How to think about timing of home sale

[martincmartin]

My brother and I inherited a house in a market that's down 13% from its peak earlier this year. We plan to sell and invest the proceeds for retirement. We could sell now, or wait until say next spring.

How should I think about this decision? If was a stock or bond instead of a house, the EMH says to sell now and diversify, since all knowledge is already priced in. But housing markets aren't as liquid or transparent, there are high transaction costs, etc.

There's a lot of uncertainty, people don't know how high rates will get, whether we're headed for a recession or even in a recession, how bad any recession would be, etc. Much of that should be resolved by next spring. There could be some new source of uncertainty, of course, but uncertainty now does seem higher than the long term average, causing people to delay house purchases, depressing prices.

On the other hand, prices could go down more by then, who knows, and in general I'd rather have the money diversified in a 3 fund portfolio.

If it matters, the house is a tear down and would be sold to a developer.

[JoeRetire]

My brother and I inherited a house in a market that's down 13% from its peak earlier this year. We plan to sell and invest the proceeds for retirement. We could sell now, or wait until say next spring.

How should I think about this decision? If was a stock or bond instead of a house, the EMH says to sell now and diversify, since all knowledge is already priced in. But housing markets aren't as liquid or transparent, there are high transaction costs, etc.

Sell now.

[DarkHelmetII]

1) In general, I'd say sell it now for the "typical" BH reasons of diversification, not timing the market etc...

2) Beyond #1, as there are two decision-makers here, seems that delaying will only makes things more complicated. If you choose to delay - who decides when to pull the trigger? Who is going to monitor the house over the winter? Waiting just seems to further amplify the various moving pieces with no pre-defined end in sight.

[VoiceOfReason]

My brother and I inherited a house in a market that's down 13% from its peak earlier this year. We plan to sell and invest the proceeds for retirement. We could sell now, or wait until say next spring.

How should I think about this decision? If was a stock or bond instead of a house, the EMH says to sell now and diversify, since all knowledge is already priced in. But housing markets aren't as liquid or transparent, there are high transaction costs, etc.

Sell now.

Agreed. Sell now.

[martincmartin]

Sell now.

Thanks. Why?

[holawhatup1]

we are in the exact same scenario too now. we should have sold in Dec/Jan, but it's listed now. already lowered once

[quietseas]

3rd. Sell it and move on with life. The house is a liability with things that can go wrong even if vacant and you expect the house to be a tear down.

If it is a tear down you can't look at pricing for move-in ready updated homes.

Seriously consider an auction if it really is a tear down.

[martincmartin]

1) In general, I'd say sell it now for the "typical" BH reasons of diversification, not timing the market etc...

Thanks.

2) Beyond #1, as there are two decision-makers here, seems that delaying will only makes things more complicated. If you choose to delay - who decides when to pull the trigger? Who is going to monitor the house over the winter? Waiting just seems to further amplify the various moving pieces with no pre-defined end in sight.

My brother believes this market is a one way bet. In May, when I said I wanted to sell & diversify in case the price went down, he scoffed and said demand is strong in the neighborhood and would stay strong. Now that prices are down, he still believes this neighborhood is special and prices will keep rising. In fact, if I decide to sell now, he'd just buy my half, assuming he can get a mortgage.

Edit: He also mentioned that the only people selling now are ones that are forced to sell. Not sure where he heard that.

[Hebell]

Add my vote to the sell now crowd. I feel even more strongly about this if you are in an area subject to wildfires, localized flooding, or intense storm activity... Not only because of the risk of property damage but because of rising insurance rates. I am currently selling some rental properties, in an area that is rural and suffers whenever there is a rise in inflation, because a lot of these folks live paycheck to paycheck. Best to get your money out if either of these situations apply.

[vxdx]

If you’d instead come into the same amount of money, would buying this house be your preferred investment?

I would suggest to sell the house.

[adamthesmythe]

If it matters, the house is a tear down and would be sold to a developer.

Why would you sell to a developer?

Put is on the market and see who bites.

