Downsizing got derailed, is there a way out?

[rkser]

- We find ourselves stuck in this large house -

We built this 3600sqft 2 story pool house in central Florida in 2002, before the Real Estate Boom for $ 500K, it has been paid off, no mortgage, no equity line of credit.......

Now the baby of the house just left for College, just the time we were waiting for to down size to a smaller, more manageable, single story & a cheaper maintenance house. We hardly ever use half of the house.

I think we are maintaining this white elephant with its pool care, heavy landscaping & cooling costs for not much use. My and DW's frugality which helped us build some assets does not go along with this kind of resource wasting situation.

We are 55 & 50, and are ready to cut the work load even more from the part time we work in our business, and want to travel. Although it is a beautiful house in a good upscale neighborhood, the house prices are down 40% around here and I suspect we may not end up with more than $350K after the transaction costs and such..... . Due to this, we have not put ours up for sale yet.

This house served us well in raising kids, socializing ..etc.., but we are not able to move to the next phase in life because of this dreaded real estate situation which does not seem to have an end in sight.

How do the other forum members deal or have dealt with this frustrating situation, I would welcome any and all ideas, opinions. etc.... Thank you in advance.

Regards

 

[73ss454]

All markets go up and down and sometimes you just have to take the hit. On the bright side you can buy the new smaller house for a lot less money also. So if you take a 150K loss on the current house and buy something for 200K that was worth 350K when you paid 500K for the big house the overall loss is really rather small.

5 years ago when we sold our house in NY the agent said we would get $725 for it. 6 months later we sold it for $570 and moved to Central Florida. Anything you are selling is only worth what someone is willing to pay for it. But you just have to make it up on the other end.

You also got to enjoy living in your big house for almost 10 years, that has some value.

 

[REWahoo]

I'm assuming you want to downsize to another house in FL and I understand the real estate market took a hit throughout the state. Won't a significant portion the money you "lose" by selling be made up, at least in part, in the price of the downsized house? While it is unlikely the price savings will equal the hit you take on the sale of your existing house, it could very well be worth it in the long run with reduced utility and maintenance costs - not to mention peace of mind.

 

[Animorph]

You are to some degree "anchored" to the price you paid for the house. Look forward only. In 10 years will you be better off with the current house or downsizing? Will the value of your current house appreciate faster than a smaller house and investing the downsizing cash in your portfolio? Including expenses?

A friend of DW's picked up a bunch of foreclosed houses in 2008/2009 and kind of regrets it now. They haven't recovered any where near as much as the equities markets, at least in our area. But that could mean they will now do better than the equities market moving forward...

So it's not all bad, either way depending on your view of the housing market and your possible portfolio gains. Given that you feel like you're wasting cash living in a big house, I'd probably downsize and invest the cash out in my portfolio. I'd feel even better if I could pick up the new house at a bargin price and invest in equities while they were down 20%. Or just picked up a house that I liked much better than the old one.

 

[Katsmeow]

How do the other forum members deal or have dealt with this frustrating situation, I would welcome any and all ideas, opinions. etc.... Thank you in advance.

We faced a somewhat similar issue. We bought a large house several years ago when we had 6 people living at home. At the time we did not realize DH would be able to retire as soon as he was able to (last year). By the time DH retired and I ESR'd (began working very part time) he only had 4 people at home and will be 2 within 5 years. The house was very expensive to maintain and very large.

Unfortunately our house was not paid for. We did not have as great a reduction in value as in Florida but sales in our area were very slow (often taking a couple of years to sell) and the value had gone down. We initially listed at the price the agent recommended which, in retrospect, was too high. After six months we took it off for a few months, then relisted at a lower price (about 15% or so lower than we started at. We had a contract within a few days. Given the decline in value and the real estate commission, we had to bring a check to closing. I hated doing that, but I'm so glad we sold that house. In our case, we own other land and plan to build so we don't get the advantage of buying a house that is also declined in value but we plan to build a smaller house that will be much less expensive and easier to maintain.

Your situation is a little different since your house is paid off. However, I understand the white elephant part of it. If I was you I think I would look at what it would cost you to keep the house for the next, say, 10 years versus the net cost to sell at a loss buy another house and keep it for 10 years. That said, there is also a quality of life issue. One of the things I thought about with our house was whether I would want to live in that house if there wasn't a difference economically between maintaining it and maintaining the new house. The answer was that I really didn't. The house had served its purpose but now we wanted something different. I considered keeping it until values went back up (more likely to happen probably in my area than yours) but for us the numbers didn't necessarily work out better doing that.

