According to real estate agents, it’s always a good time to buy or sell! I’m relieved to say that after putting my house on the Multiple Listing Service (MLS) for 3.5 weeks at the urging of my Realtor, I withdrew the listing and decided to stay!
My Realtor is a friend who kept pushing me for at least a year to list my house with him. Even though I just refinanced my 5/1 ARM from 3.125% to 2.625%, he convinced me to give it a go given the lack of inventory and pent up demand. Besides, with Facebook’s IPO this past May, there will be an eventual surge of liquidity once the first lock up tranche expires at the end of August.
I told them that I wasn’t interested in selling, but if he thought I could get a price 5%+ higher than current comparables due to this mini-frenzy we have, then I wouldn’t mind at least trying. And so, I went on vacation for 10 days while he put my house on the market. Over 50 Realtors came to visit and we had at least 15 private showings with clients. Five offers were forthcoming, but I told them that if it wasn’t for at least full asking price, I wasn’t interested.
Given I was very steadfast in my desire for a 5%+ higher price than comparables, I think I scared buyers away through my Realtor. One couple came three times and needed to move out of their rented apartment by August 1 due to the start of the school year for their two kids. They were willing to bid a reasonable price in the current environment, but I really just couldn’t be bothered if it was under asking. If they were desperate to move and loved the house, then what’s an extra $50,000-$100,000 right?
WHY DEEP DOWN I DIDN’T WANT TO SELL MY HOUSE
* The housing market is on the upswing. Now is the time to buy, not sell. Corporate profits and employment have improved. There is at tremendous amount of capital entering the Bay Area. There’s been pent up demand for buyers who held onto their capital through the 2008 downturn and are now looking to get in. I knew that I would kick my own ass 5-10 years down the road if I sold today.
* Rents are on fire. For fun, I submitted an application for a two bedroom, one bathroom outdated condo with no parking for about $2,700. There were 50 people at the open house, and I didn’t even get a call back or e-mail return with my 790+ credit, bank statements, and verification of income. Not even a response. Finding a reasonable rental in San Francisco is brutally difficult!
* Owning is way cheaper than renting for my situation. The cost of renting my house is literally 3X the cost of owning the house, including all the mortgage interest, property tax, insurance, and maintenance. It’s what happens when 7 years go by and you let inflation take its course. I’m not sure how it is in other parts of the country, but when you can get a online home loan for 2.625%-3.25% and rent out for a 7%-10% yield plus the potential for capital appreciation, owning is a no-brainer.
* Tax shield. Given my high marginal tax bracket, the tax shield is very valuable this year. When my income fades next year if I decide to take a leap of faith, it will become less valuable given I will be in a lower tax bracket.
* Moving is a pain in the ass. I decluttered much of the house, but still have tons of furniture left. I really didn’t want to go through the hassle of getting one of those 50 foot long trucks to load up and off load all the furniture. Who wants to set up cable, internet, electricity, garbage, and water? Painful.
* Steady increase in savings. I have a principal & interest mortgage, which means every payment, a good portion goes to principal. Given my 2.625% refinance, a full 47% of my payment goes to principal! That’s unheard of, given usually 10-20% of the payment goes to principal at the beginning of each loan. Low interest rates have really helped homeowners save over the long run.
* Feels like a new house. Part of putting the house on the market was redecorating and staging. I also painted some walls, and power washed and varnished the deck. With each improvement, I liked my house more and more! I felt like I was living in a new and improved house!
* Diversification. If I sold my house, I would have a large chunk of cash just sitting in my bank account doing nothing. I might have used half of the proceeds to invest in some structured notes that participate in the upside of the stock market, with downside protection. I like my 30/30/30 net worth diversification between stable investments, real estate, and stocks.
* Protection from myself. Although I am not a big spender by any means, if you give me access to hundreds of thousands of dollars, I fear I might do something stupid like buy a new car or spend a reckless amount of money at the poker tables (my story). I could easily see myself spending $10,000 to try my luck at the World Series of Poker for example. By keeping the money inaccessible, I am at least guaranteed not to blow myself up.
* Will be spending more time at home. If all goes well, I’ll be spending 60% more time at home in the near future. I’m in the process of finalizing my book on how to profitably leave your job and do what you’ve always wanted. I’ve helped 5 people so far and am working on executing my own departure. My time spent at home will go from 10-12 hours on average to roughly 18-20 hours as I no longer have to commute to work. I plan on suntanning on the deck, blogging from the garden, and fully enjoying the comforts of home. The value I get for my money literally goes up 60%!
* Anti-oligopoly. The 5%-6% realtor commission is absolutely ridiculous. I really don’t see why Realtors should get paid more than $10,000 tops to sell a house, no matter what the price is. There’s standardized paperwork, showing property, and finding a buyer. With the advent of all these real estate internet companies such as Zillow, Trulia, and Redfin, real estate commissions should have come down to no more than 3% by now! Instead, the National Association of Realtors is refusing to budge on the oligopoly pricing model which seriously pisses me off. I feel that based on principle, I shouldn’t do any transaction that would support this pricing.
