Selling a Raleigh home in the best circumstances is stressful but selling in divorce is the second most stressful life event you will ever go through. When children are involved it is even more complicated. Many people make mistakes with their marital homes during divorce because they’re in a highly emotional state. Divorce is an ending of a marriage and life as you have known it but it is also the beginning of a new chapter in your life. It’s important to give yourself the best start possible by making wise choices. Everyone going through divorce needs to know all of their options and the pitfalls that may be associated with each one, so they can choose well.
Choices around the marital home can come with huge consequences if not well thought out. Here are three common examples of how couples first respond to the future of the shared home when entering divorce and the consequences associated with each one:
- One party feels guilty and wants a quick division so they negotiate a buyout with the other spouse. On the surface this seems like a good idea however, many times they realize in their emotional state they paid too much or really could not afford the house on a single income. Failing to estimate true value of the asset, all the cost associated with a future sale and the stress that will be added to their household budget by acting too quickly leads to regret and more stress.
- Others know they do not want the house or the debt that goes with it and they fight over it like a hot potato. Months of fighting over who’s responsible for the house can really drain any profit they may have once they divide.
Many become frozen in shock, denial and fear filled because of what’s happening to them and spouses may refuse to move even if they can’t afford the house by themselves. They are so overwhelmed by all the changes, disappointment and hurt they can’t seem to make any decisions. It is hard to think with your head and make good decisions when your heart is broken. When you find yourself frozen in a sea of emotion, it’s easy and natural to procrastinate on facing the inevitable. Because of this emotional state you may end up with less than if you would have pushed through the emotions.
Divorce is hard and an experienced Raleigh Realtor with a calm head can be a huge asset!
Step by Step Divorce Action Plan
Check to see whose name is on the mortgage. Is the mortgage held jointly or individually? If individually, a quick claim deed may be a quick solution. However, North Carolina is a marital state so even if you owned the house individually before marriage, you own it jointly now. Each spouse will have to agree to ownership and division unless you married with a prenuptial that excluded your pre-marriage home.
If you have a mortgage on the marital home you need to contact your bank to request a mortgage pay off. A payoff is different than the mortgage balance you see monthly on your payment statement. The payoff includes the interest in arrears, which is a banking term that simply means you owe more money then monthly statement shows. Knowing how much you truly owe to be released from the monthly debt obligation is key in determining your options. If you owe less than you will be able to sell your home for, then you have what we call equity. With equity in the property that will allow you to either sell and divide the profit or buy each other out.
Call Linda Craft & Team, Realtors to schedule a free consultation to discuss all your options. During the consultation we will provide a realistic market analysis so you will know the range of value to expect in a sale. With your mortgage payoff in hand we will be able to provide an estimate of selling cost and estimate of your net proceeds from the sale including any division of your escrow account where your yearly tax and home owners insurance is held. Lastly, we will help you estimate preparation cost for entering your house onto the market for sale, repair cost that a buyer may request from a home inspection and carrying cost for the time on market plus escrow period. These are all expenses that affect your profit and have to be considered and included in your budget. (Escrow is the time between a contract to purchase and deed transfer where you no longer own the property or have the financial burden of mortgage payment, taxes, insurance, utilities and lawn maintenance.)
Make a decision on which option is best for you. With equity, couples have several options. With a full estimate of cost associated in a sale, they can now decide if they want to sell the house and split the proceeds and each move to their new single lives free of this joint debt or further joint obligation. Another option is they can decide to buy each other out with a cash out refinance. The buyout option places the mortgage into one name along with a new deed to release the other from joint ownership and debt obligation. We would refer you back to your present lender to see if they would be willing to remove the other spouse from the deed of trust (mortgage obligation in case of foreclosure). In most cases they will not allow this. The only way to separate the financial obligation permanently is a sale or a total refinance which has charges to recreate a new mortgage. The questions that remain to be answered with a buyout scenario is; “can the one person who wishes to keep the house qualify for the new mortgage on their own”, and “is there enough equity in the house to be approved for a refinance”. In order for a mortgage company to approve a refinance most will require a minimum of 5% down payment and don’t forget to calculate and negotiate the finance charges associated with the refinance. A Good Faith Estimate from your lender will provide this information and we are very happy to refer you to a great local lender to help you.
How Do Most Couples Decide on a Buyout Price?
Many couples pick a number on their own based on what they paid for the house or have invested into it. This is usually a big mistake for reasons explained in this article. Others pay for a fee paid appraisal to determine value but, this may also lead to several mistakes if they only look at the bottom line number on the appraisal. That number in not a guaranteed sales price or even true market value. An appraisal is just an opinion of value by one person who has looked back in time to select a number. Therefore, having two appraisals would give you a truer average to begin from. Where couples make a mistake with deciding only from the appraisal amount is they may have not considered the cost of selling in the future, deferred maintenance and immediate repairs and in some cases capital gains too. In my opinion, the best solution is to have one or two appraisals completed from a licensed appraiser and also meet with an experienced Raleigh Realtor to get a second opinion. The type of Realtor you need is one who has a lot of experience in working with sellers. Chose one with a large listing inventory and a track record for sold listings. The nice buyer agent that helped you buy your home initially may not have enough marketing dollars and experience in representing sellers. Buying and selling are two different skill sets.