 

[MichaelB]

- We find ourselves stuck in this large house -

We built this 3600sqft 2 story pool house in central Florida in 2002, before the Real Estate Boom for $ 500K, it has been paid off, no mortgage, no equity line of credit.......

Now the baby of the house just left for College, just the time we were waiting for to down size to a smaller, more manageable, single story & a cheaper maintenance house. We hardly ever use half of the house.

I think we are maintaining this white elephant with its pool care, heavy landscaping & cooling costs for not much use. My and DW's frugality which helped us build some assets does not go along with this kind of resource wasting situation.

We are 55 & 50, and are ready to cut the work load even more from the part time we work in our business, and want to travel. Although it is a beautiful house in a good upscale neighborhood, the house prices are down 40% around here and I suspect we may not end up with more than $350K after the transaction costs and such..... . Due to this, we have not put ours up for sale yet.

This house served us well in raising kids, socializing ..etc.., but we are not able to move to the next phase in life because of this dreaded real estate situation which does not seem to have an end in sight.

How do the other forum members deal or have dealt with this frustrating situation, I would welcome any and all ideas, opinions. etc.... Thank you in advance.

Regards

You see a problem but it looks to me like an opportunity. You own your home free and clear so you keep whatever the sales price is less fees and commissions. By downsizing you will be looking for a home that costs less and you will be able to negotiate effectively because you don't need a mortgage. You might have one anyway, but you have the cash. You may end up with a new smaller home and some extra cash in the bank.

The loss in value in you current home is a reality even though you have not sold it. That same situation affects another 100M homeowners in the US, so it's not you, and there is nothing you can do about it.

You are in a good situation right now and you should take advantage of it. You also have the opportunity to move and not tell your college bound baby - in case the thought crossed your mind.

 

[foxfirev5]

Everything is relative in this situation. As previously stated your in a good position compared to most people. As you said the house has served you well. By selling low and buying another low priced property your locked in loss would only be the difference in price times the % decline. Or however you figure it you need to make the right decision based on your current situation.
In 2007-2008 I had the opportunity to transfer to Florida and worked the area until late 2009. The real estate market was like trying to catch a falling knife. Likewise the RE market in Michigan was lousy. We did nothing and it is working out. I now travel extensively in the NE and it doesn't matter where I live. The house is big but the kids come back and now bringing the grandaughter ( w/ another one due in May).
Don't get to hung up on the current value of your home. There are many other considerations. Basically do what you want and can afford.

 

[W2R]

I have never owned a big house, but my parents bought one in the 1940's. They closed off about a third of it and didn't heat or cool that part of the house, or use it. Would that lower your costs enough, maybe?

If not, then I would agree with the others here. You would take a hit, but it might not be as big as you think. If your $500K house is only worth $350K, then a hypothetical $200K downsized house might only cost $140K.

So instead of losing $150K, you'd lose ($500K-$350K) - ($200K-$140K) = $90K. And as others pointed out, since your home is paid off it would really feel like you had gained $350K-$140K = $210K in your portfolio.

Still not the best possible outcome, but maybe a little easier to swallow.

 

[Meadbh]

Check out a few smaller houses and get an appraisal on your current home. Estimate the cash that you could free up and the savings in operating costs that downsizing would bring. Focus on those numbers. Do they look attractive enough to compensate for the loss of space, pool, etc?

 

[Walt34]

You also have the opportunity to move and not tell your college bound baby - in case the thought crossed your mind.

And I thought I was harsh....

 

[JPatrick]

Your problem is certainly not uncommon. Our area is littered with 5-6000 sq ft McMansions whose owners have the same desires as you. Except for the cream of the crop, I don't expect any serious price appreciation for many years. Of course, while these folks wait maintenance problems accumulate.

As others have said, focus on the now price, find the most creative agent you can and press on.

 

[rkser]

Thanks for many different ways/perspectives to see our present situation.

I and DW are still not decided as to what to do. Maybe, one weekend we will get out of town for a small break & sit down with a pen & paper and go over the pros and cons of each option/decision.

I read somewhere that if you finance your buyer for the house sale, it may sell a little easier. I do not know what bag of worms that comes with.
Has any of you or anybody you know done that or have an opinion about seller's financing.