[Tavistock1]

My brother and I inherited a house in a market that's down 13% from its peak earlier this year. We plan to sell and invest the proceeds for retirement. We could sell now, or wait until say next spring.

How should I think about this decision? If was a stock or bond instead of a house, the EMH says to sell now and diversify, since all knowledge is already priced in. But housing markets aren't as liquid or transparent, there are high transaction costs, etc.

There's a lot of uncertainty, people don't know how high rates will get, whether we're headed for a recession or even in a recession, how bad any recession would be, etc. Much of that should be resolved by next spring. There could be some new source of uncertainty, of course, but uncertainty now does seem higher than the long term average, causing people to delay house purchases, depressing prices.

On the other hand, prices could go down more by then, who knows, and in general I'd rather have the money diversified in a 3 fund portfolio.

If it matters, the house is a tear down and would be sold to a developer.

Long time realtor immersed in the market- there are few areas in the us that are continuing to appreciate. While prices are somewhat stable, there are cracks in certain segments. If it’s my home today, I list and sell now.

[martincmartin]

If you’d instead come into the same amount of money, would buying this house be your preferred investment?

I would suggest to sell the house.

There's a 5% realtor commission. So, the real question is "you've come into $X. If you want to invest in this house, you can do that for free. If you want to invest in anything else, you have to give up 5% of $X." Is 5% enough to change what I would do? I'm not sure.

[an_asker]

[...]
My brother believes this market is a one way bet. In May, when I said I wanted to sell & diversify in case the price went down, he scoffed and said demand is strong in the neighborhood and would stay strong. Now that prices are down, he still believes this neighborhood is special and prices will keep rising. In fact, if I decide to sell now, he'd just buy my half, assuming he can get a mortgage.

Easy answer. You believe it's going down and want to sell. He thinks it's going to go up. Sell your half. Why would you think he won't get a motrtgage?

Alternatively, you can owner finance it, I would think. Get a lawyer, decide a sale price, create an amortization schedule, use a reasonable interest rate with zero prepayment penalty. I'm assuming that you guys are on good terms with each other. You'll save on the broker fees, loan fees etc.

Now if you are both married, I would suggest that you involve your spouses as well because else it will get real complicated real soon!

[lazynovice]

1) In general, I'd say sell it now for the "typical" BH reasons of diversification, not timing the market etc...

Thanks.

2) Beyond #1, as there are two decision-makers here, seems that delaying will only makes things more complicated. If you choose to delay - who decides when to pull the trigger? Who is going to monitor the house over the winter? Waiting just seems to further amplify the various moving pieces with no pre-defined end in sight.

My brother believes this market is a one way bet. In May, when I said I wanted to sell & diversify in case the price went down, he scoffed and said demand is strong in the neighborhood and would stay strong. Now that prices are down, he still believes this neighborhood is special and prices will keep rising. In fact, if I decide to sell now, he'd just buy my half, assuming he can get a mortgage.

Sell it to your brother, skip the realtor fee.

[martincmartin]

[...]
My brother believes this market is a one way bet. In May, when I said I wanted to sell & diversify in case the price went down, he scoffed and said demand is strong in the neighborhood and would stay strong. Now that prices are down, he still believes this neighborhood is special and prices will keep rising. In fact, if I decide to sell now, he'd just buy my half, assuming he can get a mortgage.

Easy answer. You believe it's going down and want to sell.

Not quite. I don't know whether it will go up or down. I don't have a time machine or crystal ball. I want a lower risk-adjusted return by diversifying my investment. In other words, I'm willing to lower my potential upside, as well as my potential downside, by selling and putting the money in a 3-fund portfolio. Better risk adjusted returns, not by increasing expected returns, but by decreasing risk.

He thinks it's going to go up. Sell your half. Why would you think he won't get a motrtgage?

I'm not sure most people could afford the payments on two mortgages. I don't know the details of his finances, maybe he can afford it, maybe he can't.

