Real Estate Market Shift & Divorce

Chris Muellenbach  |  July 13, 2022

As we read headlines every day about rising interest rates, increasing home values, and the challenges of affordability, I wanted to share some tips about what this market shift may mean for folks going through a divorce and whether they decide to keep or sell their house.

Keep & Buyout Tips:     

Qualifying for a loan is not easy anymore. Presuming one party needs to refinance in order to buy out the other party and keep the house, they need to be aware that the double whammy of rising interest rates and elevated home prices may make the decision moot. That’s why it’s vital that they contact a lender to get prequalified before spending time negotiating or seeking an order for buyout. 

Here’s why: What was possible a mere 2 months ago in terms of qualifying for a loan may not be possible now. 

The dramatic rise in interest rates, the likes of which many real estate agents and brokers today have never before seen, has sharply impacted affordability. Rates are now 2.7% higher than they were at the start of the year and are nearly double what they were last June. In fact, it now takes $150,000 more in annual income (national average) to afford the same house a buyer could afford at the beginning of the year. Higher debt-to-income ratios may be deal killers for buyouts.

Also — if the preapproval is more than 30 days old, it’s time to get a new one. In the real estate industry, we don’t consider a 30+ day old approval viable anymore. 

Sell the House Tips:

If a buyout is not possible and the only option is to sell the house, the current market impacts that as well. Here are some issues to consider:

    • Pricing the house right is critical. Overpricing a house in this market is like chasing a ball downhill — days on market pile up followed by price reductions, and the vultures start circling. If they price it right, however, it will have its best shot at selling for closest to its value in a reasonable amount of time. 
    • Buyers will demand more. As the red-hot seller’s market starts cooling, we can expect buyers to demand repairs, closing costs, and buyer-favorable terms which are normal negotiation features of more balanced markets. It’s not going to be unusual for sellers to balk at these requests, until they realize they’re not in the driver’s seat they’ve been used to sitting in. It might take a few missed opportunities before they learn their new position at the negotiating table. 
  • Condition is going to be even more important. Ever since the rise of real estate shows like those on HGTV, buyers have demanded a model-like condition in homes they tour. However in a market with inventory levels rising daily, it will often boil down to a beauty contest — and the winners are the pretty ones. 
  • No showing left behind!  It’s true: The divorcing party living in the house frequently declines showings and holds up access. Showings will become more infrequent, which means that each and every one is valuable. In the climate we’re headed towards, this will impact the sellability and the value by becoming stigmatized in the community (Realtors talk) and by racking up days on market (think of this as the “desperation meter.”). 

From my experience, it can be a challenge to get selling homeowners in the right frame of mind when they are in the middle of a market shift. The market shift often happens faster than the mindset shift does and this is an expensive delay. Using the most current data and trends can often tell the story so that clients are prepared and realistic.

As always, please feel free to reach out to me with any questions about the real property matters in your case. 


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