Sidney Richardson9-Minute read
UPDATED: August 22, 2022
In many cases, when people buy their houses, they plan on staying in them for at least a few years. But what happens if you just bought a home and already need to sell? Life happens, and sometimes unexpected events can bring you right back to the closing table after just a few months.
But how soon can you sell a house after buying it, and will selling too early affect your sale price? Let’s take a look at some of the reasons you might want to sell a house quickly after purchase and the possible consequences on the sale and your finances.
According to 2018 data from the National Association of REALTORS® (NAR), most people stay in their homes for 13 years on average. Despite this average being just over a decade, however, there are personal and market reasons why people might end up moving much earlier.
One common reason why a homeowner might sell their home quickly is to turn a profit. Investors and house flippers have been doing this for years. During a seller’s market especially, it can make a lot of sense to renovate a home and sell it for a profit even if the owner has only been in the house for a short amount of time.
A lot of the time, a homeowner’s decision to sell their house shortly after they purchased it has nothing to do with the housing market and is centered around big life changes instead. Things like job relocation, divorce, financial hardship, having a baby or medical emergencies can sometimes make it necessary for homeowners to move quickly and without warning.
New homeowners might also sell because their neighborhood is experiencing significant price increases or, alternatively, seems to be in decline. Buying a home is a huge investment, so many homeowners want to make sure the house they’re in is right for them and their financial situation.
Sometimes, homeowners might choose to sell their house simply because they regret buying it in the first place. Especially in a competitive market, many first-time home buyers make compromises when deciding on a home to buy. If they rushed into a decision, they might find their neighborhood isn’t such a good fit for them, that their house doesn’t suit their needs or that they underestimated the costs involved with owning the home.
Whatever their reason for parting with a house, once a homeowner has the title, they can sell that home the next day if they really want to. While it is possible to sell as soon as the title is in your hands, should you? The home buying and selling process doesn’t come without a price, so keep in mind that selling immediately might cost you more than you stand to gain.
Before selling their house, a homeowner should consider whether they can recoup both the original sale price paid and the expenses of buying and selling in a short time frame. Whether you personally can sell your home shortly after buying it will depend on your financial circumstances and whether you are prepared to deal with all the potential additional costs involved with a sale.
When you sell your house, you’re not just getting back more (or less) than what you paid for it. There are plenty of other costs, direct and indirect, involved in the process that might impact your decision to sell. Let’s take a look at a few costs you can expect to deal with when selling a house quickly after buying.
As a buyer, you likely paid 3% – 6% in closing costs when purchasing your home. It’s fairly common for buyers to ask sellers during negotiations to cover their closing costs as part of the deal, so as a seller this time around, keep in mind that this might be something you could be responsible for.
Sellers pay closing costs too – typically, 6% – 10% of the home’s sale price. Sellers are typically responsible for paying commission to the real estate agents on both sides of the sale. Other costs may include:
When selling a home quickly, it’s important to make sure the home looks its best to avoid potentially negative buyer perceptions about the quick sale. That means you might have to spend some money to stage or otherwise present the home to potential buyers, which can sometimes be quite costly. Having your home cleaned and decluttered might cost a few hundred dollars while professional staging can run sellers $4,000 or more.
When selling a home shortly after buying, you may have to pay a mortgage prepayment penalty depending on how quickly you’re selling the house and the terms of your mortgage. A prepayment penalty is a fee charged by some lenders when you pay some (or all) of your loan back early. The amount of this fee varies based on the lender and details of your mortgage and might be anything from a certain number of months’ interest to a percentage of the remaining loan balance. If you’re working with our friends over at Rocket Mortgage® you won’t have to worry about these fees as they don’t charge a prepayment penalty.
Sometimes, the sale of real estate triggers the capital gains tax. If you’ve had the property for less than a year and make a profit on the sale, it may qualify as a short-term gain – in which case, you may have to pay a tax based on your income. There are some exemptions, but in general if you’ve lived in a home less than 2 years (doesn’t necessarily have to be 2 consecutive years) it is not considered a primary residence and you’ll have to pay.
The capital gains tax doesn’t apply to many short-term sales since selling especially quickly does not usually result in a sizable profit, if the seller profits at all.
The break-even point is the stage at which the cost of a transaction equals the amount earned from the sale. The exact amount of time it takes to reach this point varies based on the home and the mortgage, but when selling, if you want to make a profit, you must be beyond the break-even point.
This means that when you sell your home, you’ll have to make enough back to cover the cost to pay off your mortgage and the costs you’ll be paying as a seller. If you don’t make enough money back on the sale, you may have to pay some costs out of pocket, which would mean you actually lose money selling your home.
