We've been hearing for quite some time that it's a buyer's market and a great time to buy. That is probably not going to change any time soon in 2011. So what happens if you're a seller or thinking about selling? Are there good reasons to sell now? Here are 5 reasons why now may be a good time for you to sell:
1. Buyers are buying. If the increased buyer activity I experienced locally in the 2010 fourth quarter and through the holiday season is any indication, buyer confidence is being restored. As the real estate market continued its downward trend in 2010 and more foreclosures hit the market, it appears buyers are finally realizing there are some good deals, even hot deals, out there that they need to take advantage of. The percipitous jump in mortgage rates over a 2-day period in the last quarter may have also contributed to this activity. So, why not put your home in front of these buyers who are seriously looking?
2. You plan to buy another home once you sell yours. If you plan to buy another home, particularly a move-up home (i.e., bigger, more expensive), then whatever you may lose by selling now will be made up upon your purchase. You, too, can take advantage of the buyer's market. What you need to consider is how much equity you have in your home today, not compared to 3-5 years ago at the top of the market. Value is relative to current circumstances. To illustrate, let's say you bought your home 10 years ago for $150,000. In 2006, it was worth $300,000, but now it's only worth $250,000. You've still realized a gain of $100,000! Forget about the hypothetical, paper loss of $50,000. Again, by selling now, you will also be buying a home that also may have been worth $50,000+ more 3 years ago.
3. Interest rates are still low, but will go up as the market improves. Now this may seem more advice to a buyer than a seller, but what a seller needs to keep in mind is that the more interest rates go up, the less a buyer can afford to buy. A rule of thumb is that for every 1% the mortgage interest rate goes up or down, a buyer's buying power goes up or down $10,000. So, assume the interest rate is 4.75% today and a buyer qualifies to purchase a home at $300,000. If in 6 months the interest rate goes up to 5.75%, that same buyer (assuming no other changes in circumstances) could only buy a a home for $290,000. If in a year the interest rate increased to 6.75%, the most the buyer would could afford is $280,000. If you wait another 6 months to a year, you may have to lower the asking price from $300,000 to $280,000 to get it sold. In short, it is somewhat of a gamble to wait 1-2 years to sell in hopes that the appreciation in your home's value will exceed the effect of increasing interest rates.
4. It will cost you less to rent than to keep paying your mortgage and other housing expenses. Most of us have bought into the "American Dream" of home ownership and, in fact, have enjoyed the real emotional and financial benefits of home ownership in years past. Unfortunately, during the boom years, too many Amercians also used their homes as ATM machines or collateral to finance other purchases or investments that were not appreciating or income-producting assets. With the burst of the real estate bubble and the economic depression taking on global proportions, many people have now started questioning the American Dream as a right versus a privilege, or even as a wise investment given a someone's economic and personal situation. So, if you find yourself with a refinanced mortgage or 2 or more mortgages with combined payments that exceed the monthly rent of a comparable home, then maybe now is a good time to sell and rent something cheaper. If you can do so and put away the difference into savings or use it to pay off other debt, this could make more economic sense until your financial situation and the economy improve.
5. You have to sell. Okay, I realize need or distress does not make this a good time to sell, but it does make it a reason to sell now. And reasons number 1 and 3 come into play. If you find you can no longer make your mortgage payments, the worst thing you can do is bury your head in the sand or hope for some miraculous turn of events, i.e., you find a new job, get a huge pay raise, win the lottery, inherit a small fortune, or whatever is needed to get you out of your distressed situation. I've experienced too many sad cases lately of people getting much less for their homes or being forced to walk away with nothing by failing to seek expert advice and act promptly and reasonably upon it. That included failing to price a home very competitively to get it sold promptly which caused it to languish on the market as the market continued to trend downward. Even though there are signs of an improving market, reason number 3 may prevent you from getting top dollar for your home if you wait too long to sell or do not price it competitively in today's market.
So why might it not be a good time to sell now? Well, that would be if you don't have to sell, don't plan to buy another home, your mortgage payment (principal, interest, taxes and insurance) plus maintenance costs are equal to or less than the rent payment (for which you get no tax deduction) on a comparable home, or you simply want and can afford to live in your home for at least another 3-5 years, or indefinitely, until the market improves.