Coldwell Banker Residential Brokerage
Diana Gould, GRI, Coldwell Banker Residential Brokerage
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Before Selling Your Home, Assess Your Equity

by Diana Gould, GRI 09/06/2020

Image by Wokandapix from Pixabay

The equity in your home plays a major role in how much profit you'll make off the sale, but it's not always simple to determine just how much of the home you own (even if you haven't refinanced). Here are a few tips to understand equity and how you can use it to your advantage.  

What Is Home Equity?

The simplest definition is that home equity is the difference between the market value and your current loan amount. When calculating, you should also take into account related financing (e.g., home improvement loans, second mortgages, etc.). If you owe more on the home than you owe, you have negative home equity.

Of course, the number you generate is just an estimate. Just because your market value is listed at a certain price, doesn't mean that a buyer will offer that amount. Overall though, it's a good place to start. Once you have a baseline, it can give you a better idea of how your home sale will go and what you can afford once you move out.  

The Bottom Line  

Let's say you bought a home for $150,000 and you've paid off $50,000 total. If your home was recently assessed at $400,000, then your home equity is now $300,000, even though you only owe $100,000. The longer you've owned your home, the more you'll pay toward equity as opposed to interest. 

But home sale profits aren't the same as home equity. You also have to deduct any expenses associated with selling the home, including staging, listing and real estate agent fees. This can take as much as 10% off the total sale price. Some lenders will charge a penalty fee for paying off the loan early, so you'll need to check your contract to understand your responsibilities. 

Equity and the Home Sale

Experts recommend having at least 10% equity in a home if they're making a lateral move. So if you need to relocate for your job and you're planning to move into a similar home, then you'll need less than someone who's upgrading their lifestyle. If you want a bigger and more luxurious home, it helps to have at least 15% — and preferably more. The less equity you have, the more likely you'll end up with negative equity. 

Equity can be confusing because you ultimately own the home while you're paying the mortgage payments. Your lender is simply using the value of the property as a type of collateral in case of default. You can think of equity as a form of leverage you can use to give you a little more confidence during the sale. 

About the Author
Author

Diana Gould, GRI

Diana Gould is truly dedicated to providing exceptional, professional and comprehensive real estate services to her valued clients. She is very astute and highly skilled in the Acquisition and Marketing of Residential and Distinctive Luxury Properties. From Greenwich to Trumbull, Diana’s intimate knowledge of the distinctive communities of Lower Fairfield County is invaluable. In helping her clients to find their dream home or sell their special residence; Diana clearly distinguishes herself with proven results as she brings her client’s real estate dreams to life! As a Global Luxury Specialist, Diana excels at providing insightful, comprehensive guidance and marketing applications that produce results. Due to her extensive background as an CPA, she takes great care to educate and advise their clients with valuable analytical information and an informed and in-depth understanding of the current real estate market. When working with sellers, she implements effective and resourceful marketing strategies that clearly accentuate each property’s specific features. Skillfully taking every measure to position the seller’s property to stand out in the market place, she designs a beautiful presentation that incorporates professional photography, refined staging services and extensive visibility on multiple internet sites. Regardless of the time and effort it takes, when working with buyers, she works tirelessly to identify key opportunities that meet their lifestyle requirements. In serving her clients just newly relocating to the area, she is extremely diligent in seeing that their needs are thoroughly attended to and provides them with an insightful perspective into each community within the region. Diana’s clients trust in her integrity and insight and value her timely guidance and expertise in addressing all aspects of the transaction with professional competence. She is very thorough in providing constant communication about each important detail of the transaction and is always extremely attentive, accessible and responds promptly to her clients. Her attention to detail, consistent follow through and determination to indulge her clients with first class service sets her apart. She always strives to negotiate the best terms for her clients and when met with a tough challenge she is very creative, strategic and skillful in working through the issues. Diana ultimately ensures that each client receives outstanding counsel and exceptional representation in her efforts to accomplish their personal real estate goals. Diana further distinguishes herself with the following designations: Graduate Realtor Institute (GRI) and Certified Relocation Specialist (CRS) and Smart Home Certified.