By The A-Team | Oct 21, 2017 | Sellers
You’ve loved your time here.
You love the town and its people, your friends.
It will be a very sad day when you have Fort McMurray in the rear-view mirror, one last time.
But really you wanted to retire a couple of years ago, or you feel like while the community has done wonders for your career, you need to take that promotion at head office. Perhaps you just want to be closer to your extended family.
These are all normal reasons for moving home.
In this post, I want to explore the sell-or-rent decision that so many of our clients have to make. It’s a painful one, but hopefully, at a minimum, this blog will help bring you and yours a little clarity.
Over the last couple of years, some of our clients have chosen to sell and others have chosen to rent. Generally, when they have chosen to sell, we have been successful in taking care of that for them.
But what are the reasons why people decide to rent their home out? There seem to be 3 main reasons:
a) You genuinely want a rental property in Fort McMurray, to diversify your portfolio. b )You are not able to sell your home, given your equity position today. c) You are not willing to sell your home, given your equity position today.
Let’s look at each of these decisions in depth:
If you are leaving behind a good network of friends/family to help you maintain and fill the property with tenants, this could work. It could also work if your home is really appropriate for tenants (let’s say it’s a two-suite property). Also if your mortgage payments are low. You may also have a lot of trust in a local management company.
Generally, we find, people who choose this option are risk-loving, optimistic, entrepreneurial types who believe strongly in the fundamentally cyclical nature of the oil industry. They believe that rents and prices will soon be significantly higher.
I will repeat though, it’s a small group.
Check out our seller’s page and feel free to reach out to us. We love establishing new, trusting relationships with the public and we do that primarily by evaluating people’s homes for them.
But be warned: We will be very honest (about the best list price, the market, and our marketing).
Once you have all the information, it is possible that you will look at your mortgage balance, bank balance and the estimated sale price, and determine that you are not in a position to sell.
This, sadly, is very common, and again, you are not alone.
In this instance, your main choice, if you are leaving town, will be to rent out your property.
Some people engage their bank or family for assistance. All of this is extremely personal, and our specialist listing agent’s role is limited to giving you quality numbers and guidance.
We do find, however, that just knowing the facts seems to give our clients closure. I think they go about their lives somehow more calmly, once they have all the best information.
Generally speaking, it is the older generation that faces this choice.
People under about 30-35 years of age generally didn’t buy their first home until after 2001-2006 when prices rose dramatically, so, unless they are amazing savers, they often fall into group B.
Why do people choose to rent out their homes instead of selling and moving on? In my experience, there are three main reasons:
Firstly, many people are banking on the equity in their homes to partly/mainly fund their retirement. They have plans for that money, whether it is for the purchase of their dream property or to use the funds for living/loving life. Your mortgage balance may be low, or paid off entirely, but the loss of home value can really interrupt your plans or dreams. People don’t often give up on their dreams. I know I wouldn’t.
Secondly, there are many members of the public who believe that home values will rise over the next few years, at which point they will be able to sell for more. If this is you, and your belief is rooted in knowledge and research, our advice is to not sell your home. Do what is in your heart! How can we best serve you? With accurate market information for you to add to your pile of knowledge.
The third reason, and one we politely challenge, comes from the murky world of human psychology: To be human is to be hopeful. It’s a beautiful thing. It’s also human to be very aware of the past; to be aware of where things are coming from.
What am I talking about? Let me explain…
People aren’t rational. We make emotional decisions. From a global perspective, most people reading this have high standards of living, but we look at our neighbour's slightly larger home, and we want to sell and buy into a new neighbourhood. That’s an example of a reference point making someone unhappy. Another example of a reference point making someone unhappy is when they hark back to the glory days of when they bought their home . We tend to frame our current home price as a loss or gain versus the time that we bought it (or the current mortgage amount). What if we could remove ourselves from reference points and think about this like financial advisors teach us how we should think about investments?
Let’s say, for example, that you buy a Suncor share at $40 and it goes to $30, then Suncor issues a profit warning. Based on the profit warning, your financial advisor advises you to sell, so you sell. You take the loss, and invest in CNRL which has a really positive cash-flow outlook. You have avoided further loss, and moved into a new position and stand to gain.
My point is that if you have decided to move, the best strategy might be to view your home now as an investment, much like a Suncor share. We love our homes, unspeakably, but let’s be clear: Someone else will soon be living in it.
Be honest with yourself: If deep down, based on your research, you don’t have a positive outlook for prices, you should choose to sell as opposed to renting your home out.
Our team only has a few years’ experience (we started just before the buyer’s market), but systematically, we have found that people who are able to think along these lines make better decisions when the time comes to move on.
If you can make the decision to sell, and never revisit that decision, you will have a less stressful listing and an almost-certain sale.
Our listing agents’ primary role is to supply you with clear, unbiased information about the value of your home, market statistics/graphs, and our world-class marketing services.
If you need help with that, or you just want to talk about your personal decisions, our specialists have lots of experience and sensitivity when helping out. They have seen lots of different situations, and they really care.
We believe that good, clear decisions happen when people have access to high-quality information and time to think calmly/logically without pressure.
Good luck with your decisions, and thank you for reading/sharing.
1 Read this academic paper (psychology) by Seiler et. al. “Regret Aversion and False Reference Points in Residential Real Estate” for a more in-depth journey into this fascinating topic: https://ideas.repec.org/a/jre/issued/v30n42008p461-474.html