I can’t sell it for as much as I owe. What should I do?

I recently received the following email telling me if I have any experience selling homes where the seller has to pony up cash to make the transaction work.

Ms. Jalone,
I stumbled upon your blog and found it very helpful. My wife and I took our house off the market on Thursday having tried to sell it over the last six months. We have a 3 bed, 2.5 bathroom home that we bought pretty much at the peak of the market in 2004 and we initially listed it at $394K.

When we had little to not interest we took it off the market and then re-listed it with another agent where we offered it at $382K. Two months later and no credible leads we lowered it even further to $364K. At $382K we were breaking even but at $364K we would have had to bring $20K+ to the closing table.

It was a very stressful and saddening process for both of us. Do you have many clients that are willing to pay a large sum of money to get out of the home that they're in? I feel like buying a home has been one of the worst decisions I have made over the past few years.

Hoping for the best, (lets call him Sam)

I did some quick research and verified that the writer did in fact buy a new home in November of 2004 for a price of $381,000 and financed roughly 90 percent of the purchase price. They later refinanced and then took a small second out on the property so they now have loans of approximately $366,000. Including loan closing costs they most likely have an investment of about $20,000 in the house.

Here is part of my reply back to Sam:

Unfortunately, I have worked with clients in your same or similar situation where they have to fund the shortfall when their home is sold. My most recent client who had to do this had taken all of the built-up equity out of their house by refinancing and had to pay some of that back. Your situation appears to be you bought the home new when the market was still expanding and now can’t sell it for what you paid. I can see why you may feel like buying a home was a mistake.

I am an advocate of home ownership, it has so many community and personal benefits but for most of us it has to make sense individually. I remember writing an article on buying, and stressing the importance of making the purchase for the long haul. I don’t know why you want to sell, but if you could hold on to the home for a few more years, I believe we will see some stabilization and then move back into an appreciating home market. Unfortunately I think it will be 2008 or early 2009 before that may happen.

In addition, I asked Sam to let me know what his motivation was in selling.

I was a bit surprised to get a response and more surprised by what he had to say. I always try to respond to emails but it is rare that there is a second round. Sometimes I think people send an email to me just to see if I will respond. Sam did respond back and said, "We're selling for a number of reasons, main one being we're seeing the prices slip drastically and some realtors we've spoken to say this isn't the bottom and that prices are slated to hit the $300,000s by next year and so we'd like to cut our losses now."

Hello Sam - It sure sounds like you have been talking to an agent who wants a sale! This has been a difficult market for some real estate agents. Anyone can sell in a hot market but it takes more than showing up to be a successful Realtor in this market. I understand the desire/need to have the next deal but in my opinion if you do it at the expense of your client you will not have a business for very long.

I can’t predict the future and if you have been reading my blog over the past two years you would know I have made my share of bad predictions. As I said this morning, I don’t see any signs of a sustained recovery but there are other points of view. Did you read my article, The Worst May be Over? The article I wrote about was done from a National perspective and since we were so hot here in Sacramento, it will take longer for us to see some positive signs of recovery.

As we go through the next few months, which are historically the time of year where more homes come on the market, there will continue to be downward pressure on prices, but so far the market has been resistant to significant reductions and I personally don’t expect to see any double digit drops. If you enjoy the home, I would very strongly urge you and your wife to stay in it for another two years. I don’t want to see you sell it and then not be able to afford to buy it back in 2010! In fact, I would go so far as to suggest you not pay any attention to what the current value is.

Get out your pencil and figure out what it is costing you to live in the house and compare it to what you would get if you were renting. Don’t forget to factor in the tax benefits. My guess is you are paying less on an annual basis to live there than it would cost to rent a place that is not as nice. Hope this is of some help, hang in there, enjoy your home, and call me in a couple of years when you want to sell and buy a bigger place!!!

I know there are many people who are in the same situation as Sam, they bought a home in the past few years thinking they would be getting on the equity train and enjoy 30 percent annual appreciation like all the other home owners. Not only did that not happen but they now find themselves in situation where they can’t sell for what they bought it for. Fortunately, Sam does not appear to be one of a growing number of homeowners who cannot afford his monthly payment so with a relatively small investment to protect, my advice is to stay in the house, enjoy it and not focus on the short term value.

Julie Jalone is an experienced professional Realtor serving buyers and sellers of residential real estate in the Greater Sacramento area including Placer and El Dorado counties. Some of the communities served by Julie include Sacramento, Roseville, Rocklin, Lincoln, Loomis and Granite Bay. To learn more about Julie, visit her website, "al in Sacramento." While you are at jalone.com, check out Julie’s reality real estate series,