The housing market has changed. There are fewer multiple offers. Negotiation is back in vogue. Listings, in general, are taking longer to sell. And some listings are not selling at all.

What are your options if your home is less desirable in the current marketplace than you’d hoped it would be?

One option is reduce your price. Another is to hold out for a while, hoping that the market improves to meet your price. In most cases, however, the latter option is unlikely to yield results.

The robust housing market of the last several years appears to be taking a break. No one knows how long it will be before we see double-digit price appreciation again. Many experts believe it will be years.

A third option, if there’s no urgency to sell, is to rent the property for a time and sell at a later date. This might be worth considering. However, as with any scheme, there are pros and cons that should be evaluated carefully before making a decision.

On the positive side, a property that is, or will soon be, sitting empty will generate income. This income can help offset mortgage and property tax obligations and homeowner association dues for condo owners. Another plus is that you can buy time until the market improves.

On the other side, consider that the market in most places is still good. 2006 isn’t expected to be as strong a year for homes sales as was 2005, which was the best year ever. However, David Lereah, chief economist for the National Association of Realtors, predicts that the 2006 home sales volume will be the third best ever.

A risk in renting now and selling in 2007 or later is that the home sale market might not be as good then as it is now. If interest rates rise considerably in the interim, it most certainly won’t be better. A downturn in the general economy also wouldn’t bode well for the housing market, particularly if accompanied by higher interest rates and oil prices.

HOME SELLER TIP: An important factor to consider is the tax implications of renting rather than selling. If you have owned and occupied the property as your primary residence for two of the last five years, you are entitled to a capital gain tax exemption. For a single individual, $250,000 of capital gain is tax-free. The exemption is $500,000 for a married couple who files jointly.

If you wait over three years to sell because of market conditions, you would lose this valuable exemption unless you move back in to the property, which might not be convenient or possible at that time.

You could forgo the exemption and turn the property into a permanent rental for tax purposes. At some later date, you might do a 1031 exchange and trade this investment property for another, thereby deferring tax on the gain.

However, deferring gain on an investment property may not be as advantageous as taking the tax-free gain you can realize when you sell a personal residence. Be sure to consult with a knowledgeable tax adviser about the consequences of turning your single-family residence into a temporary or permanent rental.

Even if you do sell in time to preserve your capital gain tax exemption, you’re likely to face additional expenses preparing your home for sale. Tenants usually don’t care for a property as an owner would, so you should anticipate that repairs and renovations will be necessary.

THE CLOSING: When you take into account the cost of future renovations and staging, and the uncertainty of a future market, you might be better off lowering your asking price and selling now.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription