How Long You Should Live In Your Home Before You Sell It
The Amy Jones Group
Whether you just moved in or have lived in your home for 50 years, it's common to wonder how long you should stay in your home before you sell it. According to the National Association of Realtors®, ten years is the average amount of time that a homeowner will stay in their home before deciding to sell it.
If you're under ten years and itching to sell, many experts say you should follow the “five-year rule” and stay in the same home for at least five years before selling - but does that apply in the Arizona market?
This may sound like a long time especially in Arizona where appreciation is high (and rising!) and you may think you are ready to sell now so we've put together a few of the most important factors that you might want to consider as you make your five and ten year house plan!
1. Your Mortgage
One of the first and foremost factors you'll want to consider when you decide to sell your home is your mortgage payment. If you want to make money when you sell your home, then your sale price must be greater than what’s left of your mortgage. When you first buy your home and begin to pay your mortgage, the first few years will go towards interest rather than the principal amount. This typically means that it’s more difficult to make money off your sale under 5 years. However, if you put a larger downpayment on your house, then your interest rate and mortgage will probably be smaller, making it possible to make money in a shorter amount of time. In the Arizona market, appreciation in your home might tip the scales much sooner than five years which brings us to our next factor...equity!
2. Equity
Building home equity is important. You’ll want to have a lot of equity built up when you decide to sell. The amount of home equity you’ve obtained depends on any remodeling or renovations you’ve made, as well as your mortgage, and the appreciation that you've gotten just from the market and rising values. If the home you bought was already in tip-top shape but the market has improved since you've owned it, you might be in a great position long before that five year mark. If you’ve remodeled the kitchen, bathroom, redone the flooring, or made other renovations around the house, then you have most likely gained home equity even without the market conditions giving you a little boost. You can increase your home equity by paying off more of the principal on your mortgage or you can play off the next factor...market conditions!
3. Market Conditions
One of the more common reasons you’re eager to sell your home is to make money on your property based on what you are seeing other homes sell for. There are a few things to look out for when deciding if it’s a seller's market and whether or not it's time to make your move. If you notice the price per square foot in your area is increasing, chances are that homes stay on the market for a shorter time. You should also take note of homes near you that are selling and what things they have in common that are making them sell quickly and for top dollar. This is a time-consuming task (if you are doing more than checking your Zestimate!) which is why you have us! We always keep track of recent home sales in the area and can send you over an up-to-date market report on YOUR home and neighborhood to let you know if you can beat that five year average!
4. You're Out Of Space
Maybe this was the first house you bought when you were expecting your first child and there were only three of you, but now with three kids and two dogs, there isn't much space (and definitely NO closet space!). Although it may be sad to move out of the home where you started your family, the happiness of your family may be greater than the cost of selling your home and buying a new one. There's lots of reasons that you need to move up or even move down like divorce, illness, or life changes like relocating to another state or even a different part of the valley that might necessitate a move sooner than planned. Your life story is being written and your house is the backdrop - does it still serve its purpose well?
5. Capital Gains Tax
If you don’t qualify to avoid paying capital gains taxes on the sale of your home, you may not want to sell your home yet. To avoid capital gains taxes, you should make an effort to stay in your home for at least two to five years. Making a sale before two years could be a huge mistake, and could ultimately leave you without much equity, especially if you have to pay capital gains tax. If you are ready to move (because of #s 1-3) or need to move (because of #4), reach out to your financial advisor to discuss what the tax implications might be. We can discuss the market conditions with you and what an expected sales price might be simultaneously so that you can combine that information with your financial advisor's guidance and put together a plan that will work best for you. Don't have a financial advisor, reach out to us - we've got those too!
6. Closing Costs
Closing costs are often overlooked but play an important part when it comes to selling your home. As a seller, you'll pay real estate commissions that will vary by state and by the service offerings provided and you'll likely pay for the closing costs on selling your home which in Arizona, typically runs about 1%. When you buy a home, you won't have any real estate commissions to pay, but you will be paying higher closing costs, typically around 3% in Arizona, which you'll want to factor into your purchase. Reaching out when you are thinking of making a move means we can put together a customized work sheet for you that takes all of the costs of sale and purchase into account so that you can make an informed decision about making a move.