Guarding Your Home Equity For Changing Markets
by Tom Meyer
Home equity is a significant value in your net worth. When home values rise twenty percent, your financial well-being improves because you own your home. There is no easier way to make money than holding an appreciating asset. For many homeowners, appreciation is all they’ve known. A change may be coming, and a new generation of Americans will see their net worth evaporate in chunks if it does. (Do you remember what that felt like?)
If I knew then what I know now, I would…
History has a way of presenting us with do-over opportunities. The time between recessions is never too long to forget what we once wished we had done, but long enough to forget how we got to the edge. The Washington Post has some advice on how to survive a market downturn. These are my suggestions to prepare for whatever may come:
- Do not spend your home equity. Resist the temptation to spend home equity right now. Property values did not rise at the rates reported. If your neighbor’s $500,000 home sold for $570,000, it’s easy to think the house is now worth $570,000. The more likely scenario is that one person outbid everyone else. Maybe the owner received five offers at or above $500,000 and the one at $570,000. The market value (the price a typical buyer of typical motivation would pay) of the house might be higher than $500,000 (maybe $520,000). The person who outbid the crowd paid the $520,000 value and gave the seller a $50,000 incentive to accept their offer. When values decline, the drop will begin at the market value, not the market value plus the incentive.
- Do not attempt to outbid the competition. Interest rates just took a jump. The supply of homes on the market is historically low. There are enough well-qualified buyers to keep the market competitive for some time. You have more advantages than just a high price to offer to an owner. At Essential Real Estate, we’re experts in uncovering your hidden assets and using them to make your offer the most attractive, even if your offer is not the highest-priced one. Remember: Overpaying for a house is spending equity you haven’t made yet. Give security and assurance. Keep your equity.
- Do not spend equity on unnecessary selling fees. We created Essential Real Estate to give our clients better ideas to increase their after-sale profits. We are the only firm I’m aware of that shows clients how to increase profits by decreasing commission payment obligations.
- Don’t agree to carry negotiable expenses. As long as you have people competing to own your home, you have the opportunity to negotiate closing costs. Typically, Wisconsin home sellers pay the title insurance costs, but it’s not required. Transfer tax, prorations, and property taxes are expenses you could shift to the buyer.