Certified Divorce Real Estate Professional
For Sale by Divorce
When divorcing couples are faced with selling their marital home, they need a real estate professional who specializes in divorce real estate. Couples who are moving forward with a divorce face tough choices: Keep the house and wait to sell until the market is better? Live together in the meantime? Sell now no matter what? When it comes to the house, arriving at a fair solution requires balancing financial decisions and weighing emotional pros and cons. To help you frame the issues around divorce and real estate, here are a few questions worth considering.
1. Does it make economic sense to keep the house?
A couple needs to carefully consider whether keeping a property is a smart financial move. “Why do you need to keep the house? You may be house poor, and it doesn’t make sense.” If one partner ends up staying in the house, who will be responsible for the monthly expenses? Divorce arrangements can result in the non-resident half of the couple still footing the bills.
2. Are your emotions clouding the bottom line?
Strong emotions, especially the fear of financial insecurity, can undermine good decision making. Women tend to view the housing issue through an emotional lens whereas men see it as business transaction. It can get complicated when there is “the emotion of wanting to keep the house even when it is not always the best financial decision for the bottom line.
3. Can you stand living with your ex?
For exes who continue to inhabit the same house, the keys are–no surprise-communication and managing expectations. Another area of concern with cohabiting spouses may be an IRS Tax issue with regards to alimony if applicable.
4. Can you afford not to sell?
If the bills keep coming and a foreclosure is imminent, unloading the place may be the only choice. Sellers can avoid the damage of a foreclosure with a short sale. With the lender’s consent, homeowners sell the home for less than the outstanding balance of the mortgage.
5. How will you split any proceeds from the sale?
You may be entitled to reimbursements for capital improvements or other home investments made. Even if you don’t hold the title to a property, your sweat equity and home improvements are worth something if you are compensated in a divorce proceeding.
Rent vs. Purchase
Many will argue against the value of purchasing a home vs. the comparatively risk free alternative of renting. However, without at least a little risk, there is rarely ever any reward. No one can say for sure what the future will bring yet we have hundreds of years of evidence proving the fact that owning a home can be one of the most fruitful paths to prosperity.
Over about the last 50 years the national average appreciation rate exceeds 5% and individual states range from the middle 3’s to the middle 7’s. No one can say for sure what will happen going forward yet, with a population growth of 3 million per year, fundamental factors such as inflation and rising demand will ultimately prevail just as they have in the past.
Some will also argue that the tax deductibility of mortgage interest and real estate taxes is never really worth it. What they really mean is that everyone has a base line standard deduction and not everyone’s total expenses will be more valuable than that. If this is the case for you, then simply exclude the tax benefit figure above from the bottom line cost. The bottom line difference vs. renting of course will still be better.
Regardless of what benefits you choose to acknowledge, the irrefutable fact is that owners pay down the principal more and more with each payment. This loan balance reduction is essentially a forced savings account as that value then accumulates in the equity of your home. The Federal Reserve has done studies evidencing that the net worth of owners is from several to hundreds of times higher than that of renters and this is just one of the reasons why. Reach out anytime and we’ll be happy to discuss how ownership may benefit you.
Factors used: $500,000 purchase price, 20% down, $400,000 30 yr. fixed loan at 4%, Principal & Interest payment = $1,909.66, taxes = $833.33/Mo., Insurance = $96.67/Mo & Maintenance = $333.33/Mo. Tax deductibility at 28%. Tax savings, principal paid and appreciation averaged over a 5 year period. Always consult with your tax advisor for tax advice specific to your situation.