What's the True Cost of an Unsold House?

August 9, 2005 3:18 PM

Question from a first-time house seller. My wife and I recently bought our second home without having sold the first. Although we and our agent feel that the house for sale is priced extremely reasonably and appropriately, it's been on the market for five months now. We have the financial capacity to continue paying for both houses indefinitely, with no need for a bridge loan, so that's not the issue per se. The question is, however, at what point does this process become an unacceptably bad deal, financially, and how do I calculate that? Or has it passed that point already? In other words, do the past five months of payments on the first house essentially represent money down the drain? Say each monthly payment on the house that hasn't sold (including mortgage, taxes, insurance, and utilities) comes to $2K. Does that effectively mean we might just as well have set the price $10K less five months ago? In which case we should be dropping the price now, and each month from now on, in an effort to stop the bleeding? I don't notice other sellers dropping their prices with every month that goes by, but the fact remains that since we've only owned the house for four years, we're building up practically no equity each month to "recover" when it finally sells. So it seems like the money's just evaporating. Maybe we get to deduct the taxes and interest from our income tax (or maybe not), but even if we do, it seems to me that there has to be a mathematical point at which it becomes pure damage control. And we may already be well past that point. I know we're not the only people who've ever been in the position of carrying two houses for a few months--it must happen all the time--I'm just not sure what the conventional wisdom is on handling the situation. Any advice would be appreciated.
posted by azaner to Home & Garden (14 answers total)

Sheesh! There's a reason for the "More Inside..."

But on to your topic:

I think you should make the old house a rental property. That's what dad (a broker, who's done real-estate since before I was born) would tell me to do if I were in your situation.

Making it a rental at or slightly above your monthly burden will stem the tide until you sell it, and if you make the terms sweet enough, after a few years, that renter who pays you on time might buy the property from you.
posted by tomierna at 3:37 PM on August 9, 2005

What tomierna said.
If that is not practical, or you don't want to be a landlord, consider doing some research about why it hasn't sold. Is it overpriced? Does it need staging? Does it need major repair/cleaning (paint and cleaning can do wonders, as can inexpensive, but new floorcoverings)?
Did you get 'comps' from your Agent (an analysis of comparable home that have sold in your area recently)?
Is this Agent a specialist in your neighborhood? Have they had a "Broker's Open House"?
Are you locked in with this Agent? If not, consider re-listing with another Agent. Properties get "market weary" when they've been listed too long - Agents assume there is a problem and stop showing them.
Dropping your price will also get the property re-listed, and shown again.
Given how long it's been on the market, if you stay with your current Agent, consider negotiating a lower commission percentage if it isn't sold in x days (two weeks is the most I'd give them).
Hope this is helpful.
posted by dbmcd at 3:52 PM on August 9, 2005

I second the suggestion that you try another agent (assuming that your agreement with the first one has expired). If the house is priced right, its not selling indicates that the agent isn't performing.

The reason people here hate long front-page questions is that those questions help to push slightly older questions off the front page. That's particularly objectionable to someone who posted a difficult question that hadn't gotten an answer before it disappeared from the front page.
posted by Kirth Gerson at 4:16 PM on August 9, 2005

What market are you in?(L.A., New York?) What kind of house is it? (Big, small, urban, suburban?)

I was in this very situation and got SCREWED while renting it out. That may still be a good idea for you though. (I mean renting, not getting screwed!)
posted by snsranch at 4:22 PM on August 9, 2005

You ask at what point paying that mortgage becomes an "unacceptably bad deal, financially." That depends on how long houses stay on the market in your area, and how quickly the property values are going up.

You also asked for advice on handling the situation. Narrow the issue down to what is important to you and whoever owns the house with you. Not just the cost in dollars, but also the price you pay in stress, in listening to in-laws' input, in worrying if your real estate agent is competent, etc.

If you're worried about the opinion or values of anyone other than yourself and your spouse or partner, forget that. Judgmental family members and friends are going to find other ways to plague you, even if they approve your handling of this particular deal.

You need to find out why your house isn't selling. That information is available from real estate agents who have shown your house to people who ended up buying something else. Your present agent apparently hasn't been helpful, but your next agent needs to find out this stuff.

You can't change the size or location, but you can make your property appealing in other ways. Spend some money on staging, for example: a decorator comes in with paint, furnishings, and accessories and makes the place look like a Pottery Barn catalog.

I also suggest you call 3-5 experienced, busy real estate agents from different firms. Brief each one on the situation, say you are looking for a listing agent, and ask "Would you like to be considered?" Tell them you want to meet and hear their blunt views on why the place hasn't sold, what could be done to make it more appealing, and whatever other advice they have for you. State repeatedly that you need them to be frank and specific. Tell them you are bonding with your new home and you're ready for the truth about the old one.

When you meet with them individually with that agenda, you will get some useful information and you'll find out how motivated and energetic they are. Some will show up late or without comps or specific suggestions, or will sugarcoat their criticisms -- others will be doing their jobs.

