Money Talks, So Should You

What if you can't sell your home?

Reuters
by Reuters, Wire Service

When Brent Moreland and his wife, Amanda, put their first home on the market last fall, they tried everything to make the Knoxville, Tennessee, two-bedroom townhouse look good to buyers. They took impressive photos with the help of a professional photographer friend, went online for furniture staging ideas and even created a blog to help get the word out through social networks.

Almost six months later, they are still at it, telling interested buyers about new upgrades like crown molding, updated bathrooms and oak laminate floors. But now the Morelands are turning to Plan B:

"We'll keep it listed for sale and post it for rent and see which domino falls first," says Brent Moreland, a 27-year-old who is relocating for a job in August.

For discouraged homeowners like the Morelands, making a sale can seem impossible in the post-2008 housing market. In January, there were 2.43 million homes for sale, a 6.4 month supply at the current sales pace, according to the National Association of Realtors.

But that's an improvement: One year ago, the Realtors group reported an 8.6 month supply of 3.49 million homes were on the market. It may get easier soon. Some analysts say S&P/Case-Shiller Home Price Index, the leading measure of the U.S. residential housing market, suggests housing prices may be bottoming out this spring.

"The markets are likely to form a bottom," says Susan Wachter, professor of real estate and finance at the University of Pennsylvania Wharton School. But that improvement may not come quickly enough to help all of the Morelands out there now. Here's what to do if you need to unload your house, and it's not selling.

PRICE IT RIGHT

Knowing how to price your property is the most important step for those eager to sell, says Norman Block, a real estate agent in the Raleigh-Durham area of North Carolina. Realtors should use the Multiple Listing Service to compare nearby equivalent properties and come up with a fair market price. In an overcrowded housing market, overpriced homes won't get any showings, says Block. Sadly, that right price might be less than you paid for it, especially if you bought your home between 2005 and 2008. Pricing the property a little bit lower than the market might help you find buyers more quickly.

SPRUCE IT UP

Think like a buyer when making home improvements, suggests Block, an adjunct professor of real estate at the University of North Carolina Kenan-Flagler Business School. Add a fresh coat of paint or new hardware to the front door, trim bushes and de-clutter the front yard so you make a good first impression. Once inside the home, "buyers tend to look up more than they look down," Block says. Make sure light fixtures throughout the house are clean and fix cracks in the ceiling or walls.

"If everything is caulked up, and everything is sparkling and shining, the subconscious feeling is ‘wow this house has been taken care of,'" he says. Clutter can quickly turn off buyers, he adds.

RENT IT OUT

If you must move, renting your home for one or two years is often the best option, says Manisha Thakor, a Santa Fe chartered financial analyst and personal finance lecturer at Wellesley College. Homeowners eager to move also can offer a rent-to-buy option on their home, which allows hesitant buyers to test-drive a residence before committing to a mortgage. While it's attractive to buyers, sellers may lose out because they could end up having to sell the property in the future at today's low prices.

"It's a last resort option," says Michael Corbett, author of "Before You Buy," and a spokesman for Trulia.com, a real estate sales website. Even if you can't rent out the house on a long-term lease, you may be able to offset some of your carrying costs by renting it for short periods. You can list your home on websites like AirBNB.com and VRBO.com as a short-term vacation rental or to rent out individual rooms, suggests Thakor. Even renting your home for one weekend per month can help offset mortgage payments, she says.

GIVE IT AWAY, TEMPORARILY

Another innovative answer for homeowners who need to move and can't sell is to donate the home, temporarily, to a non-profit charity that could use it for offices or temporary housing. The charity could use the home for a couple of years, protecting it from sitting empty, and the homeowner could get a tax deduction for the charitable donation. But that deduction won't be as big as rent you'd otherwise collect, and "you're likely have to go pay rent somewhere else," reminds Corbett. Of course, if you do rent or lend your home out for a few years, you'll have to be prepared to spend money on cleaning and repairs before you put it back on the market.

PROTECT YOUR TAX BREAKS

Whatever you choose, it's important to reap the tax benefits of home ownership, says Mark Luscombe, principal tax analyst for tax research firm CCH Inc, in Riverwoods, Illinois. When homeowners do sell, they are allowed to exclude as much as $250,000 of profit ($500,000 for couples) from capital gains taxes, as long as they've lived in their home for two out of the five years leading up to the sale. That means homeowners who move away and fail to sell their home within three years will lose that break. Of course, that's not an issue for homeowners who are forced to sell at a loss. There are other tax breaks available to those who rent out their homes.

GO SHORT AND GET OUT

Some homeowners can't afford to wait for better conditions. If you need to be out of your house and you owe far more than it is worth, a short sale might be the only option left other than foreclosure or outright default.Laura Cosgrove Lorenzana and her husband, Casimiro, had a luxury Chicago lake-front condo on the market for eight years, while they watched the value drop 35 percent to $140,000.

"We've tried everything, we've tried to sell and rent and sell again," says the 49-old founder of From Roots to Leaves, a genealogy and archival service. The couple, having moved to the North Aurora suburb years ago, is now trying to complete a short sale, in which the bank agrees to take the proceeds of the sale as complete payment for the mortgage.

JUST STAY

Homeowners who don't have to follow jobs to other areas may just do best if they sit tight and temporarily abandon plans to sell. They'll save moving costs and listing costs and the costs of repairing damage renters might do. Eventually, prices should rebound, says Wachter.

"You're going to lose out if you have to sell at a distressed price."

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