Let's say that John and Mary Smith own a home in San Rafael. Last year, they considered selling it in order to buy a more expensive home in a different Marin neighborhood. They wanted more space, a bigger yard and a faster commute to the city. However, when the mortgage meltdown occurred, they scrapped this plan. Today, they're still waiting "until the market improves" before attempting to sell their home again.
The Smiths believe that their home lost value during the current buyers' market and that they won't be able to net as much money if they sell their home "low" in this market.
Are they doing the right thing? Is it better to wait for another sellers' market before purchasing a more expensive home in Marin?
Not necessarily. The Smiths should strongly consider selling now even though their home may sell for less than it may have two years ago.
Here's why: Let's assume that the Smith's home was worth around $825,000 two years ago, but today it would likely sell for around $750,000 to $775,000 (6 to 9 percent less). And let's assume that a bigger home in a more expensive neighborhood is listed today for $950,000.
If the Smiths wait for the market to return to where it was two years ago, they are essentially waiting for their home to appreciate $50,000 to $75,000 (that same 6 to 9 percent). Of course, appreciation will probably affect the more expensive home as well. So assuming the two homes appreciate at the same rate, if the home they're considering costs $950,000 today, it may cost $1,007,000 to $1,035,000 by the time the Smith's current home appreciates.
The advantages of purchasing the $950,000 home today rather than waiting for a better market to sell are:
The property taxes will be lowerThe property taxes on a $950,000 home are around $11,400 (based on a rate of 1.2 percent). The property taxes on a $1,035,000 home are around $12,420. The Smiths will save over $1,000 a year.
Smaller down payment The down payment on $950,000 vs. $1,035,000 will be $8,500 less (at 10 percent down.)
Smaller mortgage Nuff said.
More choices and negotiating strength In a buyers' market, there are far more homes available and the Smiths will likely have negotiating power, something they would probably lack in a sellers' market. Even though the home they like is priced at $950,000 today, it may be possible to get it for $925,000-or less (depending on the motivation of the seller).
Fewer overbids In a future sellers' market, there's a greater chance the Smiths may need to overbid to get an accepted offer on their purchase, thereby raising its actual price.
Could pay a price for waiting Cities in Marin County do not necessarily appreciate at the same rate. According to the Multiple Listings Service (MLS), between 2004 and 2006, the median price for sales of single-family homes within San Rafael appreciated 12.6 percent. However, in Greenbrae, single-family homes appreciated 20 percent within the same time period. It's possible that during the time the Smiths wait for their current home to appreciate, the neighborhood they are considering in another city could rise at almost twice the rate.
Rates may rise Interest rates are unpredictable. What may appear to be a good rate today may seem impossibly low and unattainable by the time the Smith's current home rises in value. Therefore, the home they wish to buy today may cost significantly more per month in the future, even if its price remains the same as it is today.
Buy low and sell high? The Smiths strongly believe in the "buy low, sell high" theory, but they've been overlooking the bigger picture. Even if their current home is worth less today than it was two years ago, it's still much more valuable than it was when they originally bought it. And if they buy a more expensive home today in a buyers' market, they'll once again reap the rewards of appreciation on their new home when it's time to sell that one. That is, assuming Marin has appreciated by that point. But it's a pretty good bet, especially if they're planning on owning their new home for at least five to 10 years.
Based on 40 years of past sales statistics, Marin's market has never dipped for longer than a few years at a time, and it's always managed to bounce back leaps and bounds beyond whatever amount it fell.
Quality of life By moving today rather than waiting years, the Smiths will immediately enjoy the quality-of-life benefits of their new home: less time in the car, more living space and playtime for the kids in a bigger yard.
Of course, this entire argument is based on a premise that the Smiths have some reasonable equity in their current home. But some may be wondering, if all of the above is true, what is the best reason for the Smiths to keep waiting to sell? Clearly, if they intended to sell their home and not reinvest their money in real estate ever again, they should keep waiting. Otherwise, there may be no time like the present.
Jason Lewis is a real estate agent with Frank Howard Allen Realtors and hosts the Marin history website www.marinnostalgia.org.Open Mic is now a weekly feature in the Bohemian. We welcome your contribution. To have your topical essay of 700 words considered for publication, write [ mailto:firstname.lastname@example.org ]email@example.com.