Alternatively, you can owner finance it, I would think. Get a lawyer, decide a sale price, create an amortization schedule, use a reasonable interest rate with zero prepayment penalty. I'm assuming that you guys are on good terms with each other. You'll save on the broker fees, loan fees etc.

Interesting idea. We're on good terms now. My first thought is, I don't want to be in the position of having to enforce things if he starts missing payments. But I'll consider it, thanks for the tip.

[mkc]

Is anyone living in the house? If not, how is it being maintained (and what is it costing?)

Is there homeowner's insurance on it and if vacant, is the insurer aware? Most won't cover a vacant home for long. Is there adequate liability insurance if it's vacant and someone gets hurt on the property (like curious neighbors or their kids)?

Are you ensuring frequent visits, if vacant, to prevent squatters? This is actually not uncommon with vacant properties.

You would be wise to sell now and move on. It's a gamble that real estate would increase in value at any rate different than the market in general. RE is already softening significantly...

[martincmartin]

Here's Robert Shiller on why housing markets aren't efficient.

tl;dr: you cant't short houses, so when over valued, there's no way for a trader to profit, except simply not buying. "Without short-sellers, there is nothing to stop a group of ignorant investors—who get some ill-conceived idea that a certain investment is just terrific—from bidding up prices to extravagant levels."

Not in the article, but other ways the housing market isn't efficient: buyers are sellers are not typically finance professionals, but regular people. Both buying and selling are often based on emotion.

High transaction costs: 5% realtor commission.

Long selling time: most transactions take 30 days or more to close.

There seems to be higher volume in some months more than other months.

[JoeRetire]

Sell now.

Thanks. Why?

Because trying to predict and time the housing market is even less likely to be successful than timing the stock market.
Just get it done and behind you.

You said "in general I'd rather have the money diversified in a 3 fund portfolio". I think that's wise.

[JoeRetire]

My brother believes this market is a one way bet. In May, when I said I wanted to sell & diversify in case the price went down, he scoffed and said demand is strong in the neighborhood and would stay strong. Now that prices are down, he still believes this neighborhood is special and prices will keep rising. In fact, if I decide to sell now, he'd just buy my half, assuming he can get a mortgage.

Perfect! Sell now to your brother. It's a win-win.

He get's to play "let's time the housing market" and you get to have the money diversified in a 3 fund portfolio immediately.

Edit: He also mentioned that the only people selling now are ones that are forced to sell. Not sure where he heard that.

Ask him.

[martincmartin]

Is anyone living in the house? If not, how is it being maintained (and what is it costing?)

Is there homeowner's insurance on it and if vacant, is the insurer aware? Most won't cover a vacant home for long. Is there adequate liability insurance if it's vacant and someone gets hurt on the property (like curious neighbors or their kids)?

Are you ensuring frequent visits, if vacant, to prevent squatters? This is actually not uncommon with vacant properties.

You would be wise to sell now and move on. It's a gamble that real estate would increase in value at any rate different than the market in general. RE is already softening significantly...

This is a good point. We do have internet cameras in the house, so can keep an eye on it that way. Will discuss with insurance on Monday.

[PeninsulaPerson]

If you’d instead come into the same amount of money, would buying this house be your preferred investment?

I would suggest to sell the house.

There's a 5% realtor commission. So, the real question is "you've come into $X. If you want to invest in this house, you can do that for free. If you want to invest in anything else, you have to give up 5% of $X." Is 5% enough to change what I would do? I'm not sure.

You don't say the estimated price of the house but "investing" in it could cost more than 5% in money, time and hassle. Especially since you and your co-owner don't exactly seem to be on the same page!

My axe to grind - I never got a windfall! If I did and there was a small "transaction" fee to get the money out ..... oh, well, you are doing better percentage-wise than the winner of that Megabucks! And no taxes on the inheritance of the house - is that correct? Maybe not, but this is still sorta' free money, no?

[Carefreeap]

My brother and I inherited a house in a market that's down 13% from its peak earlier this year. We plan to sell and invest the proceeds for retirement. We could sell now, or wait until say next spring.

