Can I Sell My House Below Market Value In SF Bay Area

Though selling a property usually aims for profit, there are times when selling under its current market value may be smarter.

Legally, a property seller can set any price they prefer. This means they can sell below market value for a quicker sale, to family or friends, if the property isn’t attracting buyers, due to financial struggles, or just to get rid of it.

If you’re considering selling your property below market value, you’re in the right place. Here, we’ll explore pricing strategies for such situations.

Can I Sell My House Below Market In SF Bay Area

Selling under market value means pricing your property below what it’s generally considered worth. Your home’s market value is figured out by comparing it to similar properties. Usually, the fair price is known when buyers make offers.

Remember, if you sell under market value in the regular market, you still have to cover closing expenses like title fees, property taxes, escrow, lawyer charges, and taxes on profits. That’s why it’s not always recommended to sell low through traditional channels.

What is Selling Below Market Value In SF Bay Area

On the other hand, if a cash buyer offers below market value, you won’t have to worry about closing costs, repairs, agent fees, or other expenses like organizing open houses and waiting on lenders.

Many homeowners get confused when pricing their home, thinking that the market, appraised, and assessed value of a property are the same.

A home’s fair market value is the price your property would sell for in the real estate market under typical conditions.

Meanwhile, the appraised value of your home is determined when a professional appraiser visits your home, compares similar properties, and evaluates your home’s features, including its location and condition. They provide you with an appraisal report which can be the basis of your home’s listing price.

Although the appraised value is often considered the most accurate basis of a home’s fair market value, we cannot ignore the fact that the accuracy of the report would still depend on the appraiser’s understanding of the real estate market and the neighborhood in which the house is located.

As for the assessed value, we cannot use it to determine the home’s fair market value since it is usually lower than the appraised value. Local tax assessors determine this value to calculate property tax and capital gains tax when you sell your house to a family member or in the local market.

Yes, you can sell your house below fair market value if you want to or if it is suggested by your real estate agent. There are many reasons why this move makes sense, but selling faster is usually the main reason for many homeowners. 

Note that selling below fair market value doesn’t always mean that you will set the value of your property. If you sell to a cash buyer, you’ll probably receive a below-market cash offer since they’ll buy your house as-is, and they’ll make the repairs for you. 

It is not unusual for buyers to price their home below market value due to personal motives and circumstances. In fact, this happens all the time.

Here are some of the reasons why home sellers price their property below market value:

Reasons to Sell a House Below Market Value In SF Bay Area

Listing a property below its market value is a common tactic in real estate to expedite its sale. This approach is often favored by sellers prioritizing speed over maximizing profit.

Homeowners opting for this strategy typically seek to unlock equity for various expenses such as relocation or personal needs.

Even if a property has unresolved issues, it can attract significant interest in a competitive market, provided it’s priced below market value. This tactic is effective not only in a buoyant market but also in neutral or downturn markets where price sensitivity is heightened among buyers.

At times, you may decide to sell your property to someone close like a family member or friend. To give them a deal, you sell the place for less than what it could fetch on the market and don’t ask for an upfront payment.

Although this can happen, the tax authorities may take a closer look at the deal, especially if you’re selling a house to a family member without following usual business standards. They usually see this as a sale meant to benefit you personally.

For a long time, selling below market value has been a strategy to avoid taxes like capital gains, inheritance, and gift taxes when it comes to family properties. So, when a property deal involves family, the tax authorities and other government bodies often see it as a sign of trying to protect family wealth.

Thus, if you’re selling your property to a family member under standard business practices, you need to show that you’re not doing it to shield family assets or dodge taxes. The process should be similar to other regular property sales, even if you’re selling below market value.

If everything is done correctly, selling your property to a family member under standard business practices is considered legal by the tax authorities. You just need to file a gift tax return.

However, if not done properly, both the seller and the buyer could face tax consequences. We’ll delve deeper into this later in the article.

Another common reason homeowners list their property below market value is its poor performance in the real estate market. This might happen because of wrong pricing or the current state of the housing market in the area.

