I'm a Real Estate Expert: What To Consider Before Buying or Selling a Home Now - AOL

When contemplating the purchase or sale of a home, it is essential to evaluate the potential risks associated with negative equity, especially in the current market climate. A recent analysis from Realtor.com highlighted that in August, home prices fell in 36 out of the 50 largest metropolitan areas, primarily due to increased mortgage rates and evolving market conditions. The most significant declines in price per square foot were recorded in cities such as Austin, Texas, which saw an 8.1% drop, followed by Tampa, Florida, at 5.6%, and Memphis, Tennessee, at 4.1%. This trend may present an opportunity for buyers who have been hesitant due to affordability issues.

Experts from MoneyLion have shared insights on negative equity and strategies to mitigate this risk for both buyers and sellers. Here are five recommended approaches:

1. **Take Time with Real Estate Decisions** Jim Gruler, a licensed real estate broker and co-founder of Seeking Agents, emphasizes the importance of not rushing into real estate transactions. He points out that negative equity doesn't only become a concern when a home's value dips below the mortgage balance; the real issue arises when homeowners must sell under pressure. Gruler advises against using the maximum mortgage amount as a definitive budget for home buying. Instead, he suggests evaluating comparable sales, the current inventory, and the property's condition to determine a more comfortable purchasing price.

2. **Avoid the Assumption of Continuous Price Increases** Matt Brown, a real estate agent, cautions buyers against assuming that home prices will always rise. He recommends that prospective homeowners focus on the property's affordability, its true market value, and their long-term financial situation rather than merely aiming for the highest amount their lender will approve. Stretching finances too thin can expose buyers to market fluctuations that might necessitate selling at a loss, leaving them without any equity cushion if prices fall.

3. **Be Cautious About Short-Term Purchases** Gruler also advises potential buyers to think carefully before purchasing a home if they anticipate needing to move within a few years. Given the high costs associated with real estate transactions, he suggests that buyers should ideally plan to stay in their new home for at least five years to avoid the risk of negative equity. Selling at a loss can also diminish the funds available for future home purchases, leading to increased financial strain that could have been avoided by renting instead.

4. **Consider a Larger Down Payment** Making a larger down payment can create immediate equity and lower the mortgage balance, providing a buffer against market fluctuations. Both Gruler and Brown recommend that buyers take their time in the home-buying process, ensuring they are financially ready for the commitment. Brown notes that while negative equity is influenced by market changes, employing conservative financing strategies, setting realistic prices, and maintaining financial reserves can significantly reduce risk.

5. **Assess Potential Net Proceeds Before Selling** For those looking to sell, Gruler suggests calculating expected net proceeds prior to listing the property. This involves obtaining the mortgage payoff amount and estimating the costs associated with selling, such as repairs, real estate commissions, and potential taxes. Understanding these figures in advance can prevent unpleasant surprises when receiving offers. Gruler concludes by noting that if a homeowner can manage their payments without the immediate need to sell, a temporary decline in property value may not have a significant impact on their financial situation.

This information is provided by MoneyLion.com for educational purposes and should not be interpreted as financial, legal, or tax advice.