North Shore Views

How Move-Up Buyers Can Profit from a Down Market

I have some clients who want to buy a new home in the worst way. They see some great buys on the market, houses that have  the features they really want. And their earnings enable them to qualify for a bigger mortgage. But, after looking and dreaming, reality sets in, because they are saddled with their existing home, which they would need to sell before they can buy.  And they realize that they can’t sell their current home without taking a hit.  Like many other people who bought when the market was up, they have a house that’s worth less today than it was three years ago and the thought of selling it for less than they paid makes them cringe.

When I tell them that if they really do want to move, they can actually come out ahead, they look at me like I have three heads. But I’m serious. Because, while their house has decreased in value, so have the other houses, and if they are moving up, they can save more than they lose.

Let’s take their house as an example. Today, based on comps, I would list their house somewhere right around $700,000, which is about 21% less than it was worth back in 2006 ($885,000). One of the houses they are interested in buying is listed at $1,200,000, which is also 21% less than it was worth in 2006 ($1,519,000). Now, let’s say they sell their house for $630,000 or about 90% of the list price of $700,000. And let’s say they can negotiate a deal for $1,080,000 for their dream house, also 90% of asking.

They’ve “lost” $256,000 on the sale of their current house (vs. the market high in 2006), but they’ve “saved” $439,000 on the new house vs. its high price in 2006, a net gain of $183,000.

When you do the math, you see that the current market conditions CAN work in your favor in some situations. Not only can my clients afford a house that they could not have afforded at the 2006 prices, but interest rates are near historic lows, making this a great time to buy. Of course I would NOT advise them to run right out and put an offer on their dream house UNTIL they have sold their current home. If they are serious about moving, they should price their house to sell and then, once they have a contract, negotiate hard for their dream house. Once they have sold they will be in the driver’s seat and have the leverage to negotiate a very attractive deal for themselves on the buy side.

Tags: home buying tips, move-up buyer strategies

This entry was posted on Sunday, December 20th, 2009 at 2:54 pm and is filed under Buying a home, Selling a home. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. 5 Good Reasons NOT Wait til Spring to Sell Your House | A Word From The Wise said at November 3rd, 2010 at 3:52 pm

   [...] 5. Finally, if you are moving up to a bigger or better house, you can actually come out ahead, EVEN if you sell your current home for less than it used to be worth. Here’s how that math works: let’s say your current house is worth 20% less than it was three years ago. The bigger, better house you want to buy is also worth 20% less than it was three years ago. So you gain more on the purchase of the new house than you lose on the sale of your current home. You can read more about how this works here. [...]

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