When homes are selling like hotcakes, there can still be some sticky real estate situations to wade through.
hot real estate market can seem like the answer to your prayers if you’re ready to sell. And homes are selling fast in 2015 in many parts of the country, says Ralph McLaughlin, Trulia’s Housing Economist. A limited inventory is mainly responsible for creating the current seller’s market. Much of California remains a hot market, for example, as does Denver, CO, and parts of Florida. “We define a ‘hot market’ as one where most homes sell faster than two months,” says McLaughlin. But houses aren’t going like hotcakes everywhere. Just ask home sellers in Knoxville, TN; Columbia, SC; and Syracuse, Long Island, and Albany, NY. Most houses tend to sit longer than two months in those areas. If you own a home in a seller’s market, great! But don’t jump for joy just yet. A seller’s market has some downsides that you might not have considered. Here are five scenarios in which a seller’s market can actually be problematic for sellers — and how to help ease the burden.
1. Your house sells lickety-split But you’re still hunting for your next house. Unless you plan to become an RV enthusiast and roam the country, you’ll probably need to buy another house, which turns the tables — making you a buyer in a seller’s market. Some savvy sellers find the house they want before they list their current house for sale. But in a seller’s market, the dream house can sell before the current house does. “I always advise my sellers-turned-buyers to have a backup plan, such as temporary housing,” says Christine Lutz, a Chicago real estate broker. “It’s better to move twice than to feel rushed into a purchase.” Another option is to consider a lease-back, says Gary Wheeler, a California real estate agent with Willis Allen. Your buyers will need to agree to this plan, but if they do, you can rent your house back from the new owners during the lease-back period while you continue to look for another home.
2. The appraisal falls short Your hot market is so blazing hot that people are offering more than asking price. Ka-ching? Perhaps. But brace yourself: It could be more like Debbie Downer’s wah-wah. If the house appraises low, “the buyer may walk away,” says Kelly Hager, a Missouri real estate agent. In that case, you can try renegotiating the deal or pay for a second appraisal.
3. Bad offers all around During a buying frenzy, some buyers make promises they can’t keep. “By not vetting offers, sellers may sit in a contract just to have it terminate three weeks later,” says Sarah Bowles, a Denver real estate agent. Then, when buyers see that your house has been sitting for several weeks in a hot market, they wonder what’s wrong with the house. To avoid this problem, skip the offers that don’t come with a mortgage preapproval.
4. Trying to beat the 1031 clock Section 1031 of the U.S. tax code lets you sell one investment property and buy another investment property without paying tax on the sale. The catch? The clock is ticking. You need to identify a property to buy within 45 days. In a seller’s market, “Sellers can find themselves in tough competition to buy a replacement property in the time needed to qualify the exchange to defer taxes,” says Crystal Stranger, author of The Small Business Tax Guide. But relax a little — you have 180 days to actually close.
5. Your big ego Just because you’re selling in a seller’s market doesn’t necessarily mean you’ll automatically get offers for more than your asking price. “The biggest problem I see with sellers in a seller’s market is being overly optimistic about price,” says Bruce Ailion, an Atlanta real estate agent. When a reasonable offer from a strong buyer comes in, the sellers who expect extravagant offers often turn it down. What happens then? “The property remains on the market, becomes stale, and ultimately sells for less than the first strong offer,” says Ailion. If you plan to sell soon, consider these insights from Trulia Housing Economist McLaughlin: Inexpensive homes sell fastest. The market picks up in the spring and dies down between August and October, extending through the winter. (The exception is vacation homes in hot climates, such as Arizona and Florida, where the market stays strong during winter.)
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