The Morning Report
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Yesterday, reader DF wondered if selling his house in North Park in this market to move into a bigger house would be a stupid move.
Here’s what you had to say. Reader KC gave kudos to DF for realizing that moving often means an increase in property taxes. But KC wondered what makes DF so sure his house is worth double what he paid:
In regards to the comment from DF, does he have a buyer that will pay double what he paid for it? If not, what makes him think that his house will sell for his asking price while the prices of other homes are dropping dramatically? …
We are all riding this ugly roller coaster together. Any house can be the next buyer’s deal, much to the dismay of the seller. I don’t think that DF is stupid. Maybe just a bit too optimistic? My husband and I lived through two housing bubbles already. Glad we kept the cash instead of buying a home, but that’s another subject.
Here’s reader RL‘s take:
If they’re selling for double what they paid, they’re doing great. They were smart not to buy more than they could afford and to consider the tax bill. Now they’re in a position to use what equity remains to move up. Lucky, smart them!
Reader TA adds a hypothetical example to think about the question. Sure, a seller might not get all of the money he thought he would at the peak, but keep in mind the house he wants to buy now has probably fallen in price, too. Here’s TA:
There is nothing wrong with selling low to buy a move up home. I know a lot of people that can’t let go of the fact that their house use to be worth x-$’s and now they have to sell for less. Moving up in this market is the right thing to do, if you can. If at the peak the house you owned was 400K and you bought a house for 800K. The equity in the house you owned was 200K. Then after the sale of your house you would have 200K to put down on the 800K purchase.
Obviously there would be buying/selling cost, but I’m trying to make this simple. Also buying and selling at a higher price would also come with higher cost. So in the first scenario you would still owe 600K and have to pay taxes based on 800K.
Now say both homes depreciated by 50% (to keep things simple). The house you own is worth 200K and the house you want to purchase is 400K. Although you would have nothing to put down you would only owe 400K and your tax base would be on 400K. You would need to be able to qualify for the loan, but if you can pull it off your savings would be 200K and about 4K a year in taxes.
If you have any more thoughts to share about this question, send me an e-mail at email@example.com.