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Jun 03

The silver lining of home price drops: ‘Moving Up’

For sellers who plan to ‘move up,’ now is a good time

The Secret: Focus more on what you can purchase your ‘move up’ home for than the selling price of your current home.

Let’s look at a hypothetical example… and because it is easier to calculate, I will use an arbitrary number of 10% for the price drops.

Let’s say that last year your home’s market value was around $500,000.

This year your home’s market value dropped by 10% ($50,000), so now it’s valued at $450,000.

Your plan is to buy a $900,000 home, and that home also had a drop of 10%.

Last year, that  home had a market value of $1 million. This year it’s priced at $900,000 a difference of $100,000. You would have paid $100,000 more for your ‘move-up’ home last year versus this year. That means that the price drops actually save you $50,000.

So, where does that $50,000 number come from?

$100,000 (the drop in value for the home you want, valued at $1 million last year) –   $50,000 (the drop in value for your home, valued at $500k last year)   =   $50,000 (your purchase savings)

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And, who should not sell now?

If you feel ‘freaked out’ by the market and have no plans to “buy up” perhaps you should NOT sell. Think of: buy low, sell high.

If you don’t want to price your home competitively, don’t try to sell.

In order to sell your house the price has to be better than all of the comparable homes. If it’s not, expect the potential buyers to move on to a better priced home.

If you don’t want to ‘fix-up’ your home and stage it well, don’t try to sell.

If a Buyer wants a ‘fixer-upper,’ they don’t have to consider yours… The market already has a good supply of bank-owned/foreclosed homes that are priced to sell. Banks are not in the real estate business. They are in the mortgage business. Therefore, banks competitively price the homes that come back to them (i.e., did not sell at the foreclosure auction, or are signed over to the bank by the underwater owner). Banks do not want unsold homes on their books.

A word of warning…

If you are waiting for the market to get better, you should have the flexibility of a long timeline to work with… Prices still are not stable and won’t be for awhile.

Postscript: Buying up or downsizing… the same principle applies: you’ll sell for less than you planned, but you will also purchase for less.

 

 

 

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