It might sound counterintuitive, but selling your house under market value can sometimes be the correct strategy if there are other transaction-related benefits that outweigh purchase price.
Whether you are intentionally selling under market value or personal circumstances or market conditions end up making it the only option, there are some things you should know.
What Is Selling Below Market?
Most Laguna Niguel Realtors will tell you that selling below market is when you discount your property below the perceived market value. Perceived market value is your best estimate of your home’s value, based on recently sold comparable properties. Ultimately, your home’s market value is how much a buyer is willing to pay for it — you never really know how much someone will pay until you list your home.
Our Laguna Niguel Real Estate Agents always suggest you keep in mind, the market value of your home is not the same as appraised value or assessed value, especially in extreme buyers or sellers markets.
Appraised value: Your home’s appraised value is provided by a professional appraiser. They usually come to your house, run recent comps and appraise how your home’s features, condition and location affect its value, and it could be either positively or negatively.
Even though an appraisal report is a helpful tool, it’s subjective to the individual appraiser and can be more or less accurate based on their knowledge of the neighborhood and the local real estate market.
Assessed value: Your home’s assessed value is figured out by your local tax assessor. It’s recalculated every year to figure out how much you’ll pay in property taxes.
Your home’s assessed value is usually lower than an appraised or fair market value, so it shouldn’t be used to figure out your fair market value. Regardless of why or how you’re selling below market value, you should still keep these facts in mind:
You Can not take tax deductions: You can’t take a deduction on the loss you agree to take when selling below market value. Any time you have questions about tax deductibility in real estate, our Laguna Niguel Real Estate experts suggest you contact your tax professional.
You’ll still face closing costs: Any time you sell a home, most Laguna Niguel Realtors will tell you that you still have to pay closing costs, even if you’re selling for a low price. Closing costs can run 8% to 10% of the sale price and include things such as property transfer fees, attorney fees, and escrow and title charges.
Most Known Reasons to Sell A House Below Market Value
Most Laguna Niguel Real Estate Agents will tell you that properties sell below their perceived (or ideal) market value all the time, based on circumstance or personal motives. Here are some of the most common reasons why.
- Selling to a family member or friend
- Poor performance on the open market
- Low listing price for a quick sale
- Financial hardship or negative equity
Selling To A Family Member or Friend
Whether you’re sentimental or generous, you might think about selling your home to someone you know at a slight discount.
Note that even when you are selling to someone you know, it’s still a legally binding transaction. Perhaps the most known family transaction is parents selling their kids a home as a financial favor, but the specifics of this kind of transaction can be a bit complicated. Here are some things to note when selling to a family member or friend for less than market value.
Make Sure To Always Sign A Contract
Our Laguna Niguel Real Estate Agents say that even if the buyer is your child and the formalities seem uncomfortable, it’s important to get everything in writing, just as you would with a buyer you don’t know. Now this includes documenting contingencies, purchase price and closing date.
Although you might not need a Laguna Niguel Real Estate agent to handle the marketing or bring you buyers when you’re selling to a family member or friend, our Laguna Niguel Real Estate Agents say you should still hire a real estate attorney to facilitate the transaction, ensuring you’re protected and that you’re following legal protocol.
Clearly Understand Tax Laws
If you sell a home to your child for more than 25% below market value, the IRS views the home as a gift. This means the buyer (your child) could wind up paying a gift tax on the discounted amount. If you’re selling to a child to help them out financially, consider the following options:
Offer seller financing: You can sell the home with seller financing, which gives you an opportunity to offer better rates or terms than a conventional lender, which can make the purchase more affordable and save your child money.
Plan for future tax-free gifts: To avoid yearly gift tax limits, you might consider selling the house at $15,000 below market value, which is the annual gift tax exclusion limit.
Then every year after, gift them an additional $15,000 per year until the amount you’ve gifted is comparable to the initial discount you wanted to give.
Transfer property with a quitclaim deed: A quitclaim deed gives you an opportunity to transfer the title of your home to someone for free. After transferring the home to your child’s ownership, if you want them to pay you a portion of the home’s value, they can take out a HELOC or a home equity loan to pay you back for the agreed-upon discounted purchase price.
Nonetheless, there are still tax implications with this process, so our Laguna Niguel Real Estate Agents suggest you check with your tax professional prior to moving forward.
Not So Great Performance on the Open Market
Our Laguna Niguel Real Estate Agents say that if your home has been on the market for an extended period of time, if you’ve only received low offers or if a poor inspection caused a deal to fall through, you might consider selling below market value to offload your property and move on.
In addition, our Laguna Niguel Real Estate Agents suggest you keep in mind that poor performance is most often due to incorrect pricing. Comps are only accurate if the homes’ conditions are the same. If you’ve been mistakenly comparing your home to homes in better condition, you might need to do a price reduction to correct to a more reasonable price.
Now how quickly your home sells also depends on the state of your local real estate market. In a hot market, our Laguna Niguel Real Estate Agents says a seller might receive a full-price offer right from the start.
In a market that’s not as fast, you might get a few low offers prior to correcting the one comes along. But some sellers don’t have the time to wait and opt to take a low offer in the interest of closing the deal sooner — it’s the “bird in the hand” mentality.
Low Listing Price For A Quick Sale
Sometimes sellers intentionally list low to sell their home a lot quicker. There are lots of reasons you might need to sell in a hurry — to free up equity for other expenses or to move for work or personal reasons, for example. If you’re less concerned about profit and more concerned about timeline, here are some strategies for selling quickly.
Apply as-is pricing
On the surface, your property may look equal in value based on location, finishes and size to other recently sold comparable homes. And saying the market is healthy, you’ll probably receive an offer.
But once the time comes for the inspection, you might end up paying more in credits or pre-closing repairs. Or the entire deal could fall apart if the buyer is scared off by the inspection report. So it might make more sense to price lower from the start to account for the repairs up front.
As another option, if you already know your home has major defects, you might want to avoid the hassle altogether by selling to an all-cash buyer who will waive the inspection contingency while factoring needed repairs into the purchase price.
Share FSBO discount
A majority of Laguna Niguel Real Estate Agents will tell you that if you sell for sale by owner (FSBO), you won’t have to pay commission to a Laguna Niguel Listing Agent. This means you can list lower and pass that discount on to your buyer, since you’ll net the same amount anyway.
Market to Cash Buyers
If you want to lower listing time and speed up the closing process, an all-cash buyer is your best bet. All-cash buyers can typically close quickly, because they don’t need financing.
When you sell through Zillow Offers, you can receive an offer quickly without the hassle of listing. And you can close as soon as seven days after accepting the finalized offer. Here are a few key Zillow Offers benefits:
- All cash
- No listing prep
- No showings
- Fast offer
- Fast closing