Understand the Difference Between a Realtor’s Value and an Appraisers Value
Appraisers only look at historical data of closed properties in the past 6 to 12 months to determine value. Realtors look at present market conditions, trends and your current competition. In other words, what your home may be worth on a piece of paper called an appraisal and what you could actually sell for today, along with cost to make your home market ready, sold and closed needs to all be considered. Again, couples going through divorce need a lot of wise counsel from multiple professionals and we are happy to refer them to professionals that can help provide the information they need.
What Happens if they Haven’t Owned their House Very Long or it has NO EQUITY due to High Mortgage Balances or Declining Home Values?
Couples with no equity in their marital home only have two choices
- Sell their home in a short sale where the bank takes the financial loss instead of them, and the consequence is a temporary decline in their credit score. Divorce is one of the qualifiers for a short sale. It is a way to not have to write a check at closing, or incur new debt by borrowing money from another source to bring to the sale. With a short sale both parties will be released from ownership of the property and a free of debt obligation and each other in regard to the house. As a CDPE, Certified Short Sale Expert, we have helped hundreds of people successfully navigate a short sale but the first step is a consultation to understand all the pros and cons of this type of sale.
- An agreement could be reached to rent the home until it appreciates high enough in value to sell in the future. The idea of having someone else pay your joint mortgage while the house is going up in value may seem like a great option but, it’s absolutely not. There will be vacancies, repairs and ongoing maintenance in addition to years of working together in joint ownership with a business partner you probably would not have chosen if the real estate market had given you another choice. The stress you feel now going through divorce will continue and be magnified as you enter this business partnership with your ex-spouse. The number one reason people divorce is money. Entering a business partnership with someone you may have just divorced over money, spells emotional and financial disaster for your future. Approach with great caution and consult a property management company. We are happy to refer you to a reputable Triangle area property management company.
7 Common Mistakes People Make with their Homes in Divorce
1. Struggling to keep a home they can’t afford so the children do not have to face more change. Many people as so overwhelmed in divorce that they try to minimize change by refusing to move. It’s a known fact that children bounce back faster from change than adults do and if you can’t afford the home the financial stress will cause them more pain.
2. Fighting to keep the home for sentimental reasons. Keeping a home if it’s affordable makes perfect sense but most people do not plan their budgets very well and end up living in financial stress. Because of the financial burden when they do sell later they have deferred maintenance and other losses they did not consider when negotiating to keep the house. If they are thinking about keeping the house with one income I would recommend they meet with a financial planner, certified in divorce, which I will gladly offer a referral. Remember, with time your emotions will change.
3. Agreeing to each be responsible for 50% of the payment. Over the years I have met with a lot of woman with children who were granted the house in divorce with an agreement they would each pay 50% of the payment. With a foreclosure notice in hand they were shocked as they explained to me that they gave a check to their ex every month and thought he was making the payments.
4. Negotiating to a buyout price without a Raleigh home inspection. In divorce it is common for one spouse to keep the house by buying out the other. I encourage you to have a home inspection completed to make sure there are no big repair items needed now or in the near future. In formulating a buyout price consider the cost of immediate repairs needed, prorate deferred maintenance and consider future cost to prep the home for sale and selling cost.
Here is a real example: A home I recently sold began as a buyout where mom and dad had advanced the cash to keep their daughter and granddaughter in the home. No inspection was completed for the buyout. 6 months after the buyout the daughter was transferred out of town for work and the house needed to be sold. During the sale a home inspection discovered a wet crawl space full of mold. Mom, dad and the daughter regretted the price they paid the ex to keep the house because they had to pay to fix the crawl space too.
5. Under Estimating the Expense to Make a Home Market Ready. Another Example: When the couple was married the husband turned the bonus room into a recording studio with black foam glued to the walls. Since there was no equity in the home, the ex-wife decided to keep the house and make all the payments. When she later needed to sell she underestimated the expense to make the room market ready. She hadn’t considered all the costs associated in selling and the market had not appreciated as she had hoped. She lost a lot of money and relived the pain of another mistake.
6. Inheriting Problems which Grow Bigger with Time. In divorce the wife was given the house. The ex who was a skilled carpenter finished off a second floor bedroom and bath without permits. Five years later, when it came time for her to sell the house she discovered that not having permits would cost a lot of money to rectify. In order for the house to be sold she had to pay double for the permits and bring all the plumbing, electrical, heating, insulation and structure up to today’s code.
7. Making Decisions to Buy Again to Fast. My advice to every couple going through divorce is if at all possible don’t buy anything or make any big decisions for at least four seasons. Time heals all wounds so give yourself at least a full year to get your head on straight and to know what you will really need in your new single life. So many people rush out to buy something and a year later they want to sell it because their life and housing needs have changed along with their emotions.
Couples Entering Divorce Need Help
As a real estate team many of us have been through divorce and understand your pain and stress. 30% of our clients are walking in your shoes right now. Please allow us to share our experience in dividing marital property to help you make the best choice for your future.
Linda Craft & Team, Realtors – 919-235-0007 – LindaCraft.com