On Deciding to Sell the Large Estate to Buy Another Home
As part of the estate, this man became heir to the family residence where he lived. Located in a high-end neighbourhood, the spacious home weighed in at $400,000 in value. So instead of continuing to live there, the young beneficiary decided to sell the property and downsize to a much smaller and less expensive dwelling. After all, he was only one person and a move would allow him to buy for cash and give him a sizable nest egg. What’s more, after his mother’s passing, continuing to live in the family home lost its appeal.
Downsizing and Buying for Cash
The sale was made and in turn he purchased a small, very humble one-storey for $120,000 cash and, after moving in, contracted for a few upgrades and creature comforts totalling $12,000. Outside of legal costs, his total investment amounted to a mere $132,000; and with money in the bank he felt like he had won the lottery.
Three Years Later and Time to Sell
After three years he grew tired of such modest surroundings and decided it was time to sell. He realized that after considering sell costs, he wouldn’t recoup all of his money. So in an effort to minimize his losses he confidently listed the home for $135,900.
Lenders Reject Offer After Offer
Over the home’s 5 months on the market, he accepted 3 conditional offers. In each case, the buyers qualified for the mortgage needed; what did not qualify was the house. In all three cases, the lenders determined that the value of the house was lower than the price paid, so the buyers opted out of the purchase.
Finally a Sale
During all of this the listing price was reduced twice, finally landing at $114,900, at which point a fourth offer was submitted that the seller swiftly and impatiently rejected because it was way too low. A week later the seller accepted the fifth and final offer for $110,500. This time the mortgage lender approved both the buyer and the price paid for the house. After selling costs, the seller netted about $105,000 for a loss of about $27,000.
What can be taken away from this story?
- If buying with cash, at the very least review similar properties that have sold before deciding how much to offer. Also work with a REALTOR® who will treat you fairly and provide conscientious and competent service, regardless of whether you are a client or a customer.
- Consider making the purchase conditional on obtaining an appraisal to verify the home’s value.
- Commit to living in the home for 5 years or more, and this might mean buying a better home to begin with.
- With a mortgage financing condition, the lender will confirm that the property is worth the price paid.
- A listing price based on what you paid and invested in the property most often has little relevance to what a willing buyer is willing to pay given the home’s location, condition, quality, style and market conditions.