Appreciation: The Secret Weapon in Your Seller Toolbox
Many home buyers and sellers focus too much on the monthly costs of a new home. Real estate coach Denise Lones using appreciation to show you how to reframe the conversion around the home as an investment.
When someone is thinking about a move, they aren't necessarily focused on the future - they are thinking about why the home they are living in doesn't meet their needs now.
The challenge in the current market is that sellers want to move, but when confronted with the financial reality of a higher monthly payment due to interest rates, sellers freeze. They are caught between wanting to improve their living situation, but being too uncomfortable with the impact on monthly payment.
There may only be so much that can be done about whether someone can qualify for a certain amount or not. However, if a would-be homebuyer is basing their decision on moving forward or staying put strictly based on their monthly comfort level, then there is one very important tool that you have in your toolbox that can help. That is appreciation!
For example, say a homeowner is weighing staying in their current home valued at $500,000 versus moving to a home that better-suits their needs, but is valued at $650,000. Yes, there is the monthly payment to consider, but how does appreciation factor in? Sure, appreciation doesn't write them a check every month to offset the mortgage payment, but it should be a factor in determining which option makes better financial sense in the long run.
Looking at our $500,000 and $650,000 example, if both homes appreciate at 5% per year, what is the value of those homes after 1, 5, and 10 years?
| Purchase | 1 Year | 5 Years | 10 Years |
| $500,000 | $525,581 | $641,679 | $823,505 |
| $650,000 | $683,255 | $834,183 | $1,070,556 |
After 10 years, the $650,000 home would have gained $420,556 in equity while the $500,000 home would have only gained $323,505. That is almost $100,000 more! Unless the homeowner winds up spending more in interest payments over that ten-year period, they would come out ahead AND live in a home that is better-suited to their needs.
Of course, this is a simplified approach. We aren't doing a deep dive on things like as property taxes, insurance, HOA fees, or maintenance at this level. Our goal here is to reframe the conversation. We are giving the homeowner another way to look at their options so they can get out make a decision to move, rather than just focusing on the difference in monthly payments.
Have a seller or buyer on the fence? Give looking at appreciation a try and flex your math muscles. Use your own calculator or Club Zebra Members can download the Future Value Calculator.
By Denise Lones CSP, CMP, M.I.R.M.
The founding partner of The Lones Group, Denise Lones has over three decades of experience in the real estate industry. With agent/broker coaching, expertise in branding, lead generation, strategic marketing, business analysis, new home project planning, product development and more, Denise is nationally recognized as the source for all things real estate. With a passion for improvement, Denise has helped thousands of real estate agents, brokers, and managers build their business to unprecedented levels of success, while helping them maintain balance and quality of life.