throughRobert Taylor(updated on)
- Homes for sale see more discounts
- If you're planning to sell your home in the next year, prioritize your home repairs on health and safety first
- Focus on your home's attractiveness, not expensive upgrades—expensive upgrades probably won't pay for themselves
- Sellers should expect banks to tighten their lending policies and further reduce the number of potential buyers
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Selling your home is never an easy process. Selling your home during a recession can be even morestressful. While not everyone agrees, a growing number of economists are saying a recession is likely in the near future. Interest rates are already having an impact on home sales and will likely continue to have a larger impact.
Doug Duncan, the chief economist with Fannie Mae in aJuly press releasesays: "We currently expect [the coming recession] to start in the first quarter of 2023, slightly earlier than we previously predicted." "Houses for sale are increasingly being discounted," says Duncan. He continues, "Both existing and new [home sales] are slowing down."
Where the real estate crisis is most painful
The downturn is more painful in the “Pandemic is buying boomtowns” like Boise, ID, where 69.7% of sellers lowered their price in July. Sacramento, California, has seen a rush of Bay Area buyers during the pandemic as remote working opportunities have allowed them to buy more "affordable" homes. Now Sacramento is in theTop 5 fastest refrigeration markets in the nationaccording to a report by Redfin, preceded only by San Jose, Oakland and San Francisco.
You don't always have a choice when to sell your home
They say "timing is everything". However, not everyone has the luxury of deciding when to sell their home. However, life happens, work locations change, as do financial needs. Unless you are in a situation where you need to sell, waiting a few years may be an option. But what if you don't have that luxury and you know you'll have to sell your home in the coming year? What should you do now?
Preparation tips for selling your home during a real estate recession
If you anticipate selling in the next 18 months, there are things you can do now. The most important thing is to make a plan and follow your plan.
Bill Samuel, a real estate agent and owner ofBlue Ladder developmentin Chicago, suggest you first familiarize yourself with the homes currently for sale. “Start familiarizing yourself with the inventory in your area by visiting homes listed on the market now. Be sure to take notes of what you see during your tour so you can look back at them next year when you're ready to list them. Since they don't plan on selling until next year, you can see what happens to the houses that are for sale.”
Separate health and safety from other repairs
Next, start making a list of the repairs that need to be made. A simple way to decide if a repair would be nice or if it really needs to be done is to ask yourself, "Is this a health and safety issue?". Health and safety issues are identified at every home inspection. Knowing what these items are can help you set your budget and search for affordable contractors before you have to sell.
If the stairs leading to your deck aren't safe, they probably need fixing. If your roof is leaking, it needs to be repaired. However, if your old sprinkler system isn't working and the lawn is dead, it doesn't need repairing.
Get a home inspection
If you are unsure if there are any health and safety issues, consider paying for a home inspection.home inspectionsusually run between $400 and $500. Although they are a bit pricey, they can give you a clear list of things you might want to fix before you put your house on the market. In addition, you can make the report available to potential buyers and identify the items that you have already corrected, potentially allaying buyers' concerns.
Order a pest report
Most Realtors® have their buyers order a pest inspection as part of their duty of care. The pest controller looks for traces of termites, but also for wood-destroying fungi or "dry rot". Your pest report will classify the results as either Section 1 or Section 2. Items in section 1 would be termites and dry rot, while items in section 2 could be a leaky faucet or a loose toilet flush. Many Section 2 items are items that either the homeowner or a handyman can easily repair. Section 1 items may be more expensive and may require specialized contractors.
That's what real estate agents always tell their clientsTidy houses sell faster. Cliff Auerswald President ofAll reverse mortgages, says: “The more things you have in your home, the more difficult it becomes for buyers to see their potential. Start getting rid of things you don't need and put them away when you need them.” Tidy homes not only look cleaner, they look bigger too.
Don't waste your money on expensive upgrades
You may think that in order to sell your home, you need to make a lot of expensive upgrades. Maybe you think you need a new kitchen or you need to remodel your bathroom. The truth is that there is no single renovation that will add more value to your home than it cost to renovate. While renovation projects can increase the appeal of your home, the return on your investment is generally less than the dollars you spend.
For example, many people and Realtors® assume that remodeling your kitchen will increase the value of the home dollar for dollar. According to an annual survey conducted byMagazine conversion, even a small kitchen renovation will only return 71% of the money you spend on the renovation.
So let's say your house is worth $300,000 and you want to spend $20,000 on a new kitchen. After the kitchen remodel, your home will only add $14,200 in value. And the percentage has actually been steadily declining for the last 5 years.
When you look at the top 5 most profitable home repairs, none of them return 100% of your investment.
Modification instead of repair
Instead of undertaking expensive remodels, ask yourself, "What can I fix?" When a kitchen remodel costs $15,000 in cabinets and new appliances, consider refreshing your kitchen with new countertops instead. Granite, Quartz, and Silestone are popular and can often be installed for less than $3,000.
Increase in value versus increase in attractiveness – choosing the right renovations
It's important to focus on the aesthetics of your home instead of the renovations you've been dreaming of.Chuck Vander-Posen, a Realtor® in Valparaiso, Indiana says, "Focus on the little things that make a home look more expensive." Vander Stelt says you should "replace [upgrade] your contractor-grade bathroom furniture and swap out your light fixtures and interior door handles."
