReeceNichols Real Estate, is your source for real estate in Overland Park and the bordering cities of Leawood, Olathe, Mission, Miriam, Lenexa and Shawnee, Stillwell and Spring Hill. Carol has been ranked as an award winning agent and offers her clients over 10 years of real estate experience.


Member of National Associations of Realtors®, Member of Kansas Associations of Realtors®, Member of Kansas City Regional Associations of Realtors®, Member of Heartland Multiple Listing Services, Accredited Buyer's Representative (ABR), Seniors Real Estate Specialist (SRES), Red Cross Volunteer - Greater Kansas City Chapter, Supportor of Cross-Lines Community Outreach.


ReeceNichols Real Estate

8001 College Blvd Suiite 100

Overland Park, KS 66210

Office: (913) 451-4415
Cell: (913) 333-8310  



Comments (61)

Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

The steps being taken by the government to solve the problems is not really doing anything but making the banks richer and more powerful.

Jul 28, 2009 04:23 AM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Can I just respond to Ron Tiller?  How on earth can you compare a home to a car?  First of all - automobile depreciation is normal and expected.  It's a machine and machines like that have a life expectancy that a homes do not.  Further,  if you lose 40% in a $30,000 vehicle its not the same as losing 40% in a $500,000 home.   There is one heck of a difference between $12,000 and $200,000.

I agree with the basic premise that  sellers have to be more realistic and that they can't force buyers to purchase their home where they "need it" to be.  But at the same time - comparing the loss in a home to the loss in a vehicle is really trivializing the seriousness of the wealth erosion that has occurred. Further, many REALTORS were touting homes as "investments" in the past - we can't turn around and say "Opps - sorry - you shouldn't have put so many eggs in one basket."

Jul 28, 2009 05:07 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Disagree with this comment:

if one is able to obtain a mortgage on their new principle residence it's fairly likely the interest rate will be higher

Most likely rate will be lower, not higher.

Jul 28, 2009 05:15 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Regarding Lenn's comment about the comparison of negative equity in a car with negative equity in a home:

When someone buys a car, they do not expect it to go up in value. They KNOW it is going to depreciate like mad, they accept that fact, and often the loan can not be paid down fast enough to ever have "equity" when you buy a car...especially a new car.

A very important difference is that for years, auto dealers have had the ability to "roll the negative" into the new loan, thus delaying the liability of paying that negative in cash.

The mortgage world has no escape route when the old house sells for $250,000 and the homeowner owes $300,000. So the homeowner has made his own escape clause:

He walks away. That's when every other house on the block goes down another $20k because some bank had to "dump" it.

As soon as everyone buying a house gets a grip on the fact they have exposure for negative equity (yep, just like when you buy a car) slowly......we will rearrange our finances, our economy, and our lives to accept this fact.

Because it is a fact.

Jul 28, 2009 05:28 AM
Judy Chapman
Referral Network of Illinois LLC - Chicago, IL

Carol, So much good advice here. I like your take.

Many homeowners don't want to hear that they can't get always get what they want for their house, and that a buyer won't purchase a house for more than market value.

Jul 28, 2009 05:46 AM
Susan Manning
Realty Executives - Temecula, CA

This is a great marketing in for us as real estate agents who want to do short sales.  Thank you!! 

Jul 28, 2009 06:33 AM
Simone St Clare; Broker, CRS
Real-Legal Real Estate ( ( - Walnut Creek, CA

Carol, you bring up some good points about looking at other available options such as renting out the property or coming up with cash to close.

However, I feel that you and most of the other commentators here are being much too simplistic.

In my market it is quite common for the negative equity gap to be over $100,000; sometimes much more than that! If an owner's credit or job situation is not good enough to qualify for a loan modification, there are not many options available.

Don't tell me that someone could rent out their property easily...a house worth $500k a couple of years ago will (probably) have a large enough loan on it to make it financially improbable for an owner to absorb so much negative cash flow. In addition, rent prices are softening; not increasing.

Creative Financing roared to life in the early 80's because there were so few financing options. These days, even creative financing may not work because of little-to-no-equity and the inability to take mortgages "subject to". I would love to help facilitate people's dreams of moving on or moving up...I just don't know if there are any more rabbits to pull out of my hat...

Jul 28, 2009 06:36 AM
Todd & Devona Garrigus
Garrigus Real Estate - Beaumont, CA
Broker / REALTORS®

Hard times call for creative, yet responsible, measures. Even if you will pay a little more each month just to rent it out, it may be better in the long run.

Jul 28, 2009 07:48 AM
Paul Gaddes
Village Real Estate Services - Franklin, TN

This is a well written post. I think you packed a great deal of information into a realatively short article. The larger issue for me though is that the consumer, after treating their home like an ATM for a decade is now perplexed that the bill has arrived. If people have skewed their thinking along the lines of their home as a purely investment vehicle then they are missing a key point of home ownership; that is, having a place to live. If they have made risky investments in stocks, they can sell and take the loss; same with their home. If they don't want the loss, remain in the home and let the equity replenish, which we historically believe will be the case....Borrowing to pay off one bad investment is a risky investment in and of itself.

