One Merrill Lynch analysts recently projected a 2% per-year growth rate for U.S. homes, which means that for those who bought during the market’s peak in 2006 it will take until 2022 to break even. The breakeven point is defined as the point at which the home can be sold for a return that matches the original sale price plus costs, fees, taxes and sale commissions. One way to speed the arrival of this point is to put “sweat equity” into the home with DIY projects that boost the value. Another way is to sell the home without an agent, which has become much easier thanks to the Internet. For more on this continue reading the following article from TheStreet.
News on the housing front is getting better, but it’s still far from great.
An Aug. 23 New York Times story cited an economist with Bank of America Merrill Lynch who forecast a 2% annual gain in home prices this year and next, with gains then speeding slightly. The analysis implies it would take until 2022 for U.S. home prices to return to the 2006 peak.
Ten years is a long wait, but homeowners can employ some techniques to hasten a breakeven date — a useful strategy if you will someday need to move for a new job or growing family.
Of course, not everyone bought at the 2006 peak. If you bought earlier, or later, you might enjoy real gains well before 2022. And although homeowners are understandably disappointed if their homes are not worth what they were six years ago, those peak prices were a freak, resulting from the housing bubble. In other words, it was unrealistic to count on prices continuing to rise from that high point, or even to stay there.
Anyone who buys a home now, or has in the last eight or 10 years, should think hard about when the breakeven point will come. That’s when the proceeds from a sale would be enough to cover the original purchase price plus the various expenses of buying and selling, like transfer taxes, loan application fees and realtor’s commission. These costs can come to 10% or more of the original purchase price.
In fact, many homeowners will reluctantly settle for less, hoping to sell for enough to cover their remaining mortgage debt and those other costs, even if that means losing some or all of the down payment made when the home was purchased.
Two techniques can help speed the breakeven date.
The first is "sweat equity," or raising the home’s value by working on it yourself. Improvements generally increase a home’s sales price.
Unfortunately, improvements done by professionals typically don’t add as much value as they cost, according to the annual survey by Remodeling magazine. The cost of labor and the contractor’s overhead and profit drive the cost too high to recover in the sale. That granite countertop and swimming pool may improve your quality of life, but aren’t likely to be a home value buffer when it’s selling time.
The do-it-yourselfer can limit the cost to materials, enhancing the chances an improvement will be profitable. Major projects like new kitchens and additions are beyond the skills of most homeowners, but painting, wallpapering and landscaping are fairly easy for amateurs, and mistakes are easy and cheap to fix.
The second strategy: sell the home without a real estate agent. The internet has made the for-sale-by-owner, or FSBO approach, much easier than it once was, allowing sellers to save the 5% to 6% typically spent on a realtor’s commission.
For a few hundred dollars, you can get your home on the multiple listing service, which feeds listings to sites used by many home shoppers, such as Realtor.com, Zillow.com and Trulia.com. Google "FSBO" to find firms that can help with the process.
If home prices do rise at a modest 2% a year, avoiding a realtor’s commission could advance your breakeven date by three years.
This option isn’t for everyone. To make it work, the seller needs a thick skin, confidence in negotiating, and plenty of time for showing the property. Also expect to take longer to sell, as many buyers are unwilling to deal directly with the seller.
As a compromise, consider offering 2% or 3% to the buyer’s agent. That’s what they typically get anyway after the 6% commission is split between the agents for buyer and seller. And it may be a better choice than marking off months on the calendar until 2022.
This article was republished with permission from TheStreet.