We successfully negotiated the sale of another listing this weekend, and wouldn’t you know, it had multiple offers again!
Do you want to sell your home in 2012? If you plan to move up into the purchase of a larger home, this might be the very best time to act.
The vast real estate marketplace does not turn on a dime. It feels more like cruise ship out in the middle of the ocean, slowly turning around; passengers might not even recognize the change until they realize the sun is shining on their other cheek and they ask, “Oh, did we turn around?”
Consider this scenario: Let’s assume a 25% decline in prices in Apple Valley and Eagan homes since their highest values in 2005.
You can now sell your home for $190,000 (instead of the $230,000 it would have been in 2005) but you can buy a home in Eagan for $385,000 (instead of the $515,000 it would have cost in 2005). Couple that with the drop in interest rates to an unheard-of 3.5% and calculate the difference in monthly payment.
Your current mortgage rate might be 5.5% to 6%, making your principle and interest portion of the payment $1,025. Your new mortgage would likely be 3.5%, making the principle and interest portion of the payment $1,553.
BankRate.com has a really nice mortgage calculator, which I used for this example, and I used a 90% loan to value. I also like this calculator because it includes a chance to play with how many years you can cut off your mortgage by paying a little extra each month.
Now take a look at the future appreciation of properties. We shouldn’t anticipate the local real estate market to start booming or appreciating fast.
According to the Case-Schiller index, our average rate of home appreciation over the past 100 years averaged from 3% to 5%. Let’s use a 4% average rate of appreciation.
At the end of 7 years your current home will be valued at $250,200 while the new home will be valued at $506,000. Remember, even modest rates of appreciation add up fast in a larger-valued home.
Because I focus on home sales in the cities of Burnsville, Eagan, Apple Valley, Rosemount, Lakeville, Farmington, Savage and Prior Lake, I did a little research there today. There is a huge difference in the ‘amount of house’ you get for those two different prices.
You could double your square footage, go from a 2 to a 3 car garage and enjoy numerous upgrades such as granite counter tops, hardwood floors, larger kitchens, four-season porches, hot tubs and luxury owners' suites.
No one can guarantee the marketplace will begin to appreciate anytime soon. However, the amount of multiple offers we are seeing on both bank owned foreclosures and traditional sales bodes well for that possibility.
I do believe that over the long term, homes will begin to appreciate again and the rate of appreciation might be brisk for a short period of time while the market finds its equilibrium. After that initial surge, homes will likely appreciate again at the rate of 3% to 5%, similar to normal inflation and average wage increases.
My example is somewhat simplistic and there are other factors, such as higher property taxes on the larger home, but you get the gist. I’m happy to calculate the difference for you personally; I can even email it to you if you prefer.
Let me know if you would like to consider putting your south of the river home for sale! We could sure use some more inventory! Follow me @sherylpetrashek on Twitter.