As a homeowner or property investor, there will likely be a time when you have to consider selling your home. For example, your current home no longer meets the requirements of your growing family. Alternatively, you may not realise the expected appreciation on the property, and may be better suited buying or building elsewhere. Notwithstanding the reason, the sale of a home presents a significant milestone in a person’s real estate journey.
However, the selling process is not absent of challenges. If you are selling your home, the perceived risk of making mistakes is intensified due to the lack of experience. This no doubt results in seller’s remorse and an overcautious approach to future home sales decisions.
The first step is to identify these common mistakes, so that when you can better prepare for them when selling your home. I’ve outlined a few common mistakes that I’ve encountered when selling my own properties and in advising other clients on the sales process.
When selling your home becomes a retirement strategy
As mentioned previously, we commenced building our first home approximately 8 months after arriving in Australia. That house was very special to us. It presented the first opportunity for my son to ride his bike to school. It was also the house where we brought home our beloved dog. We spent two years in that home and treasured every moment of it.
Some of you reading this may think that two years is not that long to stay in a home. However, we never expected our first to be our forever home. My strategy from the outset was as follows:
- Build a new home, taking advantage of Australia’s abundant residential lots and favourable home buyer concessions;
- Live in the home for at least a period of 2-3 years; and
- Sell the home and use the proceeds towards a newer home of greater value.
As a 40-year old who restarted his life in Australia, I found real estate ownership to be a solid pathway to retirement. The plan was to capitalise on Australia’s booming real estate market by continuously buying, living and then offloading properties. I would then sell that property, downsize to a manageable home, and deposit the remaining gains into a combination of high yield savings accounts and index funds.
At the time, I felt this was a fairly sound retirement strategy. If anything, it was bolstered by a strong market, which saw an increased median house price of approximately $180,000 to approximately $400,000 between 2001 and 2006. I felt assured that it would lead me to my A$2 million goal, despite knowing that this growth won’t be sustainable. Alas, this was a key instance of where expectation and reality could not be further misaligned.
The wrinkle with my retirement strategy…
My retirement strategy started as follows: I spent a total of A$161,000 on my first single-storey home, for which I sold for A$268,000 two years later (representing a gain of 66.5%). I used those sales proceeds to build my second home (double-storey) in the same community for A$342,000. Similar to the first home, I expected to hold my second home for another two years and then sell it for a gain in the realm of 40-60%. In anticipation of this future sale, I commenced building our third home roughly a year after moving into our second property.
Then came the first glaring problem in my strategy. We were unable to sell my second property. Despite house median prices continuing to rise, there was also an increased supply in the market and therefore increased competition for sellers. Our two-storey home, which was priced at a conservative A$565,000 based on current market conditions, was not appealing enough to attract buyers, let alone generate potential offers.
Rebounding from my mis-step
While this certainly put a dent in my retirement strategy, there was a silver lining to this shortcoming, in the form of negative gearing. For those unfamiliar with the term, negative gearing is where the net property outflows exceed the net property inflows, such that the property is in a net loss position. Homeowners/real estate investors can utilise these losses as tax deductions against their personal income, thereby reducing their personal tax rate. While this benefit is not available universally, it has certainly benefited numerous Australian property investors, myself included.
So negative gearing saved me from underselling my home, as I was able to obtain rental income while I waited for the market to improve and I could finally see some appreciation on my second home. However, I wish I recognised this sooner, as I could have saved on some of the marketing costs incurred to sell the home. If anything, I regret not doing more personal research on current market trends and the alternatives of trying to sell a home in an oversupplied market.
This brings me to the point of this post – I’ve known many others like me who have had regrets over their home sales decisions. Some are due to unavoidable circumstances, whereas the more common regrets appear to stem from shaky preconceived notions and hasty decision-making. I’ve identified two of the most common reasons that leads to seller’s remorse:
The common misconception of buying low and selling high
With property, I have realised that there is always a good time to buy, but never a good time to sell. I’ve found that in my own personal real estate experience as well as being in and around the real estate market for two decades. However, a large number of people believe that they will receive a healthy return on their property despite current market conditions.
I fell into this trap with my second property, thinking that if I rent it for long enough, I would be able to realise the same gains I achieved on my first property. At the time of writing this post, I’m still waiting to realise any notable gain. When I passed this on to others looking to sell, they treated my advice as fiction, instead choosing to believe that the market will reward them with healthy gains. The simple fact is that the market is indifferent to your wants, and there may never be an opportune time to sell your property.
It is always difficult to part with a property for less than the asking price. However, there is an upside – your next property will also be exposed to difficult market conditions and you can therefore purchase your next home at a discount.
Have regard to the ‘sunk costs’ when selling your home
When you purchase a home, you incur a few significant costs, namely stamp duty/settlement costs and broker fees (if you use a listing agent to purchase a home). These costs are not typically recovered when you end up selling the home, as the final sales price is typically negotiated from a market price.
With my second property, I could have lowered the price with the aim of generating potential offers, but that would have only worsened the position after taking into account my stamp duty and settlement costs. If I were to sell one of my properties in the current market, I would try to ensure my selling price would cover at least a 2-3x multiple on my initial purchase costs. I’m not certain many consider these costs when deciding to sell their home, and consequently, they inflate the gain they receive on the property.
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Selling a property marks a key milestone, and can suggest the beginning of an exciting life transition. However, it can also lead to irrational decision-making, hurt feelings and regrets. However, regardless of the decision to sell or your end selling price, note that it does not end your real estate journey, but instead serves as a lesson for future home purchases and sales.
I would love to hear from you all on your home sales experiences, and there was anything you would have done differently.
The content outlined above was written, edited and published by the Lost Realtor. The author has over 20 years or real estate sales and investing experience in the Australian property market. He has held senior positions in Australian building companies, including being the General Manager of the residential sales division of Collier Homes. His qualifications include a Bachelor of Commerce degree and a Graduate Diploma in Building and Construction Law.