As anyone who lives in Southern California and either owns a home, is thinking about buying a home or is just really interested in the real estate market knows the housing market has been crazy and as Bridget Potterton, CDRE (Certified Divorce Real Estate Expert) who is a broker with Keller Williams, and I (Amanda Singer) discussed on our most recent Webinar this has also affected clients going through a divorce.
Although the inventory seems to have increased some since it’s low earlier this year, there is still only a fraction of the number of houses on the market in Southern California than there are usually, and this is causing the home prices to skyrocket. My husband and I have been looking at houses to possibly move and one of the homes we had looked at I just saw had sold today for more than $300,000 over the asking price! Now whether the house is actually worth that is a whole different story, but people are paying these amounts and so the market is bearing it and we’re seeing the effects play out in mediation as well.
It’s helpful to understand more what your options are and our blog on What to Do With Your Home During a Divorce goes more into detail on that, but basically, if we’re talking about a primary residence there are usually three options:
- Sell your home
- Buy the other spouse out; or
- Continue to own the home jointly.
Within each choice, there are certainly variations on how they happen but those are the basic three options. The issue that I’m seeing with our clients now in this market are a few different things. One is that one of the spouses is pushing to sell the home because they’re seeing what their neighbors have sold for and believe that they can get top dollar for their home. Now if both parties agree that it’s a great time to sell, then that’s not an issue and can be a great time for parties to get the most money out of their home and I am seeing more and more of my clients deciding to sell, especially if they’re on the fence about it originally.
However, if one party wants to stay in the home then this can cause many issues because they may now have a more difficult time buying their spouse out at the value the other spouse thinks it’s worth based on the market. If you see your neighbor’s house going for $150,000 over asking, then you’re going to want to base the fair market value of your home in your divorce proceeding on that and not necessarily on what an appraisal may come back at and may feel that if not you’re leaving money on the table.
Now there may be ways to alleviate this in realizing that if you’re not selling, you’re not having to deal with closing costs and realtor fees, and maybe you and your spouse negotiate this issue as part of the mediation. Or maybe it’s more important to you to have the children and your spouse stay in the home such that you’re ok giving a bit on the value or trading other assets for it. However, then if you can agree on a fair market value for the property the other issues, I’m seeing arise are whether that spouse can actually afford to buy them out at that amount and whether they’re able to get a loan for that amount. Especially as interest rates start slowly creeping up it may be that they can no longer afford the mortgage or aren’t able to take the cash out of the home that they want to.
Additionally, as the interest rates increase it may be that the monthly cost would increase too much for you to be able to afford to keep the home. What’s important here, and I advise all my clients to talk with a lender, especially once who specializes in working with divorcing couples to understand whether you’ll be able to qualify for a loan and what you’ll need to show to do so. We don’t want you agreeing to something that isn’t actually possible.
Selling May Not Solve the Problem
The other issue I’ve seen come up is that with the market the way it is, even if the parties decide to sell both may not be able to get into another home because they now only have half of the equity that was in their home and they’re now buyers in a crazy market. I’ve seen some of my clients decide that they’re going to rent instead for some time to see what the market does and decide when they’re ready to purchase again.
We Can Talk It Out
No matter what you decide about the real estate in your divorce it is always better to mediate these issues than litigate, especially if you think you may want to take advantage of the market the way it is now and sell your home. Contact West Coast Family Mediation Center for more information about mediation to see how we may be able to assist you and your spouse with these conversations and connecting you with the right professionals.
by: Amanda Singer