Navigating a real estate slowdown
'I'm remodeling a place I plan to sell, but I'm worried that the housing market might go bust before I finish. Should I sell it as is?'
NEW YORK (CNNMoney.com) - I'm remodeling a rental home that I plan to sell, but I'm worried that the housing market might go bust before I finish the renovations. Someone suggested I put it on the market before it's finished, but I'm not sure this is a good idea. What do you think?
- Arlene Sund, Seattle, Washington
I don't think there's any doubt that housing prices have begun to cool down after their torrid run of the past five years. Recent stats from the National Association of Realtors show that the median price for a single-family home in the U.S. fell about 3 percent between the end of last year and the first quarter of this year.
That doesn't mean prices have fallen everywhere. Indeed, they're still rising in many parts of the country, even if not quite as robustly as they were before.
And what really matters is what's going on in your area. So you'll not only want to check out price trends in your city, which you can do by clicking here, but your neighborhood as well, in which case talking to local realtors is probably your best bet.
Check with the people who know the area best
Aside from getting info about whether selling prices have been trending up or down, you'll want to ask local agents whether the inventory of unsold homes increasing, the number of weeks listings spend on the market before selling is on the rise and whether sellers are having to make price cuts and other concessions to sell.
Maybe your research will find that your area is doing just fine. But given recent trends and the fact that interest rates have crept up substantially over the past year - which makes homes less affordable and, therefore, a harder sell - I think that your instinct to sell your rental sooner rather than later is right on. Procrastinating may simply mean getting a lower price.
That said, you don't want to rush it to market before the renovation is complete. If potential buyers see a property that looks like a construction site, two things may happen.
First, they won't be seeing the property in its best light, so any offers they make aren't likely to reflect its true value. Second, buyers may get the sense that you're especially anxious to sell, figuring you're just concerned about that market or that you can't afford to finish the renovation and need to get rid of the property. Either way, once buyers get a whiff of desperation, they're likely to come in with low-ball offers.
Finish up quickly and sell
So my advice is finish the renovation as quickly as you can (without botching it, of course) and then get that baby on the market. You'll want to be especially careful about pricing it, though.
If the market in your area is flat to soft, sticking a high price tag on the property on the theory that you can always drop the price later would be a big mistake. Houses that languish on the market because they were overpriced to begin with can be difficult sell. Buyers begin to wonder if there's something wrong with the property. Or once they see the price being lowered, they figure they're better off holding off to see if the price will come down further still. You're much better off pricing the property so that it has a shot at selling within 30 days or so.
There is another way to go, however. One of the side effects of the housing boom over the past few years has been a resurgence of the rental market. Quite simply, for people who are priced out of the housing market renting has become a more attractive option, and that's pushing rents up in many areas. In fact, economists believe that rising rents are a major factor in the recent uptick in inflation.
So if it turns out that you feel you just can't part with the property at the prices you're being offered, you might want to consider holding it for a few years as a rental. You can then sell later after house prices have regained some of their old pep.
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