Reasons Not to Sell Your House - dummies

Reasons Not to Sell Your House

By Eric Tyson, Ray Brown

Whereas some people have clear and compelling reasons for selling their homes, others do so for the wrong reasons. You don’t want to make the financially painful mistake of selling if you don’t have to or can’t afford to. The following discussion offers reasons why you may be better off staying right where you are.

You’re already having trouble living within your means

If you’re having difficulty making ends meet and you use high-interest consumer credit, such as credit cards or auto loans, to maintain your desired standard of living, you shouldn’t spend more money on housing. Even if you’re planning to trade your current house for one of comparable value, you may not be able to afford all the transaction costs of selling and buying.

Even if you aren’t a consumer-debt user and you’re saving a comfortable portion (10 percent or more) of your current earnings, don’t assume you can afford to trade up to a more expensive home. In addition to a higher mortgage payment, you may also face increased property taxes, insurance rates, and home maintenance costs.

A mortgage lender may be willing to finance a loan that enables you to trade up to a more expensive home, but qualifying for a loan doesn’t mean you can afford that home. Mortgage lenders use simplistic formulas, based primarily on your income, to determine the amount they’re willing to lend you. Mortgage lenders don’t know (or care) how far behind you are in saving for your retirement or how many children you must help with college costs or how much assistance you want or need to give to elderly parents.

Mortgage lenders are concerned about protecting their interests in the event that you default on your mortgage. As long as you meet a few minimal financial requirements (you make a sufficient down payment, and your housing expenses are less than a certain percentage of your income), the mortgage lenders can sell your loan with the backing of a government mortgage agency, effectively wiping their hands clean of you and your problems.

If you’re thinking about trading in your current house for another one, especially for a more expensive one, you absolutely, positively must consider the financial repercussions of changed housing expenses in addition to the costs of buying and selling.

The problems are more in your perceptions

Everybody, at some point, leaps to conclusions based on faulty assumptions or incomplete research in virtually all aspects of his or her life. Peter, for example, was a single parent living with his son in a nice neighborhood in an urban environment. When his son started junior high school, Peter grew increasingly concerned with the possibility that his son would become involved with drugs, which seemed to be prevalent in their city.

Despite working in the city, Peter decided to move to an easygoing, suburban community about 45 minutes outside the city. Shortly after the move, Peter’s son got mixed up with drugs anyway — perhaps, in part, because the long daily commute meant Peter was around even less.

In addition to ignoring lifestyle issues (such as the length of his commute), Peter made a common human mistake — he assumed things were a particular way without getting the facts. The reality was that the suburban community to which Peter moved had as many problems with teenagers on drugs as the good neighborhoods in his former city.

Crime and safety make up another common realm where people have misconceptions. Some communities often make the evening news with graphic stories and film footage of crimes. Statistically, however, most crimes committed in a given city or town occur in fairly small geographic areas. Local police departments tabulate neighborhood crime rates. If you’re concerned about crime and safety, don’t guess; get the facts by contacting your local police department and asking them how to obtain the data.

Schools are another hot-button issue. In some areas, people make blanket statements condemning all public schools. They also insist that if you live in such-and-such town or city, you must send your children to private school if you want them to get a good education. The reality, as education experts (and good old-fashioned common sense) suggest, is that you can find good and bad public schools and good and bad private schools. You also need to evaluate if you’re spending too many hours working and commuting just so you can make expensive tuition payments. If that’s the case, you may not be able to spend adequate time with your children. The best possible teacher for your children is you.

Selling won’t solve the problem(s)

Avoiding problems is another human tendency. That’s what Fred and Ethel tried to do. Much to their chagrin, Fred and Ethel discovered that their home had two not-so-visible but, unfortunately, costly-to-fix problems. The new roof they needed was going to cost big bucks because local ordinances required the removal of several layers of existing roofing material when a new roof was installed. Fred and Ethel also had recently found out that their house contained asbestos, a known carcinogen.

