complex real estate cost benefit analysis needed

October 28, 2009 9:51 AM

Complex cost/benefit real estate question.

We put our small, far suburban, now-overpriced house on the market two weeks ago. (Bought in '05.)

Because my wife has gotten a job, our income has doubled since buying our house, and we are saving $5k per month. However, her commute is lengthy, and we would like to move closer to the city, to lessen her commute, because now we can afford to, we know the target area better now, and we have friends in the city. Also, she may work more if we are closer, resulting in a higher income.

However, looking around at the other houses for sale in our area, I kind of doubt that our house will sell at the price which the realtor set for it, because there are nicer, bigger houses in better areas available for less or the same money. However, those are mostly foreclosures or short sales, which our realtor says takes a lot of time to buy, so maybe they are not that attractive to folks who are not real estate professionals.

We have $60k of our money in the bank and no debt except for our mortgage. We have $60k of my brother-in-law's money in the bank as seasoned assets, which he would like for us to use to buy the house. He is going to send $20k more soon. Later we could either pay him back, or he could continue to own part of our house (which I know is another big can of worms).

So what we will be faced with soon is: do we lower the price of our house (i.e., lose money on the house) in order to sell it? Although our house's price is depressed, the price of the house that we want to buy is also depressed. And I feel that we might be able to "save" more money on the purchase than we will lose on the sale...because the price of our house is only about 67% of the price of the type of house that we want to buy. We are not upside-down on the house --- our mortgage is 68% of the current asking price of our house.

posted by anonymous_account to Work & Money (4 answers total)

Best answer: I am a Realtor. I am not your Realtor. Your Realtor can advise you best....however, this is what I did in my own recent house purchase. It sucks to loose money on a house. I recently sold a condo I lived in for at a loss, but was able to buy a much nicer house for a price significantly less now than it would have been priced two years ago. My new house will appreciate much more than my condo would have, so in the end I probably will come out ahead. Granted, I went from a condo to a single family home (which typically sell for more), but for you....well, if your targeted home is larger or in a better area and you can assume some sort of reasonable rate of appreciation, I say go for it. Mentally, I struggled selling a property for a loss (I remember thinking, 'I'm a Realtor, I've ALWAYS made money on selling my own properties..what do you mean I have to bring money to closing???'); but I had to practice what I preach and follow the same advice I give to my clients...and in the end, I think I made the right decision for me (and i ended up with fantastic house!).

As far as pricing your current home, price it against the competition (not necessarily what's closed, but what's actually on the market). Buyers will look at several homes in a targeted area/price range and determine what's best for them and what's the best value. And they will look at short sales and foreclosures, so you have to price your house against those, too. Short sales and foreclosures do take a long time to close, but regular folks are buying them. Lower the price if your Realtor thinks that by doing so it will sell.
posted by rtodd at 10:21 AM on October 28, 2009

Best answer: We are in almost the same situation except we have been on the market for 8 months. We priced too high for the current market to begin with, and we have a huge amount of brand new (builder lost his shirt) foreclosures around us to compete with. If I had to do it again, I would price my house low, maybe 2-5% below the market value. Sell it fast and buy the new house. We were stupid and thought that because we are in a super good school zone, we would sell for more than what was realistic. I know much better now.

Sell low, buy low, get it over with. Don't go through 8 months of having your house on the market, do what you can to get into the neighborhood you want, cut your wife's commute and live your life. If you plan to stay in the next house for a while, you will make up anything that you may lose on this one when the market (eventually) build's back up.
posted by pearlybob at 10:28 AM on October 28, 2009

Response by poster: ...what do you mean I have to bring money to closing???'

This situation would obtain if mortgage > sell price minus realtor's cut minus fees minus escrow adjustment, right?
posted by anonymous_account at 11:38 AM on October 28, 2009

Best answer: I have to agree with pearlybob. Nobody has any idea when housing prices will recover, and even then, it will be different by market. In the meantime, you're making mortgage payments, accruing property tax liability, routine maintenance and upkeep that could be going into a new house, etc. Cut your losses, get what you can now and move on with your life.
posted by odragul at 1:29 PM on October 28, 2009