Financial Planning for Retirement: Should I Sell My House?

Post Written by: Christopher M. Stock, MBA, AIF® | Angie M. Stephenson, CFP®, CPA/PFS

Many things have shifted in the past 18 months – not the least of which is our financial footing and future plans.

Some of those plans may include our primary residence – were we planning to sell our home and then the decision was changed as we were weathering more time at home? Or perhaps we’d planned to hang on to our home as we began to go through life transitions such as retirement or different health needs, but now are unsure of what the best financial decision might be?

We’ve all heard how intense the home sale market is right now – most areas are desperate for inventory. And historically low interest rates are making home buying more attractive for those entering the housing market or purchasing a new home. Since housing usually is cyclical, we can’t count on this ‘seller’s market’ home price strength and bargaining power to last forever.

You may be thinking about selling to have the liquidity to transition to a retirement community, downsize your maintenance, or move in with family members. Whatever your reason, if you’re thinking of selling your primary residence, here are some things to consider.

First, Determine Your Replacement Strategy 

When you sell, you’ll still need housing. To reap the benefits of a home sale, you need to make sure you’re not going to have to spend more than you think to either buy or rent your next home. Especially in these fast-moving markets with people bidding over the asking price, this is critical to identify first.

If you’re looking to downsize, that can help you make the most of the sale. Or, without the need to commute to a job or business, identifying a less expensive area can help you get more for your money.

If you’re considering a transition to a retirement community, you will likely be able to allay many of your ongoing costs and maintenance of your residence into the retirement community fees.

How will the Financing Work?

Many people have elevated stress levels when they transition homes and have settlements the same day, meaning they need to get everything packed up and moved quickly, or could possibly have two mortgage payments for a few months. You may be in a better financial position now, so it may be easier for you to buy your new home prior to selling your old home. We work with many clients by utilizing their existing home equity or investment portfolio to “bridge” into the new property. We also work with the mortgage brokers and bankers to identify the best solution for you, which could be a 10- or 15-year mortgage instead of a 30-year mortgage. There are some creative methods to financing. Not all real estate and mortgage professionals may have the insights for these creative strategies – they won’t know your full financial picture. If done correctly, working with an advisor like Domani Wealth can reduce your stress level through this process. We can ease your mind to find the best timing and the best financing option for you – it’s part of our commitment to always acting in your best interest.

Costs of Selling

It’s easy to forget the long list of costs involved in a home sale. These costs add up, so it is essential to know how much they will impact your net result. Usually, the highest expense will be the real estate commission, which generally averages 6 percent of the sales price[i] – though in some areas it may be much lower. For a $500,000 house, that can cost you over $25,000.

You may also have costs to prepare your home for sale – minor maintenance or staging expenses.

In today’s market, if you have more major repairs, it may not benefit you to complete that investment before listing for sale. Because of the intensity of buyers seeking inventory right now, it may not be the most cost-effective to lay out funding for major updates. Simply noting the need in the listing to be transparent can help you prepare to list your home sooner without major expense.

Taxes 

You also need to factor in taxes to see what you can keep from your gains.  Fortunately, current tax law allows you to exclude up to $250,000 in capital gains as an individual for a primary residence or up to $500,000 for married couples. To qualify, you must have owned the home for at least two years and lived in it for the last two years as well.[ii]

In some cases, depending on how long you’ve owned the property and with the wonderfully strong real estate valuations right now, it could happen that the capital gain on the sale of the house will exceed these IRS capital gains exclusion amounts. If this is the case, you can work with a financial planner to reconstruct the tax cost basis in your home. You may have added major improvements over the years, and that can help increase the purchase price and value of your home. If you added rooms, improved bathrooms, kitchens or outdoor spaces, updated mechanical systems, added fencing or landscaping, updated appliances, added an alarm system, etc. All of these improvements can be added to the cost basis of your home, which increases that value for IRS reporting, which in turn, helps adjust tax consequences within IRS limits for capital gains on the home sale.

Maximizing The Sale 

In a sales transaction, there are facets you directly control and others more impacted by the buyer and the market. By focusing on things within your realm, you can make the most of this sale so you can experience a valuable return.

  1. Get your property in selling shape. Consider painting and other cosmetic upgrades to freshen your home’s look, inside and out. Remove clutter and personal effects so a buyer can envision themselves in your home. Even small steps outside such as edging garden beds or fertilizing the lawn can help.
  2. Consider ways to make your home even more attractive. Home staging, where you pay to professionally furnish your home temporarily, can make sense in strong markets. Also, don’t settle for average photography.A modest investment in professional photos to present your home in the best light possible can pay off by generating more interest.
  3. Find a realtor with strong connections. This is particularly relevant for realtors who have many connections with other real estate professionals. Many realtors today can instigate what is known as ‘pocket listings,’ meaning they share the listing directly with their agent connections several days before the home listing goes live in the publicly accessible MLS system. This can result in sales within just a few days, including terms very beneficial to you as a seller.
  4. Negotiate your real estate commission, or get creative. Commissions are negotiable, so do your best to negotiate a lower rate with a qualified agent. Or consider a discount brokerage service, or even selling it yourself, which can be effective in fast-moving markets.
  5. Look at it as a business transaction. If you’ve lived in your home for years, it is easy to take the sales process personally and react emotionally to offers. That can sometimes work against you by putting off serious buyers. Try to remove yourself from that viewpoint so you can make the best choice possible for your financial future.

Selling your home after many years is a big decision, but it can be an ideal opportunity to boost your retirement savings and align with your financial plan. There are many layers to consider in selling your home, so don’t wait to start a conversation with a financial advisor!

If you’d like to discuss this or other strategies to feel confident in your financial future , give us a call. For over 25 years, Domani Wealth has been helping clients invest better and make the most of opportunities like this. Our experienced, credentialed team can help you analyze your options and determine the best path forward. Call us at 855-855-5545 or email info@domaniwealth.com to start a conversation!

 

 

[i] https://listwithclever.com/average-real-estate-commission-rate/

[ii] https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips

 

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