THANKFUL TO STAY PUT
From the very beginning of my home selling journey, my heart wasn’t in it. If I did get an offer for 5%+ over what I deemed as fair valuable, I’d probably be a reluctant seller. I was talked into putting my house on the market due to dollar signs. I also really couldn’t get over the 5% commission I’d have to pay. So long as the standard is 5%, I don’t think I will ever sell any property if I don’t have to. It’s my way of going on strike.
My house is my home. I’ve had great memories so far, and plan to have many more great memories in the future. When it’s time to move, I’ll know it. For now I’m happy to stay put!
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Glad you put a lot of thought into it and I’m happy that you came to the conclusion that you know will make you happiest.
I agree, the real estate commissions are ridiculous, but I seem to remember them being 7% at one point and now they’re 6% or at least that’s what I’ve always been involved with. There needs to be competition in that space to drive down the price, but right now, everybody just joins the same group and so they still set that standard.
I really thought companies like Trulia, Redfin and Zillow would drive the commission down. They are all in bed together it seems! They are shooting themselves in the foot b/c if the commission went down to under 3%, I bet there would be WAY more transactions than a 40% decline (5% to 3%). Volume is down 50% YTD..volume would go up 100%++++ if that happened here in the Bay Area.
I agree with you that the commission fee is killer, and one thing that will be on my mind in about 2 years when my 5 year mortgage is up. Do I sell or suck out some equity and become a landlord. When I purchased my condo, I worked out a deal with my realtor that if she wanted to sell my place, I wanted it sold at a discount. So, she agreed to 1% (her fee), and 2.5% to the buying agent for a total of 3.5%.
Why not just continue to live in your place once the 5 year mortgage is up? Your mortgage rate will probably reset DOWN since rates have collapsed!
3.5% is a fair commission.
We were able to negotiate with our realtor down to 2% if she didn’t put it on MLS…so I am letting her deal with Trulia and the open house.
Was your buddy pissed that you were so strict with your price? Did he understand your position?
Wow, 2% is great! Is your realtor a newbie looking to get some sales under his/her belt? 2%, I can dig it!
He wasn’t pissed. I told him if he is so bullish, then it’s up to HIM to decide whether he wanted to list with the price I wanted. If he thought I could get 5%+ above market, then I don’t mind. He had to make the choice, and he thought we could.
But, by very definition of pricing 5% above market, we couldn’t get the market to bite! He wanted to do another 30 days, but I said nope.
She thinks she can unload it very quickly since the price is set way under market plus she is our buyer’s broker so the sooner she gets us out the sooner she gets another 2% of a bigger pie
I am glad you decided against selling. It doesn’t sound like you wanted to sell anyway and if you can afford it I say stay. I’ve never sold a house so I can’t comment on that but I bet the buyers were disappointed you wouldn’t budge.
Glad you’re going with your gut. I think real estate has an important roll in a well diversified portfolio. I’m actually saving up to buy a rental property in the future. At the end of the day, if you own a piece of land in a coveted location, the long term outlook can’t be bad.
Sam, I do have a question…when you did your refi on the mortgage…since it was a refi..how much of the mortgage interest is tax deductable? All or part?…just curious, because when one holds their first mortgage all the mortgage interest has a tax advantage, but as I understand it when you refi..you can only deduct a certain amount. Good read indeed..
Joe
Interest on up to $1 million in mortgage indebtedness is tax deductible, whether you refi or not. Your points paid are tax deductible as well.
However, after you make above a certain income, you start losing those deductions and paying lots more AMT.
The points paid are amoritized over the life of the loan as a deduction, just FYI. If you paid points on purchase, and then re-fi, you are then allowed to take the rest of the points from the original purchase as a deduction the year of re-fi. :)
You can always do a FSBO to lower your fees I guess no?
Indeed, however, selling a home is very emotional and I didn’t want to be part of it. Also, it’s a relatively expensive house so I thought it best to give it to a professional who could hopefully negotiate better terms and make up for the cost. He wasn’t that skillful of a communicator/negotiator, which is another reason, but for another post.
Glad you’re sticking around the Bay! Maybe you should buy a few more, instead of divesting the one you have? I’m seriously about Disco Bay having cheaper rentals you can check out – but I haven’t taken the plunge myself.
This post is very timely for me. I have been MIA for the last month from blogging/family/life while I work out the endless detail on the house I inherited from my cousin. We close tomorrow. I got lucky as the house was only on the market for three and a half weeks and had several interested parties and I was able to get nearly asking price, which is pretty much unheard of in our market. I thought about holding on to the house longer as, like you say, the market is rebounding. However, in my case it just didn’t make sense. The upkeep on a 6.5 acre horse property and taxes and liability is very expensive. Short of some sort of ‘too good to be true’ rebound in the market, the expenses will rise faster than the profits. Not to mention that it is too nice of a property to sit empty… it needs enjoyed. So in my situation, selling now made sense but in your case I fully see why you are wanting to hold on to your home. And you sure can’t beat that awesome interest rate!
