For the last two years I’ve been having lots of conversations with potential sellers about the market and whether or not people should wait until things improve to sell.
There are two important considerations with waiting that most people fail to take into account:
- The affects of depreciation, especially if the home is quite new or newly renovated
- The potential for the $ gap to widen between where you are now and where you want to be.
If you’ve got a new, near new or relatively newly renovated home it’s important to realise that just like a brand new car, your brand new build or renovation starts depreciating from the moment it’s finished. Unlike a car though, most home owners aren’t aware of depreciation because in the past they’ve tended to build or renovate homes in rising markets.
In a flat or declining market, your new or newly renovated property can be reducing in value at a rate exceeding your suburb average – this can come as quite a shock to new home builders and buyers.
Depreciation is at it highest in the first 10 or so years after you’ve built or renovated your home.
If you choose not to sell your three year old home now, and wait for a couple of years, you won’t be selling the same home. You’ll be selling a 5 year old home with two further years of wear & tear and depreciation that you’ll need to factor in. If the market has been flat or slow, or even worse declining, you’ll likely find yourself in a position of being financially worse off than if you’d chosen to sell now and make your move in the same market.
And that brings me to the second consideration – buying and selling in the same market.
If you’re selling to trade up to a bigger home, better suburb or both and waiting for the market to improve, you’re taking the risk that the gap between where you are now, and where you want to be, is going to grow.
For example, say your home is worth $600,000 and you want to trade up to something worth $1million, the gap between where you are now and where you want to be is $400,000.
If you wait for the market to improve 10%, and this is assuming of course the market improves evenly as it may improve more quickly in the better suburb first, your home might have gone up to $660,000, but the $1million property is now worth $1.1m. The gap between where you are now and where you want to be has widened by another $40,000 – that’s an additional $40,000 that you’re either going to have to borrow and pay more interest on, or save by buying a lesser home.
So if you’re considering selling make sure you take ALL the factors into account when making a decision to either sell now or wait – that decision to wait until the market improves could end up costing you more in the long run.