How Atlanta Home Sellers Are "Getting Right with Red"

These days, sellers in metro Atlanta are finding it increasingly difficult to cope with the idea of a potential "loss" when selling their homes.

Sellers are coming to us months before actually putting their homes on the market to talk about creative ways to make the best of a situation that they didn't necessarily sign up for when they bought their home. They're finding that they have to rethink the reasons why, and the real necessity for, selling their home.

Let's say you have an adorable, picture-perfect 2 bedroom, 1 bath home in Ormewood Park that you bought 5 years ago at the height of the market for $215,000. You still owe $205,000 because you only put 3% down with an FHA loan. When you first started thinking about putting your home back on the market a few months ago, you envisioned selling it for $225,000 so that you'd have $20,000 to cover marketing costs, buyer's closing costs and some minor repair requests.

Knowing we're not going to sell it for $225,000, let's say we list it for $189,900 instead. After a few weeks, we receive an offer and go under contract for $185,000. After paying real estate sales commission, half the buyer's closing costs and some minor repairs, you're down to $170,000.

You're basically short $35,000. What do you do?

In the past few weeks, we've spoken to many other real estate agents in the market about their clients' challenges, and have also asked experts in the financial and lending world to add their perspective on the matter. Here's what we heard:


1. Sell At A Loss, Buy At A Discount

If you're looking to "move up," one of the best ways to overcome the long-term effects of selling at a loss is to make sure you buy your next home at a discount that is equal to or greater than the loss on your home.

How does one determine the discounted value of their next home?

That's a tricky question, as the hard numbers can only be proven over time. But let's take the following situation into consideration for example's sake:

Suppose you and your family wanted to move from your 2/1 in Ormewood Park to a 3/2 in Candler Park that needs a little TLC. Your budget is $350,000, and you want to do the FHA program again (which will soon require 5% down). Will you still have enough in savings to cover the down payment and any closing costs after absorbing your $35,000 shortfall on the house you sold?

First, you can get some incredible deals right now in Candler Park. Chances are, you might even find something for well under $350,000.

Second, if you play your cards right, you may get a significant amount of your closing costs covered by the seller, depending on their own level of anxiousness about market activity and their motivation for selling.

In the end, if you have the funds to cover the $35,000 loss on the sale and on, let's say, the $25,000 cost of buying a new home, that's a total of $60,000 you'll need to make that happen.

So for a $60,000 investment, you get you and your family into a larger home that's in the neighborhood and school district of your choice. Perhaps the home was sold to you at a price that was below market value because it was a short-sale, a foreclosure, or perhaps it just needed some updating. You plan to stay in the home for 10 years, which will get you through the remainder of your children's time in school. You'll renovate and remodel at your own speed. You may even add an addition to the home in a few years when the economy picks up, knowing that the neighborhood values will support that rationale when the time comes.

Is it worth spending $60,000 to get your family into a larger home that's in the neighborhood and school district of your choice, considering you may get the home at a greatly discounted price and your new mortgage interest rate may be significantly lower?

Do you feel that you would have "bought low" today, and would you have set you and your family up to "sell high" later?

If the market conditions were to stay the same over the next 6 months to a year, would it be worth it to you and your family to set an appointment today to speak with your financial advisor or lender today to see how you're going to make this happen over the next several months?


2. Relocating? Negotiate!

Putting your home on the market because of a job transfer or a relocation? Be sure to talk to your Red Robin Group agent as soon as you get off the phone with that hiring manager or that recruiter.

Before you begin negotiating salary and benefits, remember that the time your home is on the market and the final sale price are both going to have a significant impact on your ability to enjoy all the perks of a new career path.

Some people avoid the conversation with their new employer about selling their home, thinking it's not their employer's problem, opting instead to rent the home out and become long-distance landlords. This leaves you on the hook for the mortgage and the maintenance of a home you may never return to, making the process of selling the home in the future even more difficult.

Instead, be up front with the recruiter, your hiring manager or your new boss. Tell them that you have a home to sell, and if they value you enough to hire you, that there's a cost associated with getting you from point A to point B. This won't be the first time they've heard this, and trust us, they've had time to think it.

Just short of a full relocation package where an employer ultimately takes on a more significant responsibility and liability for selling your home, many employers are getting inventive. In the example where we are coming up short $35,000, there may be a number or ways an employer could help you absorb that loss:

• Not really anxious to buy in the new city you're moving to? Ask the employer to help cover some of your housing costs for the first year.
• Negotiate a sign-on bonus that may help absorb the loss.
• Can the employer not afford a sign-on bonus? Negotiate a year-end bonus for 2 to 3 consecutive years, which your employer may tie to job performance or, at the very least, job retention.
• Negotiate an agreed-upon reimbursement amount that's to be paid when the house sells.

Whatever you negotiate, talk to your Red Robin Group agent to see if it makes sense before putting your home on the market. For more information on relocation negotiation tips, click here.


3. Short-Term Loan. From Yourself.

If you're selling to "move up" and you're staying with your same employer, one of the last options you may consider to help absorb a short term loss is taking a loan against your 401(k).

Before doing this, talk to your HR benefits manager, your financial advisor or your lender to get the scoop on both the penalty that may be incurred and the long-term effect this loan may have on your retirement plans.

Be sure you understand the difference between a loan and a withdrawal, the tax implications of both, and the cost/benefit of using this money as a "stop-loss" versus allowing it to continue to earn interest for your retirement plan.

If you're taking out a loan, make sure you understand and can afford the repayment plan that your employer will set up by withholding money from your paycheck until the loan is repaid.