Welcome back Denise! What a nice cousin to gift you what sounds like an incredible piece of property! 6.5 acres is A LOT, and if you’re not there maintaining it, it will soon need a lot of work.
What do you plan to do with the windfall?
Thanks. My cousin and I were very close (she was actually my Dad’s cousin, and really like a close aunt to me). I spent a lot of time at that house growing up… saying “goodbye” tonight is going to be rough. As for the windfall, I am paying off my house, buying an investment property (already lined up) and investing the rest in dividend stocks. I ought to take a small amount to do something fun for myself, but just can’t bring myself to do it at this point….
What’s the picture?
Two things people need to remember:
a) Your home is an equity asset. If you buy that type of asset, it should be a minimum of 5 year hold (preferably 10) to smooth out your risk in the investment.
b) If you do have to sell it, look for someone who operates on a flat-fee type model. I agree that the commission rates are far too high relative to the value you generally receive.
Agree. I’m in year 7 and want to make it 10 years, especially w/ my recent refinance. Now that I think about it, I like doing everything in 10 year increments eg work, ownership, 1/10th car rule etc.
I think you should hold. The value of my place rose 30K in the last year. The area around is up and coming and I have faith it will be of great value to me in the future. I have a feeling it will for you as well if you hold.
Sounds good Jai, and congrats on the increase in your property!
The same happened to us last year. We decided to sell, cleaned, fixed, redecorated, de-cluttered. In the end we looked around and decided that we still want to be in our condo. It just not the right time to sell. And yes, it felt like we are living in a new place anyway. :)
It really does feel like a new house after decluttering and decorating yeah? I wonder how many other folks feel the same way where the interior decorating does such a good job that it convinces the homeowner to stay put!
lots of similarities in our thought process. the first time i was faced with the decision, i stayed put and rented out the place instead of selling it. i did the same when faced with the decision again, and then again. 3 properties later i realized each preceding transaction was leading to more cash flow, more equity and more tax benefits. this is how i got started with real estate years ago.
i also want to reinforce Evan’s point. i once sold a rental property, and was able to negotiate the commission down to 1.5%. the agent was working for herself (most that work for bigger names have to split the payout with the house), which helped the negotiation. always negotiate. 3% is absurd considering the buyer’s agent will likely get 3% as well
finally, there are a few FSBO sites out there. no personal experience with these, but have been hearing and reading about them increasingly
Wow, 1.5% is low! Now I really feel good about not selling b/c I know I would have kicked myself for paying a 4%-5% commission on such a huge number. It really was one of my biggest deterants.
yes it is too much. always negotiate, especially if you are doing most of the leg work. i.e. i research everything about an investment property and simply need an agent to do the paperwork. it’s easy money for the agent, and the agents I work with get that. it’s a win win for all.
My real hope is that in 5 years time when the markets have recovered further, selling a home by yourself becomes that much more ubiquitous and EASIER, and the standard commission rate falls to 2-3% or a flat fee.
I haven’t personally bought a home but my parents were already to move in early 2008 and there was the housing market crash and noone was buying our family home. Probably a blessing in disguise as they would have been in a huge amount of negative equity as a result of the move for at leas the next decade!
Were they planning to move and then BUY a bigger house in 2008?
In the 1970s, I remember losing out on my dream home! because my house did not sell. Maybe, our house would not sell, but then a buyer bought at full price. We bought a brand new house that was even better than the one we lost. think things usually work out that way.
Maybe, it was good your house did not sell! Something better is coming along. BTW, your picture reminds me of the Danielle Steele House in Pacific Heights. Is it?
Danielle Steele’s house is actually BIGGER! She’s a good inspiration for any novelist out there.
Through as usual Sam! Interesting point about your home value going up 60% because you’ll be enjoying it more if you leave your job. Feels like a new home and protecting you from yourself. Nice. However I would root for you if I saw you at the final table of the WSOP. 10K is a drop in the bucket for ya!
Funny concept isn’t it? If I’m going to be spending 60% more time at home, the value of my house goes up 60% b/c I’m utilizing it more!
I wish 10K was a drop in the bucket for me….. I do dream of winning it all one day though. I think all poker players do!
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Hilarious, given that I just read your Narcissism post. You kill me, but I love your writings.
I can see staying is a much better option for you.
We are preparing to sell because we want to move interstate and it looks like we might be able to do it privately as someone we know wants to buy our house. They are cousins of ex tenants so know the house well.
Agents fees here are usually 2 – 4%, so 6% is huge.
Glad you made the right decision for you.