How should I think about this decision? If was a stock or bond instead of a house, the EMH says to sell now and diversify, since all knowledge is already priced in. But housing markets aren't as liquid or transparent, there are high transaction costs, etc.

There's a lot of uncertainty, people don't know how high rates will get, whether we're headed for a recession or even in a recession, how bad any recession would be, etc. Much of that should be resolved by next spring. There could be some new source of uncertainty, of course, but uncertainty now does seem higher than the long term average, causing people to delay house purchases, depressing prices.

On the other hand, prices could go down more by then, who knows, and in general I'd rather have the money diversified in a 3 fund portfolio.

If it matters, the house is a tear down and would be sold to a developer.

Sell. There is some argument to sell in the spring if there is a significant family home market. With a tear-down your likely buyer is an investor/developer who may have motivation to do a 1031 exchange before the end of the year.

Give your brother 30 days to get qualified for a loan. If he can't it's time to put it on the market.

[Carefreeap]

If you’d instead come into the same amount of money, would buying this house be your preferred investment?

I would suggest to sell the house.

There's a 5% realtor commission. So, the real question is "you've come into $X. If you want to invest in this house, you can do that for free. If you want to invest in anything else, you have to give up 5% of $X." Is 5% enough to change what I would do? I'm not sure.

You don't say the estimated price of the house but "investing" in it could cost more than 5% in money, time and hassle. Especially since you and your co-owner don't exactly seem to be on the same page!

My axe to grind - I never got a windfall! If I did and there was a small "transaction" fee to get the money out ..... oh, well, you are doing better percentage-wise than the winner of that Megabucks! And no taxes on the inheritance of the house - is that correct? Maybe not, but this is still sorta' free money, no?

I inherited debt!

Great way to look at the big picture.

[grabiner]

Selling sooner rather than later for a house has an additional advantage compared to an investment. If you inherit a stock portfolio and wait to sell it, you will get the returns of the stock market while you wait; these are expected to be fairly high but have a lot of risk. If you inherit a bond portfolio and wait to sell it, you will get the returns of the bond market, with a low expected return but very little risk. But if you inherit a house, you don't get any income from it while waiting to sell it (unless you rent it out), so you get only the change in housing prices minus maintenance costs; this is a low expected return and still has risk.

So it is a good financial idea to either sell the home or keep it as a rental property. If you don't want to be a landlord, then you should sell now.

[squirrel1963]

An individual house is a lot of concentrated risk, so in my opinion it only really makes sense holding on it if you want to turn it into a rental that will at least pay the costs of holding it.
So I would sell it unless you really want to become a landlord, but from the description it sounds like you would have to spend money to make it rentable.

Timing the market is simply impossibile, no can predict what will happen to long term prices. Even if you live in area that has consistently appreciated in the past 40 years (like San Francisco Bay or Seattle Eastside) you risk potentially having to hold on it for several years if you decide holding it and we slip in a recession or worse.

So all in all, I recommend selling it to reduce concentrated risk unless you want to become a landlord. Maybe sell your equity in the house to your brother if he's willing to buy it, but in any case I can't really provide any advice on family matters.

Good luck

[Circe]

If you think that interest rates will be cheaper in the future and/or housing prices will continue to go up, then keep paying insurance and maintenance on the house until that happens.

Note that the real estate market was pretty flat from about 2008 - 2017, so predicting what can happen is difficult.

If it were mine, I'd put it on the market asap.

[PeninsulaPerson]

I inherited debt!

Sorry to hear that! (Must be a story behind that one!)

[rjbraun]

If you’d instead come into the same amount of money, would buying this house be your preferred investment?

I would suggest to sell the house.

There's a 5% realtor commission. So, the real question is "you've come into $X. If you want to invest in this house, you can do that for free. If you want to invest in anything else, you have to give up 5% of $X." Is 5% enough to change what I would do? I'm not sure.

You could avoid the realtor commission and sell direct to the builder. We have done that.

[rjbraun]

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