Thanks & regards

 

[ChrisC]

This seems to be a case of "loss aversion" and "anchoring," cognitive behavior which has been reported in dozens of behavioral economics literature. Google loss aversion or Kahneman and uncover fascinating information about what's operating in your mind.

 

[Katsmeow]

I read somewhere that if you finance your buyer for the house sale, it may sell a little easier. I do not know what bag of worms that comes with.
Has any of you or anybody you know done that or have an opinion about seller's financing.

I wouldn't do it. I feel it is extremely risky and I just wouldn't take the chance. If my buyer can't get normal financing then, frankly, I wouldn't want to take the risk either.

 

[sinjin]

I tried to post this earlier, but lost my connection.

We were in a similar position to yours in the spring. We built in 1999 in a location that did not experience the big ups or the big downs that occurred around the country. However when we went to sell our house it became obvious that we would not get back even what we put in before the RE agent took her commission.

None-the-less we spent several months de-cluttering, painting the entire interior, doing minor maintenance projects etc. We priced our house aggressively compared to others in the neighborhood and sold to the first people who looked at it. We could maybe have gotten 10k more but....The peace of mind in being able to walk away and to get on with our lives was worth way more than any $$ we might have recouped.

On top of that we were able to buy a lot in a dream location that was reduced >2x more than our relative loss on our house. We would not have been able to afford a house/lot in this location if we had sold our house at the top of the market and tried to buy here at that time. We are currently building a lovely beach house <1/3 the size of our former home.

So it's all relative.

 

[Amethyst]

In your shoes, I would look very carefully at the neighborhoods where you are thinking of buying a smaller house. Often, and annoyingly, it seems that to live in a really nice section, you have to live in a bigger house, with all its attendant expenses. Smaller houses are in cheaper sections, drawing less desirable neighbors (not always...I know well...but generally speaking).

Amethyst

 

[Golden Mean]

Have you though about renting your current property? You can have a management company handle most of the day to day stuff for about 10% of the rent.

GM

 

[Buckeye]

Thanks for many different ways/perspectives to see our present situation.

I and DW are still not decided as to what to do. Maybe, one weekend we will get out of town for a small break & sit down with a pen & paper and go over the pros and cons of each option/decision.

I read somewhere that if you finance your buyer for the house sale, it may sell a little easier. I do not know what bag of worms that comes with.
Has any of you or anybody you know done that or have an opinion about seller's financing.


Thanks & regards

1. Picture yourself having to foreclose on the new owners for non-payment.
2. Picture the process taking at least 6 months, maybe a year and costing thousands in lawyer fees. Who is paying the property taxes while all this is going on?
3. Picture yourself walking into the house after they are finally gone and finding it completely trashed.

If the worst case above doesn't send you running, consider seller- financing. Change "foreclose" to "evict" and re-imagine the scenario with renters.

We did a FSBO with an MLS listing on our OH house in 2009. We paid $300k and added $12k in flooring and appliances. We sold for $240k in 4 months. It could have easily taken a year to sell in our small town, even in a decent market. The agents were a bit laid back and we did a lot more marketing than we saw them doing for other properties. We paid a 2.5% commission to the buyer's agent. Our listing offered 3% to the buyer's agent to attract realtors and their buyers but our buyer's agent was her aunt. The agent gave up some commission to get the price she knew the kids were approved for.

For us, the most important step was getting a professional appraisal done to determine the market value of our home and to help us set our listing price. It was important to know approximately what amount buyers would be able to get financed. Getting a contract for a "high" price would do us no good if the banks didn't agree. We were ready to move to FL and we were not spending another winter in OH!

The loss we took on the sale was approximately equal to what we would have paid to rent the house for almost 5 years. That's not even counting the tax deduction for interest and property taxes. I loved living there and would do it again.

Take all the emotion out of it. Run the numbers, get the relevant info (and what you paid for the house is not relevant), do the deal and get on your way! Life is short.

 

[marylandcrab]

We bought our house in 2006 and since then has gone down in value every year. We've been paying it down, and we now owe less on it than what it's worth. I don't even want to pay the house off anymore.

My kids are in hs now. One thing I know about college, you pay a small fortune but kids seem to barely be in school between all the breaks and holidays and summers. A semester is 15 weeks, so you'll have your child home for 22 weeks plus holidays and long weekends.

And lots and lots of kids move back with mom and dad.

