Selling a House Within a Year of Purchase in BC
Selling your house within the first year of owning it can be difficult, especially if you've just moved in and are starting to settle in a new place. However, there could be various reasons leading to this, and it is essential to weigh the upsides and downsides before making a final decision.
Wanting to Sell After Just Buying a House
Buying a property is an exciting time, but sometimes plans change. Marriages, divorces, children and job relocations are some of the most common personal reasons people wish to sell their newly purchased homes. Sometimes, the decision is purely financial – either the market has taken a sharp upturn, or there is no longer enough income to keep up with the costs of home ownership.
Regardless of the reason, there are some key factors to consider when listing your home for sale within the year. People wanting to sell within a year of purchase need to consider tax implications, the current real estate market conditions, and the optics of a quick turnaround. Potential sellers may also want to consider alternative home-selling options, including renting and leasing.
Find Out What Your Home is Worth
The first step in selling your home will be determining its worth since you've purchased it. A combined approach of property assessments, online research, a home appraiser and a trusted realtor is the best option for determining the value.
BC Assessment is a starting point for your home's value. This site provides property assessment information, including the assessed value of your home for tax purposes. They use a system that analyzes sales data for similar properties in the area and considers your property's size, age, and features. Check out our related blog for more details on how assessments are determined.
Online research is another step toward determining a sale price for your home. A starting point for many is searching for what is currently for sale in the neighbourhood. Sites like Realtor.ca and Loyal Homes are great starting points to see what similar properties are for sale in the area. Some websites will take it a step further, and prospective sellers can input more data about their home to obtain a general estimate of its value.
Some hire an independent home appraiser to determine the home's fair market value. The appraiser will thoroughly inspect the property, considering factors such as age, condition and upgrades. They will also look at comparable sales in the area to determine the fair market value.
Most commonly, homeowners will engage the services of a realtor to guide them through this process. A realtor is a trained professional who can use the tools above and their in-depth knowledge of market trends and the local communities to assist homeowners with putting their homes on the market and navigating the complexities of pricing and selling their homes.
Paying Out Your Mortgage and Other Closing Costs
You'll need to consider costs when selling your home within a year of purchase. These can include realtor fees, taxes, and mortgage costs.
You'll need to find out the payoff amount for your mortgage. This amount will include the remaining amount on the mortgage, including any interest and fees you'll need to pay the lender to close the account. It is best to speak with your lender ahead of time to prepare you for the estimated costs.
On top of paying out the mortgage, you'll need to pay closing costs associated with selling your home. These may include legal fees, final utility bills, outstanding property taxes, and potential land transfer taxes. Before the property is closed, a title search will be done to ensure the property has no liens or judgements and the title is clear. In most instances, this will be your cost to cover. An optional cost that some sellers may choose to incur is title insurance to ensure that you're covered for any issues that may have occurred before you purchased the property.
Potential Buyers May be Wary
A factor to consider when selling a home within a year of purchase is how it will look to potential buyers. Some buyers will be wary of buying a home that is being sold under a year as they may be concerned that there is something wrong with the property, neighbourhood problems, or the seller's personal or financial issues.
Most often, buyers will assume something is wrong with the home. These worries can include structural issues the seller has that were not disclosed by the previous owner or that have developed since the house was last sold. Also included in these concerns are renovation done by previous owners that weren't done well or wasn't approved and could cause future issues.
Buyers may also wonder if the neighbourhood is to blame for the quick sale. Perhaps the community has changed, such as increased crime or noisy construction, affecting the desirability. Buyers might look at the area to see if there is a high property turnover, which could make them hesitant to invest in the neighbourhood.
The seller's personal and financial issues might be a consideration for buyers. If the home is sold due to a job relocation, financing or mortgage problems, marriage or divorce, the buyer might assume the seller is looking for a quick sale. This could result in the home being sold under the market, negatively affecting property values.
What are Capital Gains
Capital gains are a tax on the profit from selling a capital asset, such as a home. In British Columbia, the tax is calculated by taking the difference between the purchase and selling price of the property and then applying a tax rate to the difference. The tax rate applied will depend on your tax rate. An online tool can help you estimate what you may be looking at paying in capital gains taxes.
Will I Have to Pay Capital Gains?
In British Columbia, you may need to pay capital gains taxes if you sell your primary or investment property within a year of purchase. However, if you've lived in the property for more than 12 months, you can claim the principal residence exception, not needing to pay capital gains tax on the sale.
However, there may be some exemptions that you may wish to research in the event you sell within 12 months of purchase. These include death, disability, the birth of a child, a new job or divorce. Before applying for any of these exemptions, it is best to seek professional advice from a tax or real estate lawyer.
Alternatives to Selling a Home in Under a Year After Purchase
Before selling, it might be worth considering some alternatives. British Columbia's vacancy rate is around 1.5% - 2.0%, depending on the area. With these low vacancy rates, many people consider holding their property and renting it instead of selling it. The ability to retain property ownership while receiving consistent long-term income is attractive. This flexible option may have some tax benefits, including mortgage interest and depreciation deductions. This option provides you with the freedom to move back into your home in the event your situation changes.
Short Term rentals are another popular option for homeowners who own property in vacation hot spots. While the income may not be as consistently stable as a long-term rental, the potential income may be substantially higher. Owners looking at this option need to check their local bylaws to ensure it is possible.
Another option, although not as common, is lease-to-own. This option allows the tenant to rent the property for a certain amount of time with an opportunity to purchase it at the end of the lease. Typically in these situations, the tenant pays a higher rent than market value, a portion of which goes toward the home's purchase. For the homeowner, this option provides consistent income while waiting for the market to improve.
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