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10 May 2004

Bust Good for Most Sellers

“Change-over” costs are thousands less.

By Neil Jenman

It’s official. The property boom is over and the bust is starting. But behind the screaming headlines and the wails of the agents, there is a point that few people realise. A falling real estate market is not only good for buyers, it’s also great for most homesellers. They should be celebrating.

How can this be? Well, it’s simple. Most people who sell a family home are purchasing another home – usually a more expensive one.

And so, instead of feeling miserable about their homes falling in price, sellers should rejoice because the price of their next home is now much cheaper. The change-over costs can be thousands of dollars less.

Let’s say that prices have fallen by ten per cent (it’s actually more in many areas which means these figures will be even better) and a home which may have sold for $500,000 in 2003, now sells for $450,000, a drop of $50,000. But a million dollar home will now sell for $900,000 – a drop of $100,000.

So, while there is a “loss” of $50,000 when selling, there is a “win” of $100,000 when buying. When property prices are going down and sellers are trading up, the change-over costs go down. This means both sellers and buyers can be better off in a falling market.

But for most homesellers, a falling market creates a strange psychological phenomena. Why should those pesky neighbours (that you rarely spoke to) sell their home (which was not nearly as good as yours) for more money than you?

If they can get a stratospheric price for that dump next door, you’ll be darned if you are going to sell yours for less. It was bad enough, when, a few weeks after you bought that new Calais, those smarmy neighbours bought a BMW. And a 5-series too!

Tell that agent if you can’t get $520,000 you’re not selling. You’re not going to give it away. Just get a better agent. Take it off the market. And wait. Okay, but for how long? Years?

Come on, let’s think about it. Selling a home is only part one of the moving process. Part two is buying another home. Go and look at how prices are falling in that area you’ve always wanted to live in. Do the sums. Chances are that you’ll be thousands of dollars in front today.

Sure, when you put your home for sale, today’s buyers might give you a hard time – all those ridiculous offers. But all you have to do is take the best offer and then you can move to part two – where you become the buyer. Then it’s your turn to make the low offers. Every cent that you drop from the price of your existing home, you’ll get off the price of your next home – and then some!

Yes, last year, your neighbours may have sold a home worse than yours for a better price than you’ll get today. But your neighbours sold in the boom and bought in the boom. A home similar to the one that cost them a million bucks has probably fallen by at least a hundred thousand.

You could trade in the Calais and get yourself a 7-series Beemer.

Seriously, with the change-over costs, most homesellers are better off today. So don’t worry about what you could have got for your home yesterday, think about how much less you have to pay for your next home today. Ignore those gloomy headlines.

You are about to save thousands of dollars.


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