However, you either sell high and buy high, or sell low and buy low. So if you do it all at once, sell it then go out and buy - you should be okay.

I would be surprised if there were really that much of a difference in maintenance costs at a new place that would make it worth it to pay for the costs of moving - ie realtor fees, taxes, etc.

 

[chemist]

I agree with the two posters above re: anchoring. The $500K number is completely irrelevant if you take emotions out of the picture.

Do an analysis using numbers for the market today. Do the financial and psychic rewards of downsizing make sense? If so, do it. If not, stay put.

 

[jimnjana]

Have you though about renting your current property? You can have a management company handle most of the day to day stuff for about 10% of the rent.

GM

I must have failed to submit my post about renting as an option too. If OP is any where near the attractions of central Florida, may want to consider vacation rental. DW and I are using this option on our Atlanta home until March, then we will place it back on the market to sell. We had tenants last year (9 month lease) while it was on the market to sell. That did not work out at all (long story) so rather than leaving house on market over fall/winter we advertised on VRBO and are doing quite well.

 

[grasshopper]

I sold my retirement lakefront dream house, at the top of the market in 2006. Bought the homestead on acreage at the top of the market. I was lucky the ranch was only 1/3 the price of the lake house. But I would have to guess that the ranch is worth 100K less than what I paid for it. Go figure. Anyone want to buy a few ranchettes in Arizona?

 

[FUEGO]

If you want a smaller house, then take the loss and make a move. Like others have said, you will be buying into a depressed market so you will be able to get a lot of decent houses for much less than they were selling at a few years ago.

Just remember if you stay in that house another 10 years and then sell, you will be selling a 20 year old house instead of a 10 yr old house. That means a 20 year old kitchen that will need updating, flooring that will need updating. Painting will be due. HVAC will have to be replaced between now and then if it hasn't already. Major appliances will start to go before then. If you have asphalt shingles, you'll be replacing those or selling with a nearly worthless roof.

And I know in some places in FL, property tax and hurricane/flood insurance are a beast. Think about spending that for 10 more years hoping for appreciation.

I personally treat houses as a place to live, not as investments, so I would make a decision according to what house best serves your living needs for the foreseeable future.

 

[dm]

We have also talked about downsizing. Our house is also paid for, but not as big as yours, closer to 3000 sq.ft. We built in 2001 and I don't know what we could sell for now. The problem is I just don't see any houses selling at all here. We have just been trying to make this house work better for us. Its a two story house and we just don't use the upstairs much.

I think for us, unless we want to move to a different area, we just might as well stay here. After you figure in the cost and trouble to moving and real estate fees. But we have low taxes and insurance cost.

 

[Katsmeow]

The problem is I just don't see any houses selling at all here.

When we were getting ready to sell and were listed I really looked at comps and analyzed them. I kept getting hung up by data saying that the average days on market was something like 100 days before sale (I forget the exact number) and houses were selling for 95% or so of listing price. When ours didn't sell and was sitting on the market I asked my agent to give me the complete sales history on every house within a few miles that was listed or had sold within the past year.

What I found out was that the vast majority of those houses that were shown as selling in the time period and price above were actually relists and most were selling for about 80% of what they were originally listed for a year or two earlier.

I also saw that over the six months that were listed the inventory was growing higher because houses weren't selling and that didn't even include the houses that were listed and then taken off the market entirely because they didn't sell.

I actually had a copy of comps from when we had bought the house 4 years earlier (at the height of the market). We weren't in a huge bubble market but even in our area there were many many many more sales in the area at the time we bought. Basically the sales in 2010, early 2011 where a small fraction of the sales in the 20006 time period.

The house across the street from us was on the market for over 3 years and eventually sold for about 1/3 less than the initial listing price.

When our first 6 months listing expired we took the house off the market for a few months then prepared to relist in early spring. We contacted the 2 most successful agents in our area. We first asked them their recommendation for a listing price. Both suggested a similar price which was the same as it was when our listing had expired (this was a price that was about 10% less than our initial listing price). Both said they thought it was a "good" price and the house should sell but it might take awhile.

The house was expensive to maintain and we were ready to move on so I then asked what price to list at if we wanted to have a good chance to sell within 30 days of listing. Both listed the price that was the top of the next lower pricing bracket (about another 7% reduction). We ran the numbers and it made more sense to sell sooner rather later so we listed at the lower price and had a contract within a few days of relisting.