Buy, sell, hold? Your home questions answered

Barbara Corcoran weighs in with best bets in this real estate market

By Barbara Corcoran

TODAY SHOW updated 5:37 a.m. PT, Thurs., Feb. 28, 2008

What should I do? Buy, sell or hold? It's the perennial question and one that has no hard-and-fast answer. Nobody really knows what is going to happen in the real estate market. And nobody, other than you, fully understands your unique circumstances. So how do you decide?

To help, we can break the question down and explore the three options in more detail. There are good reasons to do all three of the above, depending on your situation, so let's look at each one separately.

Reasons to buy

• If you plan to stay in your new house for at least five years

Why five years? This is roughly the amount of time it takes to cover all the costs involved in the actual move. The closing costs, realtor costs, mortgage brokers' costs, moving costs, costs, costs, costs, you know the score: This stuff adds up. It is not the sort of thing you want to shell out money for every 12 months!

• If home values have fallen enough to make buying a home almost as cheap as renting

This is a no-brainer. If monthly mortgage costs are going to be the same or very similar to the cost of renting, and you are in a position where you can qualify for a mortgage, then it's time to stop sharpshooting the market and jump in. For example, in L.A., rents have gone up 25 percent in five years to more than $1,600 a month. Yes, prices may drop more, but if you plan on sticking around for long enough, they’ll go up again.

• If your credit score is good enough (above 620) to qualify for a lower-priced prime mortgage

Sometimes this can make all the difference between buying now and waiting. If you have a good credit score, every $100,000 borrowed costs about $650 a month. If not, it can cost you significantly more. If you think you’ll be able to up your credit score in the next few years, it may be worth waiting on the sidelines for a while longer.

• If you’re buying a new home with a steep builder discount (e.g., in Miami sometimes as much as 50 percent off), counting incentives like free granite floors, indoor pools, top-of-the-line kitchen appliances

A bargain is a bargain in any market, and some of the discounts being offered recently are simply irresistible. If you really want to own a home and you feel you are getting a steal of a deal, why wait? Who knows what tomorrow will bring?

How about selling then? Under what circumstances should you bail out of home ownership either altogether or temporarily?

Reasons to sell

• If you can’t make your mortgage payments and refinancing won’t help. Don’t risk ruining your credit through foreclosure.

If you are in a bad situation financially and you can only see it getting worse, there’s a lot to be said for bailing out early. Not only can you save your credit rating, you may even come out of it with a few dollars in your pocket.

• If your kids moved out and you want to downsize

You’ll be getting rid of one property in a down market and picking up another. What you “lose” on the first place, you will make up for on the asking price of the new place. Transactions like these should be decided based on your individual needs. There is no need to let the market dictate personal decisions like this.

• If you want to retire and want to move to a less expensive area.

Again, this is a personal choice and it is largely unaffected by the ups and downs of the market. If this is something you want to do, then go ahead and do it.

• If prices in your area are in free fall and you bought early enough to still come out ahead

So you bought your home for $200,000 five years ago. Eighteen months ago it was worth $270,000 and you were dancing in the streets because you were such a clever investor. Now it is worth $220,000. You lost $50,000 right? Gadzooks, it’s a disaster!

Of course not; you have made $20,000 and as every other house on the market has fallen by a similar percentage, what you can get for your $220,000 is exactly the same as what you could have gotten for your $270,000 18 months ago. In situations like these, thank your lucky stars you haven’t accrued any negative equity and go about your decision-making business as normal.

Then again, if you were hoping to cash out on your investment and use the monies earned to fund a two-year motorcycle trip around Europe, I’ll tolerate a few bitter tears of remorse.

• If prices are just starting to fall in your area and are projected to fall further (e.g., median homes in San Francisco just dropped by $38,000 in the last quarter, after rising consistently since the end of 2006)

OK, let's have one little shot at sharpshooting a market. If there were ever a situation where I might consider jumping ship, this would be it. Of course, the chances are that prices will stabilize or even go up next quarter, so it’s a risky proposition. Indulge at your own risk!

And then there’s the question of when to do nothing. When does neither buying nor selling make sense?

When you should hold

• If you can rent your home short-term and the rent covers your mortgage and taxes

This could apply to someone who bought a property a while back for more than it is worth today and they don’t want to sell at a loss. If the rental payments in the area are good, they can rent out the place and move to a less expensive neighborhood. (If vacancy rates are low in your area, you can get high rents. Example vacancy rates: NYC - 3 percent, L.A. - 3.7 percent, San Francisco - 5.8 percent and Boston - 5.9 percent).

As time passes you’ll pay off more and more of the mortgage on the expensive place and hopefully its value will also rise.

• If you are waiting for your home’s value to increase enough to offset the agent commission and closing costs.

I know some people have itchy feet and don’t like to stay in one place for long, but there is no sense throwing money away! Think about getting yourself a new puppy or something instead. Now’s not the time to buy a house.

• If your house is in an area where prices have already bottomed and are beginning to rise (e.g. Boston, Chicago) — wait.

Whatever your financial situation, if the market has bottomed already there is no urgency to do anything. If you’re in a situation where your house is worth less than you paid for it, now is the time to sit back and wait for it to recoup its value. This is not a sensible time to incur a whole new set of moving/closing costs.

Do your homework
If you need further help with this decision, here are a few places you can go and do a bit of homework.

• If you’re thinking of selling, visit other houses similar to yours to see how well yours competes. Check online. (Trulia, Realtor.com, Zillow)

• Get an opinion from a good local broker.

• Check on NAR to see if values in your metropolitan area are rising or falling, and by how much: www.realtor.org/Research.nsf/Pages/MetroPrice

• Shop the new homes market. Builders across the country have 2.6 million new homes sitting unsold and unoccupied.

If after all this you still have no clue what to do, I recommend the latter option. Hold. If you really want/need to buy or sell, chances are you will, whatever I recommend, so please feel free to ignore all my advice!