You need to put that house behind you. You can do it... just get straight on what matters to you, and find someone competent to handle the paperwork and showings.
posted by wryly at 4:29 PM on August 9, 2005

What it costs you to hold onto it depends upon a variety of factors. I'm try to cobble together a possible cost-benefit scenario. But I really don't know what the official answer is (so any adding and subtracting from others is welcomed):

COST OF THE HOUSE WHEN IT FINALLY SELLS

MINUS the following over the total time you've owned the house:

-The cost of the original mortgage (interest, closing costs and figure out what the tax benefits were to offset this cost)
-Costs of maintenance and renovation
-Cost of property insurance
-Cost of property taxes (taking into consideration that you could take an income tax deduction BEFORE you bought the current house)
-Cost of paying the realtor to sell it
-Any additional costs related to selling it

MINUS these items only since unoccupied:

-Cost of utilities while it is unoccupied

____________________________________

EQUALS what you will make off of the house

Obviously, you'd like the final number to be a positive one or, at the very least, 0.
posted by jeanmari at 4:32 PM on August 9, 2005

If you've got the financial means to pay for two mortgages indefinately you should have a financial adviser, not AskMe - s/he can look at your big picture, including what deductions you can and cannot get and give you a proper answer about what is the best and least advantageous course of action. You're not ever going to get an objective answer out of your realtor on this - s/he's the barber telling you that you need a haircut since hir payment is based on the house selling.

As far as determining the cost of the money gone, you can check some loan tables and determine what amount of that payment goes to interest and what goes to equity. The non-deductable portion of the interest is lost money and the added equity you'd have to compare to the best possible investment you could make with it otherwise; stock market averages historically are 11%.

I think the real solution is that you need a new realtor. S/he should have directed you to a price that's comparable to the other sales in your area of similar houses and since that's public record it's not hard to do IF your realtor isn't a crappy one - there's a lot of bad ones out there who don't know how to do the legwork. You make it sound like you're not even getting offers BELOW your ask, which is odd, and since people are free to float offers below the ask (you're just not obligated to take them) I think the total absence of them is a worry.

Either your realtor hasn't done hir job in a number of ways or is unethically keeping offers from you to try to hold out for a bigger commission.

Or maybe you've just managed to be a know-it-all jerk unable to take some gentle constructive criticism in real life too. Consider the possibility.
posted by phearlez at 4:44 PM on August 9, 2005

You started being in a losing position as soon as you had 2 mortgages. It's part of the cost of buying the new house. You get a slight gain in equity with every mortgage payment, but you are getting no use of the house. If a house hasn't sold, and the seller/realtor is doing a good job, then lower the price, or in some other way make it more attractive.

If you have a mortgage+tax+insurance cost of 1,000/month, and it takes a year to sell, what if you could sell it today at current price - 12,000? The only way to know how long it will take is to have a really good realtor, she should have the experience to advise you. If you're selling it on your own, make sure there's an incentive for brokers to show it.
posted by theora55 at 5:21 PM on August 9, 2005

Consider the possibility that the market has actually declined but home owners and cheerleaders (i.e., realtors) have yet to face up to it. As Paul Krugman put it in a recent NYT column (reg required):

"So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started."
posted by mono blanco at 7:19 PM on August 9, 2005

If you don't have to - don't sell your first house. And if you can effort it - buy another. In 10 years, you'll have 3 homes, and you'll be worth 3 times as much. (By the way, if you can do more than 3, that's even better) -
posted by growabrain at 8:04 PM on August 9, 2005 [1 favorite]

Well, the only real cost is the intrest on the mortgage, not the payments. But on the other hand, you might make more money investing that cash somewhere else if you had it.

So the real cost here isn't the money you're paying, but the intrest you're paying in comparison to the intrest that you could be making in some other investment.

I agree you should talk to a financial advisor.
posted by delmoi at 8:40 PM on August 9, 2005

Good advicea above; a few more points:

* Five months (150 days) is certainly longer than average, but if the average days to sale in your market are (say) 120, then it's not quite yet time to panic. Your real estate agent should know what the average time on the market is.

* If the house is unusual (much larger or smaller than normal for the market, fewer than normal bathrooms for the size house, etc., etc.), then it may be reasonable to keep the price as is and wait for the right buyer to appear. On the other hand, if the house is "normal" in most respects, then that argues that it's priced wrong, or that other issues (staging, perhaps) should be addressed.

* A good agent will give you information on how many visits your house is getting (typically, buying agents who look at the house leave a card).

* One standard bit of advice - avoid signing an agreement with a listing agent that is for longer than 90 days. They may well not like that, but it gives them more incentive, and you can (re)assure them that if there efforts seem to be good, you'll relist for another 90 days.

* What does your selling agent offer as explanation, or to give you confidence?

* And yes, taxes and mortgage interest paid on both homes ARE deductible:

The mortgage interest on a second home which you use as a residence for some portion of the taxable year, is generally deductible if the interest satisfies the same requirements for deductibility as interest on a primary residence.
posted by WestCoaster at 8:46 PM on August 9, 2005

A lot of this advice has been very good, but I would ask a very simple question of you: has the first property not sold because you haven't accepted an offer that has been made, or have no offers been made?
posted by mikel at 9:30 PM on August 9, 2005

Every situation is unique. So without knowing more details I can't give you any advice. I'm happy to answer your questions if you want to email me off line (see my profile).

I went through something similar. We put our house on the market at what turned out to be the high point of the market. Plus we had an oversized lot. Because of the lot we set our price higher than the market average. So when the market dropped out from underneath us (demand fell in proportion to supply by about 5 to 1), we were stuck having to lower our price dramatically to sell.

Then we got into a game with the buyers and buyers agents. No one would show our house because they kept expecting the price to drop further.

So as much as it pained us to do it, we shook things up by letting the house go off the market for 15 days then hiring another agent. This time someone who sold multiple houses a week and had 20 years of experience in the market. Sure we had to pay her more in commission, but we had a buyer within two weeks of the new listing.
posted by IndigoSkye at 1:48 PM on August 11, 2005