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Sunday, June 21, 2015

7 Reasons Not to Carry a House

Some sellers told me that if they didn't get their house sold this summer at the sales price they wanted, they would take it off the market before Thanksgiving and wait to put it back on the market after the holidays.   They would "carry the house" until Spring.  Their logic: during the spring market, they certainly would be able to sell it for the higher amount.

I didn't say much.  It wasn't my plan.  Suffice to say, I'm not a big believer in carrying a house for any length of time.  I don't have the nerves for it. Through the years, while I have bought and sold four homes,  I have never owned two places simultaneously.   One time I actually lived in corporate housing for seven months, rather than owning two homes.  

If the collapse of the housing market taught me one lesson, it was this.  Prices don't always go up -- they go down, too.  Who's to say, next year's spring market is going to better than today's market?  There is nothing in Illinois's economic news that gives me tremendous comfort that the market is improving by leaps and bounds.  

As I thought about these sellers' idea, I could think of 6 other reasons why I think carrying a house is a less than ideal situation. 

  1. (see above) Prices can go down.
  2. Evidence has consistently shown, that the longer a house is on the market, the lower the offers become.  Just taking a house off the market, doesn't eliminate "market time" in the minds of buyers. Historically, buyers didn't always know the market time of a property.  Today, that information is readily available to everyone online.  The first question every buyer factors into their offer is this: "How long has this property been around."   Believe it or not, selling a property quickly is a good thing.
  3. An empty house is a disaster waiting to happen.  Pipes break, squirrels get in, the sump pump goes out, etc. etc.   Who can forget this news story from several years ago: 

    Teens turn unoccupied Winnetka home into party house, police say

  4. Time = Money.  For every day a house goes unsold, sellers incur a daily cost.   Just add up everything (taxes, mortgage interest, insurance, utilities, landscaping, snow plowing, repairs, maintenance and cleaning costs, etc. etc. etc.) and divide by 365.  That's the daily cost of carrying a house.  There is a break even point where selling the house for LESS will start to net MORE money than carrying a house.
  5. Opportunity Cost.  As long as the house is "being carried," money is being tied up in maintaining a house rather than in an income producing asset. 
  6. Depreciation -- Everything in the house depreciates with time: the roof is older, the furnace is older, the appliances are older, the windows are older.  Time puts additional wear and tear on the house and devalues the house further in the buyers' eyes.
  7. It's harder to sell an empty house.   When the house comes back on the market, it's empty.   The vast majority of homes show better when someone is living in the house. 
I'm sure if I thought about this longer, I could probably come up with more reasons.   

I worked with some sellers about 10 years ago.  For about two years, they were renovating a house while living in their old house.   As the construction was wrapping up,  we listed their old house.   A week later an offer came in that was about 90% of asking.   Without reservation, they took the first offer and closed immediately.   It didn't matter to them that they had to move into an unfinished construction site.  They were tired of having money tied up and uninvested in that first house.   While it was challenging to move quickly --  they moved very fast -- they totally understood the opportunity and real costs associated with carrying two homes.  Smart move.  The market tanked six months later.  That first house came back on the market a few years later and sold for $325,000 less than what they got.  

I learned a lot with those clients.  It's a lesson I never forgot.