Megan Miccoa Greater San San Francisco Realtor® agrees. Micco says invest in "updates that improve the general aesthetic of the property to attract as much buyer interest as possible." This includes things like interior and exterior painting, minor remodeling (new countertops or refinished hardwood floors) and most importantly,high-quality staging.“
There are of course some exceptions. If your entire home has a nice update with the exception of the kitchen or master bathroom, it may be worth updating them. You probably won't get your money back right away. However, you may only be removing the one thing that would put off potential buyers. Remember, focus on attractiveness.
What to Expect When Selling Your Home During a Recession?
Fewer buyers, but more negotiations
In a recession, fewer buyers and longer market presence can be expected. However, sellers can also experience tougher negotiations with buyers, especially if their home needs repairs. During a recession, buyers have an expanded inventory of homes to choose from and can fine-tune their priorities. If your home needs a lot of repairs, you may find potential buyers offering low prices.
Lending may be subject to stricter restrictions
Lending requirements are constantly changing. As the economy tightens, so do bank lending policies. As the economy progresses, their lending standards are looser. Auerswal says that during a recession, "banks may be more reluctant to approve mortgages." The challenge, he continues, is that this can "reduce the pool of potential buyers." This was very evident during the Great Recession, when tighter credit standards often made it difficult for well-qualified buyers to obtain home loans.
More conditional offers
When a buyer writes an offer to buy your home, this may be the casecontingenciesare part of the offer. Micco describes contingencies as "conditions under which the buyer may terminate a contract to purchase your home." Most often, these contingencies involve things like checking pest and home inspection reports. However, in a slow real estate market, you can expect an increased number of contingencies. These contingencies may include a mortgage rate that is acceptable to the buyer or the buyer's ability to sell their current home.
Lessons from past recessions
The good news is that recessions don't last forever and shoppers will return. In many parts of the country there is still a limited supply of housing and pent-up demand. The first areas to see movement are often in nicer entry-level neighborhoods and in up-and-coming neighborhoods. These owners usually have some equity and want to take advantage of lower prices in other nicer areas. This often increases affordable inventory for first-time home buyers in the entry-level market.
Clean and well-maintained homes in desirable areas still sell
During the Great Recession, we bought and sold homes in California's Central Valley. Even in difficult economic times, beautiful houses were sold. Homes in nicer, family-friendly neighborhoods sold faster than some of the tougher neighborhoods. But houses in rough areas were still being sold.
If your homes are clean and well maintained, your home will still sell with the right realtor.
One of the mistakes many sellers made during the Great Recession was setting unrealistic expectations. The housing market slid quickly, but sellers tried to sell her house for what her neighbor had sold his house for a year earlier. Instead of getting ahead of the market, many sellers and real estate agents lagged behind.
While it's extremely unlikely that we'll see anything like the Great Recession in 2023, the lesson is the same. Be realistic and value your home correctly. Complete these health and safety repairs listed on your inspection reports before you need to sell. And fix the areas in section 1 of the pest report.
When choosing an agent, don't just choose an agent who promises you the highest price - they may just be desperate for your business. And don't go for the agent with the lowest price—they might just want a quick sales commission. Start with ours insteadThe 10 most important questions to ask your Realtor® before hiring them, and interview several agents. Having a great real estate agent who has experience selling during a real estate recession will be invaluable.
Is it a good idea to sell your house during a recession? ›
It is not recommended that you sell your home and move money to the stock market during a recession, but purchasing a new home is a good investment anytime.Why it is difficult to sell a home during a recession? ›
Another con of selling your house during a recession is that the process may take longer than usual. This is because there are fewer buyers in the real estate market and more houses for sale. If you're patient and willing to negotiate, then you may be able to find a buyer who is willing to pay your asking price.Is it better to have cash or real estate in a recession? ›
Generally, financial experts recommend that households save anywhere from 3 months to 1 year of living expenses in cash on top of whatever's in your portfolio.What do realtors do in a recession? ›
During this time, agents are working to grow their leads and assure clients that they have the skills to negotiate and work with home inspectors and mortgage companies. It's harder to get your name out there when you are new and some people don't want to hire inexperienced agents.Do home values decline in a recession? ›
Generally, declining home values often go hand-in-hand with economic recessions, but that isn't always the case. As people lose their jobs, it becomes more difficult to repay a mortgage and if a borrower falls behind, they may face foreclosure.Do real estate values go down in a recession? ›
Why House Prices Usually Fall During Recessions. Across all of those recessions, the average house price dip was 5% for each year the economy remained down. In some cases, that drop was huge: In the Great Recession, the average home price dropped by nearly 13%.Do property values go down in a recession? ›
That means reduced demand for high-end, expensive properties, and a subsequent drop in prices. First-time homeowners and lower-end buyers focus more on interest rates, so as long as these remain steady, they still buy houses. Due to this, homes in the low to mid-price range stay on track for longer during a recession.What not to do during a recession? ›
For example, you'll want to avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Workers considering quitting their jobs should prepare for a longer search if they decide to find a new one later.Is cash King during a recession? ›
It will give them the funds to buy stocks or other assets during the decline. Because of how precious cash can be during times of financial stress, many have said that cash is king. The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis.What is the best thing to do with cash in a recession? ›
Where is your money safest during a recession? Many investors turn to conservative asset classes such as bonds during recessionary periods. Mutual funds may also be a useful area to consider, and so may established, large-cap companies with strong balance sheets and cash flow.