We are now heading into our fall selling season, traditionally a good time to sell in San Francisco as the weather gets better and people are back from their summer vacations.
Our real estate market has performed better of late and homeowners are asking themselves: When is the right time to sell? Aside from the obvious situations where the owners need to sell, such as a job transfer or divorce, how do you decide if it is the right time to sell?
I have been observing how people make these decisions and have seen the following scenarios unfolding on a regular basis.
The baby boomers are all grown up and, in many cases, their parents are passing on and leaving their real estate holdings to their children. Sometimes it is a family home; other times it is a nice real estate portfolio. We are lucky that in this area our real estate prices are high and that they increase substantially over time, so many of these properties have plenty of equity and few outstanding loans.
Many times, the properties go to children who have not been very active in managing the real estate. Sometimes, the siblings have different ideas as to what to do with the inheritances. So, more often than not a decision is made to sell the properties, with each sibling doing what they want with his or her portions of the inheritance.
Also, the properties get a "step-up in basis" upon death, so there are no capital gains taxes due on the sale, adding more incentive for the children to dispose of the real estate.
Do you own more house than you can comfortably afford?
With our high prices in the Bay Area, buyers tend to stretch themselves financially to purchase a home. Many have done so over the years, burdening themselves with too much debt. With prices decreasing from their 2008 peak, some find themselves upside down, owing more than the house is worth. Prices have increased the last couple of years and it might be back to a point where sellers can get out of debt. Foreclosures have been slowing down and short sales have been picking up. If you are in that position, perhaps it is time to re-evaluate the strategy and sell.
Are you planning to retire within the next five years?
Will you be able to generate enough income from your assets to support yourself throughout retirement? How much equity do you have in your home? Does it make sense to downsize, keep some of the sales proceeds and maintain a nice financial stress-free lifestyle during retirement?
Many of my sellers are opting to go this route by either buying a smaller home or condo, or relocating to an area where prices are lower.
Has your property appreciated more than $500,000 for married couples or $250,000 for singles?
It is a great time to take advantage of this tax-free profit and purchase another property and do it again. This is the largest tax-free gain that we can take in real estate and we never know when tax changes in this area will take effect. So, it is wise to take full advantage while it is still available.
Real estate is not only a home you live in, but also a large financial asset, and for many people, the largest financial asset they will ever have. For an average American, 60 percent of his or her net worth is invested in a home. As such, it should be managed properly and viewed as part of the financial package when thinking about moving and making changes.
In San Francisco, we have two strong selling seasons. One is in the spring, between February and June. We tend to be a little slow during the summer months as people travel and are away. The second selling season starts right after Labor Day and lasts until Thanksgiving. We are in that time period now and anxiously waiting to see where this market in 2012 will end up!
John M. Lee is a top-selling broker at Pacific Union specializing in the Richmond and Sunset districts. For questions about real estate, call (415) 447-6231.