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Ideally, you can hang around long enough to make a profit on your home.
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I don’t want to think about the number of times we’ve purchased a home only to sell it a year or two later. Such was the unpredictability of my husband’s career. Each time we bought a house, we were confident we would be there for many years. And then, a promotion, transfer, or unexpected opportunity would pop up, and we would end up selling.
Unless you’re fortunate enough to time the market just right (which, by the way, is impossible), selling too soon can be expensive.
The trend
On average, homeowners stay in their houses for 10 years or more before selling and moving on to the next. That’s twice as long as before the 2009 housing crisis. Watching neighbors lose their homes awakened many to the value of building equity. And for most of us, building equity means staying put.
Life happens
As mentioned, it’s possible to buy a property believing it’s your “forever home.” Life happens, though, and there are plenty of legitimate reasons a homeowner may sell. For example:
A job relocation that you can’t imagine missing out on.A death in the family (or global pandemic) makes you reassess where you want to be and who you want to live near.A health emergency that makes living in your current home uncomfortable or unexpectedly expensive.A new financial challenge that makes selling your home the smartest financial move.
We once sold a house to pay for my husband to finish graduate school. It never occurred to us that we might need to do that.
The cost
It’s possible to get lucky and live in a house during a time when market conditions drive home values skyward. For example, if you purchased a home shortly before COVID-19 hit, it’s possible you found yourself with enough equity mid-pandemic to sell without losing anything. Still, that’s the exception to the rule. It usually works out differently.
Before purchasing a home, try to figure out if you’ll live there long enough to justify selling. Here are some of the expenses you’ll run into if you sell too soon.
Real estate fees
Typically, the seller must pay agent fees, with 3% of the sale price going to the seller’s agent and 3% to the buyer’s agent. Home sellers love to negotiate this point, and some are even successful.
Let’s think about it, though. Let’s say you refuse to pay an agent more than 2% to list your property or pay a buyer’s agent more than 2%. If your agent has more than one listing, it would be tough for them to prioritize yours over a listing paying them the full 3%. After all, agents must pay a portion of that commission to their broker. They must also cover the cost of marketing your home and dedicate hours of their time to showing your house.
By the same token, it would be tempting for a buyer’s agent to avoid showing your home if they know they can earn more money by selling someone else’s property to their clients.
By the time a seller has paid to get their house ready for market, covered the cost of real estate agents, and paid closing costs, it’s safe to figure that they will have spent approximately 10% of the sales price. So, if a home sells for $400,000, it’s reasonable to expect to spend up to $40,000.
We’ve never spent that much money selling a house, but 10% is what we budget for, just in case.
Capital gains
If you sell a property before you’ve owned it for a year, you must pay capital gains tax on any profit. We once purchased a home for $430,000 and sold it one year later for $475,000. We just missed getting stuck with a capital gains bill for the difference between how much we paid for the property and the amount it sold for.
If you add any permanent improvements to a home, like a new roof, siding, or tile floors, hang on to the receipts because you can use them to reduce your total capital gains. Let’s say you have a capital gain of $50,000 but have made $30,000 in permanent upgrades. That leaves you with $20,000 in capital gains.
Prepayment penalties
Some mortgages include a prepayment penalty, although it’s not as common as it once was. The Dodd-Frank Act eliminated the penalty for all conforming mortgages signed on Jan. 10, 2014 or later. A conforming mortgage is a loan that adheres to the financing limits established by the Federal Housing Finance Agency and is underwritten by Freddie Mac or Fannie Mae.
If you have a non-conforming loan signed after Jan. 10, 2014, it may include a prepayment penalty that applies only during the first three years of the repayment period.
Moving expenses
Companies used to offer sweet deals for employees willing to relocate, but we’ve found that most of those have gone the way of the dodo. Today, employers may give you a fixed amount of money and expect you to make the most of it, even if you hold an executive position. Invariably, moving is more expensive than you expect it to be.
By the time you factor in movers, tips, hotels, and other expenses, there’s a good chance you’ll find yourself forking over funds from your personal bank account.
If you’re not moving due to a job transfer but out of necessity, you can count on paying all moving expenses. We moved nearly eight months ago, and the 400-mile move cost approximately $14,000. Fortunately, my husband’s company covered much of it, but we were still out thousands of dollars thanks to a comically bad moving company.
None of this is intended to discourage you. We were meant to see the places we’ve seen and meet the incredible people we’ve met. I cannot imagine how different our lives would have been if we’d stayed in one place for decades. Moving can be good for the soul.
I know from experience that we can’t predict the future and can’t always control when it’s time to move. If you have a choice, though, stay in a home long enough to recoup the money you’ve poured into it.
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