Sunday, May 10, 2009

Is Now a Good Time to Sell?

I came across this article recently and found that it articulates very well the advice I've been giving my clients lately. Particularly this statement:

"It's a good time to sell if you're looking to upgrade your house," says Timothy J. Cabrera, president of Atlanta Interest Mortgage & Financial Group, "because there are so many opportunities to buy a larger home, and the financing rates are so favorable, and so we don't know how long they're going to stay at this level."

One of the things I've found recently is that entry level homes, many of which are competing with foreclosures and distressed homeowner's for buyers, may have lost some value, but very little in comparison with larger and higher end houses. The reason, in my opinion, is that many 2nd & 3rd level homeowners are sitting on the sidelines believing that they should wait to sell even if they want to trade up. This is creating a bottleneck of demand that is depressing the upper levels of the housing market far more than entry levels. For many of these homeowners, they might be better off selling their entry level home now at a slightly lower price than they would like while benefiting from ridiculously low interest rates and 2nd tier home prices which have fallen further than what they would discount their current home.

Here are some numbers that approximate the Chattanooga real estate market:

You purchased your home in 1999 for $90,000 at 7% interest with 100% financing. Your monthly payment is currently $600 (principal & interest only*). We determine that your home might have sold for a net price of $120,000 at the peak of the market but you decide to accept an offer of $108,000. You take the $18,000+ and use it to purchase a home that would have sold for $195,000 at the housing peak but which you are able to purchase for $160,000. Because you are able to get financing at 4.75% your new monthly payment is only $740 on a principal amount of $142,000 ($160,000 less the $18,000+ down payment you have from the sale of your previous home). You have "lost" $12,000 in appreciation on your first home ($120,000-108,000) but you've also "gained" $35,000 on the purchase of your second home ($195,000-160,000) while, at the same time, lowering your interest rate significantly.

This is a purely hypothetical example but it demonstrates the benefits that you may find if you are looking for a larger or upgraded home.

Another point made in the article is this:

"If you do decide to invest money in your house, do it for yourself. Don't spend a fortune only for the future homeowner, since spending $30,000 on improving your kitchen and assuming that will add $30,000 to the purchase price is, of course, a gamble."

Now is not the time to be making costly upgrades to kitchens & baths in the hope that it will increase the value of your home. The corollary of this statement is that, if you decide that you want to sell, DO spend small sums on upgrades and repairs that will make your home stand out among foreclosures and distressed homes which are often dated or in need of TLC. Repainting older cabinets, replacing hardware and worn laminate counter tops can be done inexpensively and will pay off with a quicker sale, if not necessarily a significantly higher sales price.

Contact me for more information about the Chattanooga real estate market or what you can do to get your home ready for selling.

*Sample payments above assume 30 yr fixed rate mortgage. APR will vary depending on individual lender fees.

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