Jul 28, 2009 09:07 AM
Diane Dames
Broker Associate & Leasing Consultant@ Lions Share Realty - Victorville, CA
The Real Estate Chick

I have to agree with Sinone #48. I do a lot of property management as well as Short Sales. If the homeowner has not recieved a loan modification prior to renting it out, chances are the difference on what they will pay on their mortgage vs rental income is still far to great for most to bear. If your mortgage is $2000 a month, typically you wont be able to get more than $1400 that leaves a difference of $600 you still have to pay in addition to wherever you are living now. It would still make sense to just stay where you're at or do a Short Sale versus renting it out. I usually wont take on rentals in this case,because eventually the homeowner stops paying the mortgage all together and this leads to a foreclosure and angry tenants. This is a Major problem in my area!

Jul 28, 2009 09:13 AM
Jill Nelson
Jill Nelson Design Services - Palmdale, CA
Interior Design

I am a home owner who's husband has taken a job 400 miles away and we are trying to sell our home. He comes home every other weekend and it's really starting to get old. Our place is country property and small acreage and I'm killing myself keeping it up so it looks it's best. Prices in our area are still falling fast, we aren't upside down but at this rate it won't be long. As Judy pointed out in her blog I am truly feeling like I'm under house arrest at a hard labor camp. Is it worth it, I cry uncle!  

Jul 28, 2009 10:50 AM
John DL Arendsen
CREST "BACKYARD' HOMES, ON THE LEVEL General & Manufactured Home Contractor, TAG Real Estate Sales & Investments - Leucadia, CA
Crest Backyard Homes "ADU" dealer & RE Developer

NegEq is surely the other shoe yet to drop and will nip us in the no no before parting the dust on the road.

Jul 28, 2009 02:14 PM
Carol Culkin
Diamond Partners Inc - Overland Park, KS
Overland Park Residential Real Estate

Simone & Diane  - As one recent seller of mine pointed out, she would be in a better financial situation by carrying the difference on the rent vs, mortgage rather than having two full house payments. Also, there are some definate tax benefits to rental conversion and I think the difference between the rent vs. mortgage payment might even be considered a "passive loss" if the landlord can show that expenses exceed the rental income.  I THINK. Perhaps somebody here might be able to clarify.

Jul 28, 2009 02:51 PM
Steven L. Smith
King of the House Home Inspection, Inc. - Bellingham, WA
Bellingham WA Home Inspector


I own a duplex and three houses and I am very pleased that I am not in the market to sell any right now. They are all renting fine and I live in one.

Jul 29, 2009 02:45 AM
Samuel Trevino
Austin, TX

Hello Carol,

Really good post. From my perspective a lot of people (including Realtors) have a misunderstanding of what an investment entails. First and foremost and investment of any kind has risk. Secondly an investment is usually, but not always, made into an asset. An asset is something that generates wealth after accounting for all overhead and operating expenses, e.g. net profit from rental income after maintenance, debt service, taxes, etc. This is versus a liability which is something that not only does not generate wealth but actually incurs costs such as loan (hence it is a liabilty). Most people would say their home is an asset, but I disagree. Yes in quite a few cases real property does appreciate, but overall it costs the home owner in loan costs, maintenance, taxes, and more. The typical home owner does not generate wealth off their principle residence; it is not paying them to live at the location. Does this mean people should not buy a home? No it does not. A lot of people forget that buying a home is a responsibilty and yes it can produce a return through appreciation, but that does not make it an asset and there is always risk.

Carol I do take issue with your statement, "Is there a retirement account you might be able to tap into early?" I would personally never recommend anyone touch a retirement account regardless of how serious their situation. Retirement funds are for retirement.

Jul 29, 2009 03:35 AM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Good post.

In Toronto, the market has fully recovered so this is not a problem.

There are still some outlyng areas which are problematic.


Jul 29, 2009 09:36 AM
Sagar Sagar

This is quite interesting. I recall a incident where my friend was selling his brand new home because he badly needed money for some family reasons. He had purchased this home, which was under litigation for some time, and he had taken home loan at a higher rate. At the time he was selling it, the potential buyer was ready to pay almost 300,000 rupees less than what my friend has actually invested! Forget the market appreciation!! This had happened only because of the litigation thing and my friend has suffered from "negative home equity." Now I understand this whole concept, so thanks for sharing it.

Jul 29, 2009 05:11 PM
Debra Kukulski, Broker Associate
RE/MAX Suburban - Cary, IL
SRES;SFR,CDPE;GRI;ABR;e-PRO Realtor, Northern IL

I love this post on selling short (not short sale!), Carol....I wish it was available as a re-blog!  VERY well written!

Jul 30, 2009 01:36 AM
Brian Griffis
Realty Choice - Springfield, MO

Good point Sagar.  This can even happen in India, or anywhere in the world.  As the world becomes more connected, the property market has truly become global.  What will happen when all those vacation homes in Dalmatia become a burden just like this post mentions?  We need to let people know that real estate is not just a one way bet.  You can loose money, we just need to do a better job of informing the public of this.  I still have clients say they want to buy a home as an investment to live in.  They are contradicting themselves right there.  So hard to educate people that have been brainwashed by the media, advertising, and I hate  to say it, by other Realtors to believe they can't loose money when buying a house. 

Jul 30, 2009 01:41 AM
Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

Carol - This is the situation many have found themselves in.  When this is the case, all option should be considered while keeping the emotions in check.

I suspect  the option of bringing money to the closing must be rather painful.

Aug 04, 2009 12:26 PM