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Most homeowners don’t plan on living in their first home forever, but choosing the right time to make the switch can be a challenge. Without a pressing reason to put your home on the market, it can be difficult to know for sure when you’ve outgrown your current living situation. Here are six questions to ask yourself before planting a “For Sale” sign in your yard.
1. How much equity do you have in your home?
Your equity is the portion of the home that you truly own. If your property’s current value is $400,000, and your mortgage balance is $250,000, you’d have $150,000 in equity. To calculate your equity, you’ll need to find fair market value with a comparative market analysis, which takes into consideration the home’s features as well as recent sales in your neighbourhood or in your building.
Knowing your equity can be a useful way of determining whether you’re ready to upgrade your home, because it’ll give you a good indication of how much capital you’ll have to contribute towards your next downpayment.
2. Would renovations push your home’s price above market value?
In some cases, remodelling your home won’t offer a return on your investment, and it might be a smarter financial decision to purchase a new one instead. Before investing in home-improvements, you should look at prices in your neighbourhood to determine whether the next buyers would absorb the additional costs. If your home is already one of the more expensive properties in your neighbourhood, renovating might be a risky move and you should consider selling instead.
3. Can you afford to sell?
If you have very little equity built up in your home, you might want to carefully consider the costs involved in selling a home and purchasing a new one. As a seller. you will need to pay a broker’s commission, which usually ranges between 2% and 6% of the final price. If you choose to sell on your own, you will need to account for the cost of a professional photography shoot, listing your home on FSBO websites, signage, as well as the price of the time you’ll spend scheduling visits, doing open houses, answering questions about the property, and handling the legal paperwork for the sale. The closing costs of purchasing a new home include inspection fees, notary fees, moving costs, land transfer taxes, and property taxes.
Moreover, the costs of minor improvement and staging costs will come out of pocket, so it’s a good idea to have a comfortable financial cushion before you put your home on the market.
4. Does your home still match your lifestyle?
Growing families, children moving out, aging parents, job changes, or new hobbies are all reasons why your current house might no longer suit your needs. In some cases your home might start to feel too small, in other cases you might have too much space, and in other cases your location might no longer be compatible your day to day schedule. As with the purchase of your first home, take the time to jot down your needs and your preferences. What does your ideal home look like? To what extent would moving into a new neighbourhood improve your quality of life? What are your non-negotiable needs when it comes to housing? Where do you see your life heading in the next 3-5 years?
Once you’ve narrowed down your needs and your criteria, book a consultation with a buying agent to discuss the current opportunities on the market, which fit your needs while falling within your budget. This will help you decide whether it’s worth moving out, or holding on to your existing home a while longer.
5. Can you “market-test” your home?
Market-testing your home involves distributing it within an internal network of buyers and investors, without listing it on your local MLS, with the intention of seeing whether it generates interest at a pre-determined asking price. Market testing is a interesting option for homeowners who are toying with the idea of selling their home, but who aren’t ready to sign an exclusive brokerage contract to advertise their home on Centris. It’s also a great way of testing the response to a particular price point, within a smaller group of buyers.
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6. Does the market favour sellers?
If you’re living in a seller’s market, it might make sense to sell your home before the market cools off again. But don’t forget that once you’ve sold your home, you’ll most likely need to buy one too. Your best bet is to speak to a knowledgeable real estate broker about how long long it should take to sell your home, how much it would sell for, and type of home you’d be able to purchase with the recovered equity.