Imagine if you will. You are thinking about selling your home, but are not sure if the time is right. The market seems all over the place. The political environment has you concerned. You get conflicting information and don’t know what to do. How do you know if it is a good time to sell?
I’ll explain.
Is It a Good Time To Sell?
This is a great question, which I have been asked a lot in my 30-plus years as a high-producing real estate agent. Like many good questions, the answer is, it depends.
Here we will give you the framework to make the decision an easy one. It’s important to seek professional advice when needed, and with the right information, the answer will reveal itself. Let’s start with the market.
The Truth About the Real Estate Market
The truth about the real estate market is that over the long run, prices go up, but nobody really knows for sure what the market will do in the short to mid-term. Nobel Prize-winning economists have not been able to constantly predict what markets will do over the next couple of years with any accuracy. What makes you think you can?
Knowing you can’t outsmart the market is your first step to real estate success. You need to listen to the market, be self-aware, and in the long run, you will win.
How Do You Know When It Is a Good Time To Sell?
Property owners considering selling need to turn the question back to themselves. You need to time your real estate sales around your own personal situation, not the market. We did an in-depth blog covering whether you should sell or lease your home. It goes into that specific choice in more detail. Here we will look at whether it is a good time for YOU to sell.
Five Questions To Ask Before Deciding To Sell
Once you have the answer to these five questions, you will have the clarity to decide if the time is right.
What are the tax implications?
You need to fully understand the tax implications before deciding to sell. If you have substantial capital gains with significant income taxes, it may make more sense to hold on to a property and leave it to your heirs. Or you may need to sell before losing your primary residence capital gains tax exception. You could have a gain that exceeds the exemption limit, resulting in unanticipated taxes. If you are going to take a gain or a loss, you may want to be strategic on the tax year. You might not even be taking full advantage of the tax benefits for the real estate you own. This is why you need to talk to your tax professional before deciding to sell.
How much will you receive if you sell?
You should have a good idea of how much money you will receive if you sell. You need to look at the net amount after all expenses. You never know for sure, but you need to come up with an estimate. The value is easier to figure out than ever before. There are several pretty accurate AVMs or automated valuation models you can access that will give you a pretty decent estimate. In other words, look it up on something like Zillow. Then, for a more accurate estimate, talk to a local real estate professional. Then you back out your estimated closing cost, loan amount, and any taxes that will be due.
What is the cash flow or carrying cost?
You need to know how much it costs you to own before you decide if it is time to sell. Does it have a positive cash flow or a negative carrying cost? You need to include everything, like any mortgage, rents, maintenance, management fees, taxes, insurance, HOA dues, turnover cost, vacancy allowance, and tax benefits. Know it all, write it down, and add it up. What you spend or what you take home will affect your motivation to sell or not. If it costs you $50,000 a year to own, then you can compare that to any potential appreciation.
What is your exposure to market risk?
You need to look at how you would personally be affected by market fluctuations when deciding if it is time to sell. Even though nobody can accurately time the market, you still have some idea of the state of the market. Are properties selling quickly with multiple offers, or are they taking a while to sell with reductions? You need to ask yourself how likely it is that prices will go up, and more importantly, how much better off you will be if they do. Then you need to ask yourself how likely it is that prices will go down and how much worse off you will be if they go down.
Why would you want to sell?
You should know why you want to sell and have a goal in mind before deciding to sell. This can be pretty straightforward. You might be relocating for your job or downsizing because the kids moved out. You might be trading up your personal residence or doing a 1031 Exchange with a rental property. You may just be cashing out to put some money in the bank. Some people want to sell because they don’t want to be landlords anymore or feel the area is declining. There are all kinds of valid reasons to sell, just make sure your decision has logical support and you are not just emotionally reacting.
A word about timing
There is an old real estate adage that says, “The three rules for real estate success are location, location, location.” I would change that to “The three rules to real estate success are timing, timing, and timing.”
Nothing is more important than timing, and luck has a lot to do with it. Control what you can and look at timing as it relates to your personal situation.
If you are planning to sell a property within the next three or four years and your tenant gives you notice, then it is probably time to sell. If you have been thinking about moving for a while and you got a terrific new job out of state, it is probably time to sell. Other events that trigger sales include death, divorce, weddings, and growing family size.
It’s life events that often cause people to sell. The timing of these events can greatly affect your real estate success. That’s ok. Your real estate holdings should enhance your life and create future opportunities and benefits.
Is the property serving you?
A property can hold you back more than it helps you. You may like the idea of keeping your old home, but find out that you can’t buy the house of your dreams unless you sell your old one. Even if the market does not seem ideal, getting rid of a property can put you in a better place in the future.
There is nothing wrong with having a long-range hold strategy with a property that has a negative cash flow. You just want to make sure that it is intentional with a purpose and that you are not just making matters worse while just delaying the inevitable.
Think of it this way: Is the property serving you, or are you serving the property?
Bottom Line
How do you know if it is a good time to sell? You first have to realize that you can’t outsmart the market. You need to listen to the market and have a good understanding of your own unique situation.
The five questions you need to ask before deciding to sell are: What are the tax implications? How much will you receive if you sell? What is the cash flow or carrying cost? What is your exposure to market risk? Why would you want to sell?
Forget the old saying about “location, location, location”. The three most important things are “timing, timing, and timing”. Ultimately, luck has a lot to do with it, and you have to play with the cards you are dealt. Having self-awareness will help you make the best decision possible.
With proper perspective, you should be able to tell if your property is serving you and your long-term goals. If not, it is time to sell.
Thank you, and we hope that you found this helpful and informative.
For Real Estate Advice
If you are looking for a real estate broker to guide you through the sales process or a reliable property management company to help you handle a rental property in Long Beach, Los Angeles, or Orange County, California, or if you are just considering it and have a few questions about real estate, contact the Mike Dunfee Group today! We are happy to help.
Dunfee Real Estate Services, Inc. DRE # 02026232
