When the real estate market bottomed out, I spoke to plenty of sellers who were practically petrified to list their homes, and when I delved a bit deeper, I discovered that fear almost always stemmed from on what they thought they would lose on the selling side. That is, until I showed them what they would make on the buying end.
I remember this particular family well. They had lived in their current home for about five years, after purchasing it with a zero-down VA (Veteran's Administration) loan in late 2004. When I ran the numbers to figure their preliminary net profit, I estimated that they would walk away with about $2,000 at closing -- worst case scenario. Unfortunately, my estimations made the Mrs. dreadfully skittish about listing her home. You see, she was determined to move out with least $10,000 in profit, and wasn't keen on any taking less, for any reason. However, once I ran the numbers with her, and showed her what she was missing mathematically, I watched her almost instantly change her tune. And, the fact is, these are numbers that all sellers should run before deciding to take the prospect of selling their home off the table.
No. 1: Rate of return on property value
First, I had these prospective sellers look at the rate of return on their current property. Even though this varies from one neighborhood to the next, the best rate of return most homeowners can expect is three percent annually. However, in a neighborhood currently swollen with foreclosures and short sales (as theirs was), these sellers were only earning about 1.8 percent each year on their $165,000 home. However, if they moved into the neighborhood they already had their eyes on, they could upgrade to a $220,000 house and earn a 2.5 percent return on their investment. Essentially, in three years, these sellers would have as much $16,500 in equity, compared to the $8,900 they were stuck with if they chose to stay put.
No. 2: Discount on a new house
This particular couple had a builder model home in mind. However, since they had a house to sell, we had to move quickly as their "dream home" had just come on the market. Thankfully, the house was front-loaded with discounts; originally listed at $240,000, but recently reduced to $220,000 because the builder was itching to get it off of the books -- a $20,000 savings that more than made up for the $10,000 the Mrs. required.
No. 3: Incentives on a new house
To sweeten the deal, I talked to the builder and had him agree to pay 100 percent of their closing costs, meaning that they could move in for nearly nothing out of pocket -- a savings of $7,700.
Between these three items, the $8,000 this couple thought they were "losing" on their sale, turned into $27,300 worth of profit on the buying end; not a bad position to be in.
After reviewing the numbers, the Mrs. was much less skittish about the prospect of selling, and we listed their property for an already agreed upon below market price, selling it in just 30 days. This freed them up to buy (and move into) their brand new dream home, $28,750 richer -- counting incentives and discounts. For homeowners who bought with no down payment, had minimal equity and who were in a position to buy, they did quite well. So before you toss the notion of selling out the window, think about what you can save if you look at the numbers through a different set of eyes. Do the math, and see if it pays off. You might just be surprised at what you find.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.
More from this contributor: