Homeowners sell low to move up

By Katie Leslie

The Atlanta Journal-Constitution

In early 2010, Andrew and Katie King were growing tired of their Smyrna townhouse. The couple had lived there nearly five years, no longer wanted to share walls with neighbors, and were ready to shorten their commutes by buying a house  closer to their jobs.

The deals in Dunwoody, their dream location, were compelling. The only problem was that they needed to sell their  townhouse without losing their shirts, or their down payment.

"You want every penny back," said Andrew King, 29.

But then they considered this: Even if they sold their townhouse at a loss, they might be able to make up that money by buying a better home while prices -- and interest rates -- were low.

"From a financial point of view, that could make a lot of sense," said Karen Gibler, an associate professor who studies real estate at Georgia State University's Robinson College of Business. "You hear people talking about how they don’t want to sell their home at a loss, but they want to move. If you wait for the market to improve to sell your home, the home you want to buy will likely go up in price, as well."

The Kings didn't wait. Their realtor, Anna Kilinski, sold their townhouse in six days, though for $30,000 less than what they paid for it in 2005. Next, the couple snagged a three-bedroom Dunwoody rancher for $50,000 less than its asking price, and  their interest rate went from 5.875 percent to 4.25 percent.

"It was tough, because you have to be willing to bite the bullet and hope and pray you get it [back] on the other end," Andrew King said. "It was very stressful, but it ended up being worth it."

Not everyone is in the position to take that kind of risk. Gibler says it's most sensible for those who either put significant money down on their homes or have a lot of equity. Having plenty of cash in the bank helps, too.

"But it would make sense, no matter what you sell it for now, if you could take that money and put it in a home or neighborhood where the appreciation rate long-term is better," Gibler said.

Evelyn Parrish hopes that will be true for her.

Last October, Parrish, 35, sold her Snellville-area home after living there six years. She wanted to move inside the perimeter to a nicer home while prices are low, but that meant dealing with an upfront loss. She lost about 16 percent of what she had paid for the house near Snellville, and even had to bring a check to the closing, she said.

But for her, dreams of buying a property near Decatur made it worth it. She is now searching for a single family home and said she's amazed by some of the deals in the area. Homes that were once in the high-$300s are now priced just above $200,000.

"I knew that I would take a loss getting out of the home, but with the prices of other houses going down I’d recoup it going back in," she said. "The home was the only thing standing between me and the market."

Little national data on this trend is available, but Realtor Melissa Wakamo, of the Red Robin Group in Atlanta, said more of her clients are considering this option as they weigh their housing opportunities. But the idea takes some getting used to, she said.

"When I first talk to people about it, they don’t get it. They are very resistant to it," she said. "They want it to be a buyer's and seller's market at the same time."

That's because homeowners are largely conditioned to believe that the value of real estate will grow over time.

"It’s really hard when people buy a house and own it for several years and then find out they have to lose money to sell it. That’s a really tough thing for people to get their heads around," she said. "But then when they see what they could be buying, a light bulb goes off."

Wakamo and Gibler said emotional attachments to homes play a large role in how comfortable people are losing money when they sell. They contrasted it to the stock market, in which one might not hesitate to dump an under-performing investment in favor of a better stock.

"People aren’t emotionally attached to a stock, but they are very attached to their houses," Wakamo said. "They lived it, they loved it, they put in sweat equity or raised kids there. It’s really hard to separate yourself from it."

But it was because of their family that Emily and Sean Banks decided to stomach a loss. The couple sold their three-bedroom East Atlanta home in March 2010 after living there eight years. They knew they were selling it for at least $30,000 less than what they could in a healthy market and wouldn't make back their entire down payment.

"We didn't get all of our money back," said Emily Banks, 37. "But we didn't have to write a check at closing, so in my mind we did OK."

They couple has three young children, and the oldest attends a private school in the Buckhead area, Emily Banks said. Shuttling the kids from East Atlanta to school was taking a toll.

"Our decision came down to lifestyle, our quality of life," she said. "We have three young kids that we were torturing with our routine. We had to figure out the house stuff or change everything in terms of schooling and life plan."

The couple purchased a three-bedroom 1950s rancher near Chastain Park, a smaller home, but one on more than an acre of land that is close their children's school. Banks said she isn't sure they could have purchased their new home a few years ago, when it would probably have cost about $200,000 more.

"We feel really happy here," she said. "We did it, the money is spent, we are paying our mortgage and we're lucky we have jobs -- and lucky to have this wonderful place to call a home."