Should homeowner sell house at a loss?

Q:

I am in a quandary. My home is worth about one-third of what I paid for it in 2003. I have quite a bit of equity in the home, but if I sell I am going to take a pretty steep loss.

Our two children have moved out of state, and the home is too big for us. We really want to get out of the cold and snow and move closer to our children and new grandchild.

I don’t know what to do: sell now and take a loss or wait and hope the market gets better. What do you think?

A:

Your quandary is a familiar one. Many people are facing the same situation and difficult choice.

Deciding whether or not to sell in a down market and take a loss is a tough call. It depends on when you bought your current home, how much equity you have in it, where you are planning to move and what the market is like there.

If you are planning to downsize, hopefully you will be able to make up the loss you will take on your current home when you purchase the next one which should also be valued less than it was a few years ago. 

The decision is more difficult if the next home is an upgrade and going to be more expensive than your current home or if the new location is in a higher priced market in general.

I have friends in that situation and it’s not pretty. They are both talking about going back to work (they retired early before the current recession).

You should also evaluate how expensive it is to live in your current home.

I would like to sell my home. I can afford to take the loss, but in thinking it over, I realized that it is very cheap to live in the home we have now: no mortgage, low taxes, very little maintenance and relatively inexpensive to heat. I doubt we could find another living situation as cheap as we have now.

Another option you might want to consider is renting your current home. That would give you the opportunity to move now and wait for the housing market to improve.

The only problem here is that many people need the equity in their current home in order to finance a move. You could get around this obstacle by also renting in your new location.