In 1984, my wife and I bought a house in the suburbs of Hartford, CT. We paid $129,000 for a faux colonial style home with vinyl siding. After spending a couple of thousand dollars to rip out the shag carpeting and apply a coat of paint to the cigarette-smoke-stained walls, we had ourselves a nice house at a bargain price. Two years later, in a strong housing market, we accepted an offer of $199,000 because we had fallen in love with a 200-year-old house nearby.
The owners of the old house wanted just $199,000. We made some "modest" changes to our new/old home at a cost of $70,000. Then three years later, our son Tim was born and we felt the need to move from our home on a busy street to a neighborhood. But the housing market had gone into a deep funk in 1990, and the best offer we received after a year was $189,000. We were mortified, but we took the offer, absorbing an $80,000 beating (the $199K we paid plus the $70,000 we had put into the house).
Many people face this same crisis today in an awful housing market. They are deferring their dreams of a new home elsewhere because they can't get past the psychology of losing money on their current home. From my own experience, holding out for a price above the true value of your home is a fool's paradise. Here's some brutal advice if you really truly want to sell your home:
- Your house is not worth what you think it is. The market, not you, determines your home's value. You can control how your house looks, but not what it is worth.
- If you have owned your home for at least a few years, you probably paid less than it is worth today. To borrow a phrase from the stock market, "pigs get slaughtered." Don't be piggish when pricing your house for sale.
- The market virtually everywhere is in the toilet. The house you buy elsewhere will be priced much lower than its owner thinks it is worth. Their loss is your gain, just like your loss is someone else's gain. Last week, the big building company Hovnanian cut prices on more than 2,000 of its homes by as much as 30 percent. Other builders will follow suit this week. And they all have shareowners they report to.
- You can't put a price on doing the right thing for yourself. Living where you want to live is more important than wringing every last irrational dollar from your house. What is your happiness worth?
- You could be harming your local economy and indirectly shooting yourself in the foot. If you overprice your house, no one will buy it. If your fellow citizens overprice their homes, people won't accept jobs that involve a move to your area. The market could stagnate, possibly driving your home's value lower.
- Finally, memories do not translate to house value. Okay, so you raised your children in the house. Those are priceless memories, as in "You can't put a price on them." So don't.
