How much equity should I have in my home before selling it?

How much equity should I have in my home before selling it?

How much equity should I have in my home before selling?

Just a few months into 2021, we’re still seeing a seller’s housing market we haven’t seen in years. If you just bought your home, this market may have you wondering, “How much equity should I have in my home before selling it?”

However, equity isn’t the be-all and end-all when you’re deciding whether or not to sell your home

So, we’ll explore what equity is, how much equity you’ll need to make a profit, selling costs, and how the state of the market can affect the outcome.

What is equity in a home?

Equity is the market value of your home minus the payoff amount of your mortgage.

How much equity you’ve built up since buying your house depends on how much you paid for a down payment, the size of your mortgage, how much you’ve paid so far, and if the value of your home has increased or decreased since you bought it.

For example:

Say you purchased your home for $200,000. Between your down payment and monthly payments, you’ve paid $50,000 towards your mortgage.

So, you still owe $150,000.

Then, a professional appraiser valued your home at $300,000. 

That means you have $150,000 equity.

How much equity should I have before selling?

After calculating how much equity you have, you need to also factor in the expenses for selling your home. Sellers can expect to pay up to 10% of the final sale price of the home to staging, repairs, fees, taxes, and closing costs.

If your real estate agent believes you can sell your house at a price that pays off your remaining mortgage balance, cover all the above, and have cash remaining in hand, that’s great! 

However, you probably are needing to move into another home. 

So, keep in mind you’ll need enough money between the proceeds of your home sale and your savings for a down payment on that new house!

This is where it pays off to have a realtor – they can have real-time market numbers to take out all the guesswork here.

Equity does not mean profit

This is a disclaimer of sorts: Some people think equity means profit. It does not. 

You only profit off a sale of a home if the amount you sell it for goes above what it was sold to you.

Take that original example again: 

You purchased it for $200,000 and it was appraised for $300,000.

Say you get an offer for $290,000 and you decide to accept.

For easy math, let’s say you paid 10% of the final sale price in repairs, commissions, taxes, and other fees.

That leaves you with $261,000. Which means you made a profit of $61,000. 

It’s important to remember the difference in equity and profit so you don’t go backwards on any real estate deals.

How the housing market affects your home sale

Like we said earlier, early 2021 has been a seller’s market to this point. There’s a low inventory of homes but the demand is very high and mortgage rates are still fairly low.

In cases like this, it’s not uncommon for buyers to get into bidding wars with one another and make offers above the listing price of your house. 

Conversely, in buyer’s markets where there’s lots of homes listed but few buyers, you might have to sell under listing price.

A real estate agent worth their salt will be able to tell you what type of market you’re currently in. 

Other than being a buyer’s or seller’s market, here’s a few other market factors that have an effect on how much your home will sell for:

  • How fast homes in your area sell
  • Proximity to the city
  • Job market in your area
  • Crime rate 
  • Performance of local schools 

Planning to sell your home?

If you think you’re ready to sell your home you need to take stock in the condition your home is in and prepare it for sale.

A deep cleaning, touching up paint, and other small repairs are usually necessary. 

However, remember all of this cuts into your end profits. So, keep that in mind when you start pricing bigger repairs like rewiring the house or putting on a new roof.

The best thing to do is to find an experienced and trustworthy real estate agent. 

We’ve been in the real estate business for over 30 years now and understand the market swings in the area. 

If you are thinking about listing your home for sale, send us a message through our form and we can help you decide if you have enough equity to sell your home for a profit.

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