When people move, it can be for a wide variety of reasons.
Empty nesters might be looking to trade in the house where they raised a family to something smaller, perhaps all on one level, or in a climate that will let you tee up the little white ball all year long. On the other end of the spectrum, young couples anticipating little ones on the way will need more room, and what school district you live in suddenly becomes an important consideration.
For all those people in between, changing financial conditions might afford a step up, or necessitate pulling back to a leaner lifestyle. And finally, a change in employment could necessitate the big move out of town or even out of state.
We’ve worked with couples throughout the entire lifecycle of home buying and selling, everything from the starter home, to the bigger one for an expanding family, to the nicer one for a higher income and then back to a smaller place for retirement. Depending on what type of move you’re making, there are some real estate tips that can make the trip easier and maybe even save you some money.
But, before we get into that, let’s take a closer look at who’s moving where and why.
The United States Census has some interesting data regarding the mobility of America.
First, the majority of us tend not to move too far. In 2010, 59 percent of Americans lived in the state where they were born. According to the Census, the state with the highest such percentage was Louisiana (78.8 percent), followed by Michigan (76.6 percent), Ohio (75.1 percent) and Pennsylvania (74.0 percent).
Conversely, in four states (Alaska, Arizona, Florida and Nevada) and in the District of Columbia, fewer than 40 percent of residents were born in that jurisdiction.
That all makes sense. Anyone who’s been through a winter in Alaska knows why those folks are looking to leave. Arizona and Florida are big retirement states, and Nevada has a large Hispanic population. As for Washington, D.C., it’s obvious why most of these people come from a different state; some might even suggest that a few of them come from a different planet.
There is reason for some additional moves to be made around the D.C. area. A real estate agent who works in the market once told us that when the presidency changes hands, that results in approximately 36,000 people moving in and out of the District and the surrounding states.
Interestingly, but not unexpectedly, 2010 and 2011 marked a record low for mobility in America. Only 11.6 percent of us changed residences during that period, the lowest percentage, since the Census started tracking this information in 1948. By comparison, 20.2 percent of the population moved in 1985.
There are likely many who want to move; but for one reason or another, the Great Recession has frozen them in place. They might owe more on their house than it’s worth or no longer have the financial wherewithal to afford the down payment on a new place or qualify for a loan under the more stringent lending standards.
So, why do people move? The majority (43.7 percent) change residences for housing-related needs, meaning they’re looking for a better or different type of home to accommodate their lifestyle. The next largest group (30.3 percent) is those who move for family related reasons, like caring for an elderly parent or wanting to be closer to the grandkids. This is followed by those who move, for a new job, or a change in marital status; they make up 16.4 percent, and the rest (9.6 percent) find a new home for other reasons.
When it comes to where people move to or from, here’s the breakdown on that. The vast majority (69.3 percent) stays in the same city or county; 16.7 percent go to a different county in the same state; 11.5 percent move across state lines, and the remaining 2.5 percent are people who move to the United States from another country.
So, if you’re one of these people making a move, here are some things you should consider from the perspective of real estate.
First, let’s look at someone who’s moving up to a larger, more expensive home, most likely in a pricier neighborhood. When home prices are generally rising (like we have now), it’s important to remember that the longer you wait, the more it will cost you.
Here’s why: If you live in a $250,000 house, and prices go up by 5 percent over the next year, the value of that house will increase by $12,500. But, if you’re looking to buy a $750,000 house, the same 5 percent increase amounts to $37,500. As a result, waiting a year can cost you $25,000.
When you’re moving up to a bigger, more expensive home, you should also remember that there other expenses associated with such a house that could be more than you anticipate. Versus that $250,000 townhouse, heating and cooling your new McMansion might be as much as $600 a month, and your real estate taxes could easily go from $2,500 a year to $12,000 or more, depending on where the house is located. So, just be sure you budget for more than the mortgage, when you make a move up.
A second scenario would be the reverse trip, where someone is looking to downsize. In this case, rising prices won’t have you losing ground financially, but there could be other costs in the form of capital gains. When someone sells the big family estate in favor of a cozy condo, they might realize a significant profit. This could produce capital gains that will be taxed, and thanks to the Affordable Care Act (commonly called Obamacare), starting Jan. 1, some people will see the tax on their capital gains increase by 3.8 percentage points.
So, if you have $500,000 in taxable capital gains, and you sell your house on Jan. 1 of Dec. 31, you will get the privilege of writing Uncle Sam a check for an additional $17,500. The math and rules on how this all works is very complicated (as are most IRS rules), but if you email us at McWilliams@BobDonna.com, we’ll send you a publication from the National Association of Realtors that explains how this new 3.8 percent tax works.
A third move would be the long-distance type. Often when people are moving out of town, they’re going to new, unfamiliar territory. As a result, it’s difficult to know which neighborhoods would be a good fit with your lifestyle, and the prices of homes might be significantly different from what you’re used to — the average price of a house in Anne Arundel County is about $375,000; in San Francisco, it’s more than $1 million.
Consequently, having a good real estate agent to help guide you with what and where to buy can be indispensable. However, you might not know any agents at your new destination, and trying to find an agent on your own might be a real shot in the dark; you could get a diamond or a dud. Our recommendation is to talk to agents you trust in your hometown, and ask them to help you find a new agent in the area where you’re looking to move.
We’ve done this many times for people moving out of town. We’ll source a new agent, call them and actually perform a bit of an interview to make sure they are knowledgeable and have a personality type that’s appropriate for the client in question. We can also let that agent know our client’s likes and dislikes, which will get things moving in the right direction for house hunting.
In sum, moving up, moving down, or moving clean out of town can be a fun and exciting adventure. Just be sure you know all of what it entails, and you’ll avoid the surprises that turn to stress.
Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is McWilliams@BobDonna.com.