To prevent financial losses like these, you should build equity in your home before selling – but that isn’t always an option for sellers that must get rid of a home quickly after purchasing due to unforeseen events.
When reselling your home, some real estate experts recommend the 5-year rule. This unofficial rule states that you should stay in your house for at least 5 years for it to make financial sense to sell your home. Not everyone will break even in 5 years, so the 5-year rule doesn’t always apply – but for the most part, it’s a good rule of thumb to follow.
Five years gives homeowners time to build equity so they won’t have to pay thousands of dollars out of pocket just to sell their house and take care of closing costs.
On the other hand, some homeowners may break even more quickly than five years.
In a strong seller’s market, the value of your home might appreciate far more quickly than normal, especially if you live in an area that’s in high demand. If your home’s value has drastically appreciated, you might be able to break even and sell in just 2 or 3 years. This type of increase is not completely unheard of – house flippers commonly resell homes quickly for a profit, though they also pour a significant amount of money into repairs and renovations to make that happen.
Selling a home – soon after purchasing it or not – is a big decision, so it’s important to have a good idea of the accurate value of a property when doing so. When relisting your home, you’ll want to find the fair market value (FMV) of the property. The FMV is intended to be as accurate an estimate as possible and there are a few ways you can go about finding it, including:
For help determining the approximate value of your home, you can also use our home value calculator.
If you don’t know a lot about real estate in your area, you should also consider working with a real estate agent to help find the market value of your home, since they usually have local knowledge and expertise.
Once you know the FMV of your home, you can calculate your gains or losses when selling with better accuracy. For the purposes of this calculation, say the market value of your home is $250,000 and you bought it for $225,000.
By adding all fees and closing costs you expect to pay to the original price of your home, you can find out what you need to sell it for to break even – in this case, we’ll say that would be $250,000, the same as the market value. So, if you sell your home for $250,000 in this case, you would not lose money – but you also wouldn’t profit.
This assumes that you have no equity built into your house, however. Let’s calculate what selling your house in this scenario might look like if you’ve built a little bit of equity making mortgage payments.
Step 1: To begin the calculation, subtract your closing costs from the market value. Closing costs are typically 6% – 10% of the home’s sale price – so we’ll say you’ll be paying $25,000 in closing costs. Keep in mind that as the seller, there are some costs you may have to pay in addition to your own closing expenses on behalf of the buyer – such as the buyer’s agent commission.
$250,000 - $25,000 = $225,000
Step 2: Next, subtract any home improvement costs (if you have them) as well as the mortgage payoff amount. Your mortgage payoff amount may be different from your loan balance if your lender charges any early payoff penalties or fees. For this calculation, we’ll say you’ve built a little equity and your mortgage payoff amount is $215,000.
$225,000 - $215,000 = $10,000
In this scenario, you would break even and sell for a profit of $10,000. If you do this calculation for your own home and come out with a subzero number at the end, you would not break even and instead would likely have to pay out of pocket to sell your home.
While it may seem like selling early is sure to result in financial loss, this isn’t always true – after all, house flippers buy and sell homes quickly for a living. There are some situations where it makes sense to sell a house early for a profit – as well as situations where it makes sense to sell a house early to reduce losses.
If there is an unusually high demand for properties in your neighborhood and the value of your home and surrounding properties has skyrocketed, it might make sense to sell your home for a profit – especially if you wanted to move anyway.
If you’re selling early to turn a profit, consider that you may have to pay the capital gains tax if you’ve been in your home for only a short period of time – and consider the cost of the home you’d be moving to, as well.
Alternatively, if the values of homes in your area are falling, it can sometimes be a good idea to get out and “cut your losses” so to speak. Things like rising crime rates or, occasionally, natural disasters can cause property values to decline. The decision to sell your home, especially when taking a financial loss, is a big one – so even if your property is in decline, always research all your options before agreeing to a sale.
If quickly relisting your home and taking a potentially large financial loss does not sound feasible to you but you still want to get out of the house, consider repurposing the home as a rental property. If you’re part of a homeowner’s association (HOA), you may not be allowed to rent, so in this case be sure to check with your HOA agreement before renting. While renting out your home doesn’t remove it from your responsibility, you can build equity so that when you are ready to sell, you won’t have to take financial loss.
Sometimes, a home purchase just doesn’t work out – and that’s okay. There are plenty of reasons that homeowners might choose to part with their property early. While this can sometimes lead to financial loss, there are some circumstances where you could actually get rid of a home quickly and still profit.
If you’re ready to sell your home and move on to your next adventure, check out our home selling options today with Rocket HomesSM.
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