John M. Lee: Why People Decide to Sell
As we head into the summer months and with conflicting information about our real estate market, homeowners are asking themselves is this the right time to sell?
Aside from the obvious situations where the owners need to sell, such as a job transfer or separation or divorce, how do you decide if it's the right time to sell? In this area, aside from the investors who flip properties, or lenders who have to sell off foreclosures, why do people sell?
I have been observing how people usually make these decisions and have seen the following scenarios unfold. Baby boomers are all grown up, and in many cases their parents are passing on and leaving their real estate holdings behind. Sometimes it's a family home, other times it is a significant real estate portfolio.
We are lucky that in the Bay Area, our real estate prices are high and prices increase substantially so many of the properties have plenty of equity and no loans. Many times the properties go to children who have not been very active in managing the properties. Sometimes, siblings have different ideas as to what to do with the inheritances. More often than not, a decision is made to sell the properties so each sibling can do as they wish.
Also, the properties get a "step-up in basis" upon death, so there are no capital gains tax due on the sale, adding more incentive for children to dispose of the real estate.
Some questions to consider are: Are you planning to retire within the next five years? Will you be able to generate enough income from your assets to support you throughout your retirement? How much equity do you have in your home? Does it make sense to downsize, keep some of the sales proceeds and maintain a financial stress-free lifestyle during retirement?
Many of my sellers are opting to go this route by either buying a smaller home or condo, or relocating to an area where prices are lower. But the opposite is also true. Many people who purchased starter homes are starting families or having more children, and need more space, a larger yard, or a better school district; and thus have a need to sell their home and purchase a larger one.
There is also a tax issue to consider when thinking about selling your home. If your property has appreciated more than $500,000 for married couples or $250,000 for singles, it's a great time to take advantage of this profit tax-free and purchase another property. This is the largest tax-free gain that we can take in real estate and we never know when tax changes in this area will take effect. So it is wise to take full advantage while it is still available.
With long-term prices going up, real estate prices will most likely be higher five years from now, and for sure 10 years from now, so why do people sell? For personal reasons that will make their lives better, not purely for economic gains.
Real estate is not only a home you live in, but also a large financial asset. For an average American, 60 percent of their net worth is invested in their home. As such, it should be managed properly and viewed as part of an overall financial package.
John Lee is a broker at Pacific Union. For questions, call him at (415) 447-6231 or e-mail firstname.lastname@example.org.