With housing costs higher than ever, many homeowners are considering whether now is a good time to sell. Some of the most common questions are, “should I sell my home?” and “when is selling a house a good financial decision?”

Record appreciation, high buyer demand, and ultra low interest rates have kept the U.S. in a tight seller’s market for the better part of two years, giving sellers a negotiating advantage. But as 2022 has progressed, that market has shown signs of loosening up, and many homeowners wonder if they missed their window.

The answer is: not necessarily. It could still be a smart financial decision to sell now if the following apply to you.

Unless you’re a home flipper, real estate is a long-term investment. Since homes aren’t liquid assets, treating real estate as a short-term investment can be risky. Moving in and out of home ownership is a long, complex process that comes with a high associated cost. Buying includes the purchase price of the home as well as closing costs and other fees, and selling will run you 7-8% of the home’s sale price. Staying in your home for at least two years will reduce the impact of these and other expenses on your investment’s return.

Capital gains tax is the fee paid on the profit of an investment when it’s sold. This tax applies to most investments, including real estate. If an asset is held for more than a year, current capital gains tax rates are 0%, 15%, or 20% depending on your tax bracket.

If the asset is held for less than a year, the profit will be taxed as normal income.

How do you avoid capital gains taxes? You guessed it. If your home is your primary residence (not a second home or vacation home) and you live in it for more than two years, you’ll be exempt from paying capital gains tax.

You’ll incur closing costs on both the buying and selling sides of a real estate transaction. When you buy, you’re responsible for a multitude of fees. In North Carolina, those fees account for around 1.3% of the purchase price—which for the current average home in Raleigh equals about $5,827. When you decide to sell, you’ll pay closing costs all over again—this time, on the seller’s side. That’s about 0.8% of the purchase price, which equals $3,585 for that same average home.

Put together, that’s around $9,000 for the average Raleigh home, or $17,850 for a luxury home with an $850,000 price tag. You’ll need to factor in real estate commission too, which will run you around 6% of the home’s sale price in Raleigh. But before you think about going it alone, selling with a good real estate agent will net you 30% more during a sale than listing on your own.

How does staying in a home for two years or more help cover those costs? Appreciation.

Besides avoiding capital gains taxes, staying in your home for two years helps ensure that its appreciation outweighs the costs of buying and selling. Home values in Raleigh have gone up 34.8% in the last year—but that rate is a record-breaking outlier. Historically in the U.S., home values have appreciated 3-5% each year. At this rate, it takes around two years for transaction costs to have little to no effect on your ROI.

While home values generally rise over time, did you know that if you’re not maintaining your home, it’s actually in a state of depreciation? Proper care and maintenance such as making repairs, cultivating landscaping, and updating aesthetics will help prevent your home’s value from decreasing, while renovations to improve energy efficiency, add square footage, and boost curb appeal will make your home’s value rise faster.

Why is appreciation important? Besides covering transaction costs, appreciation in combination with paying down your mortgage results in equity.

Equity is the difference between your home’s value and what you currently owe on your mortgage. Since equity is the profit you’ll end up making when you sell your home, the bigger the difference, the better.

Equity comes from two places: making payments on your mortgage and home appreciation.

If there’s no difference between what you owe on your home and its value, or if you owe more on your home than it’s currently worth, you don’t have equity. In those cases, you’ll break even or take a loss on your home when you sell it, so selling wouldn’t be a smart financial decision.

But if you’ve been in your home for at least two years and you’ve built equity, selling could be a great financial decision. Especially if…

Market factors include static influences like location as well as variable ones like supply, demand, and interest rates. It could be a smart financial decision to sell if you’ve studied the market in your area and found it to be advantageous to sellers.

Market factors include static influences like location as well as variable ones like supply, demand, and interest rates. It could be a smart financial decision to sell if you’ve studied the market in your area and found it to be advantageous to sellers.

How do you know if you’re in a seller’s market? Some easy-to-measure cues are home sale price and time spent on the market.

Start by looking at recent listings in your area comparable to your home. First, compare their list prices to their final sale prices. If the final sale price is higher than the list price more often than not, you’re in a seller’s market. Next, look at time spent on the market. In neutral conditions, a home will stay on the market for a month to six weeks. If listings comparable to yours are selling consistently faster than that, it’s another clue that you’re in a seller’s market.

Right now, Raleigh is in a fast-moving seller’s market. Homes spend an average of six days on the market before selling, and approximately 79% of homes are sold over asking price. However, our market is starting to show signs of a shift. The first clue is that inventory is rising—7% since last month. Coupled with rising interest rates that reduce buyer demand, more inventory means more competition for sellers, which will put buyers in a better negotiating position

If you have equity and you’ve lived in your home for more than two years, it could be a good financial decision to move forward with your sale right away.

But don’t do it alone! In a challenging market, it’s more important than ever to have an expert real estate agent at your side. At the Coley Group, we have more than two decades of experience in Raleigh and the surrounding areas. We know exactly how to best position your home in the market and how to make sure you’re getting the most money, the choice terms, and the right deal for you.

If you’re ready to make a great financial decision and sell your home—or if you just want to discuss your options—please reach out. One of our expert agents will get back to you right away.