Rather than research and deal with these problems, Fred and Ethel decided that the easiest solution was to sell their house and buy another one in a nearby town where they thought they’d be happy. They then attempted to sell their home without disclosing these known defects — a major legal no-no — but were tripped up by smart buyers who found out about the problems from inspectors they hired to check out the property.

Actually, the prospective buyers did Fred and Ethel two big favors:

  • By uncovering the problems early, the buyers saved Fred and Ethel from a costly lawsuit that could easily have resulted if the flaws were discovered after the house was sold.
  • By ultimately deciding to hold onto their home, which they otherwise were content with, Fred and Ethel saved themselves thousands of dollars in selling and buying transaction costs. Those savings more than paid for the cost of a new roof. And Fred and Ethel discovered that, because the asbestos was in good condition and properly contained, it was best left alone.

You can fix some or all of the problems

When they realized that they couldn’t run from their home’s problems, Fred and Ethel, discussed in the preceding section, discovered how to get those problems fixed. You can address quite a number of possible shortcomings in your home less expensively than buying a new home.

If you think that home improvement projects are going to be too expensive, do some rough calculations to determine the cost of selling your current house and then buying another. Remember, you can easily spend 15 percent of the house’s value on all the transaction costs of selling and then buying again.

Instead of trading houses, why not spend those transaction dollars on improving the home you currently own? Do you hate the carpeting and paint job? Get new carpets and repaint. If your home is a tad too small, consider adding on a room or two. Just be careful not to turn your home into a castle if all the surrounding houses are shacks. Overimproving your property can be an expensive mistake. By overimproving, we mean that after the improvements to your house, you’ll own the most expensive house on the block, and you’ll have difficulty recouping the cost of the improvements in the form of a higher house sale price.

Some people are seduced by the seemingly better attributes of other houses on the market. If your house is small, larger ones seem more appealing. If you don’t like your carpeting, houses that have hardwood floors may attract you. However, as is true of long-term friends or spouses, you know your current home’s defects all too well because you’ve probably lived with them for years. Unless you’re incredibly observant, you surely didn’t know half of your home’s faults and shortcomings before you moved in. The same is true of new homes you may be lusting after.

Some problems and defects are more easily fixed and more worth fixing than others. When you’re deciding whether to fix problems or move away from them, consider these important issues:

  • What’s the payback? Some home remodeling projects may actually pay for or come close to paying for themselves. Certain remodeling projects do increase your home’s value by enough to make up for most or even all the cost of the improvement(s).

Generally speaking, projects that increase the cosmetic appeal or usability of living space tend to be more financially worthwhile than projects that don’t. For example, consider painting and recarpeting a home versus fixing its foundation. The former projects are visible and, if done well, enhance a home’s value; the latter project doesn’t add to the visible appeal of the home or usability of living space. If, however, you must do foundation repairs or the house will collapse, spend your money on the foundation.

If you decide to stay put and renovate or improve your current home, you’re going to need to find a way to pay for all that work. In Chapter 4, we discuss the way to figure out the amount you can afford to spend improving and how to finance your improvements. If you head down the renovation path, don’t forget that contracting work often ends up costing more than you (and your contractor) originally expected.

  • How intrusive will the work be? As you surely know, money isn’t everything. Six months into a home remodeling project that moves you out of your bedroom, spreads sawdust all over your kitchen table, and has you wanting to flee the country, the “payback” on the project doesn’t seem so important anymore. In addition to costing more than most parties expect, contracting work almost always takes longer than everyone expects.

Ask yourself and others who’ve endured similar projects: How much will this project disrupt my life? Your contract with the contractor should include financial penalties for not finishing on time.

Some problems or shortcomings of your current house simply can’t be fixed. If you’re tired of shoveling snow in the winter and dripping sweat in the summer, you’re not going to be able to change your local weather. If crime is indeed a big problem, you aren’t going to be able to cut your area’s crime rate anytime soon. Moving may be the best solution.