Determining the right price for a house can be tricky, especially if the properties used for comparison aren’t in similar condition to the one being listed. If offers come in significantly below your listing price, you may need to lower it since you might have set an unrealistic asking price.

If the real estate market in your area is sluggish, you’ll likely receive consistently low offers and your property will stay on the market for a long time. While waiting for a good offer is an option, it can be time-consuming. If you’re eager to sell quickly, pricing your property lower is advisable.

If you’ve paid off your house but facing money problems because of losing your job or other personal issues, selling it could be an option you’ve considered. 

Even though this might give you enough money to bounce back from financial trouble, there’s no assurance that you’ll sell quickly. That’s when selling for less than the market price might be smarter.

But remember, it’s only helpful to sell below market value if what you need is less than what you’re asking. If not, you’re just making your financial situation worse while losing your home.

People who have inherited a property, especially if it is a hoarder home or fixer upper, would want to dispose of it as soon as possible. They don’t really care if they profit from the sale or not, so long as they become free of the responsibility of property ownership. This is a common situation for selling below market value.

You can repair a roof or floor, but you can’t change a home’s undesirable location. If your property is close to a dump, highway, or business area, it’ll be tough to attract buyers in the real estate scene. You’ll likely need to list your property below its market price in such situations. Depending on how unfavorable the location is, you might not make any profit when you sell.

If the owners of the property are old, they may want to downsize or transfer into a retirement home. The proceeds of the sale don’t matter as much as selling their property fast and moving on.

If the home is an investment property and the tenants are difficult to deal with, it makes sense to put the house up for sale. And since with it comes the bad tenant, the home should be priced below market value, so someone would take an interest in it. 

When deciding to sell your property for less than its market value, it’s crucial to consider various factors, including straightforward elements and significant legal concerns such as taxes. Knowing these factors will help determine if selling your home below its fair market value is the right choice for you.

Things to Consider When Selling a House Below Fair Market Value In SF Bay Area

One big reason some houses don’t sell in real estate is the listing price. If you don’t do a good comparative market analysis (CMA), chances are, you’ve set a price that’s way too high.

So, before setting a low price, make sure you know the real value of the property. If you can, get a professional appraisal. Appraisers do more than CMAs. They also check the property and look at current market trends.

The appraisal report is a good way to know the property’s value. Then, you can lower the price a bit if you want to sell quickly.

If your property’s worth is lower than what you owe on your mortgage, it’s in negative equity. Selling for less than its market value means you’ll be unable to clear your loan fully and will lose your home.

In such cases, a short sale might be considered. However, it’s not advisable to sell below market value in a short sale because you still need to settle your mortgage with the sale proceeds.

Your mortgage lender needs to approve a short sale, as you’re essentially asking them to forgive the remaining loan balance due to negative equity. They might require proof of financial hardship or other documentation to support your situation.

When selling your home to a relative at a discount greater than 25% off market value, it may trigger IRS gift tax. This can pose challenges if your aim is simply to assist the family.

To sidestep gift tax in familial transactions, consider selling at $15,000 below fair market value, aligning with the annual IRS gift tax exclusion.

Alternatively, transferring property ownership via quitclaim deed to a relative can avoid gifting taxes. Post-transfer, the family member can secure a Home Equity Loan to repay you the discounted purchase price.

Tax implications persist, so consulting a tax professional is advisable.

Seller financing presents another option for selling to a family, facilitating a more manageable home purchase.

Pricing the property below market value is a controversial strategy used by many real estate agents.

While this works in certain circumstances in a traditional sale, it also has disadvantages. This section goes into detail about the three most common disadvantages of selling below market value.

Disadvantages of Selling Your Home Below Market Value Through a Real Estate Agent In SF Bay Area

If your real estate agent tells you to drop the price of your property to spark a bidding war, it could backfire. This is especially true if your property is in great shape.

Buyers might assume there’s a hidden problem if the price seems too low. They might not even bother making an offer.

Some savvy buyers know this tactic is just a way to drum up more interest. But they also know it means more competition, so they might pass altogether.

Lowering the price too much can also make buyers wary of trusting the seller. They worry if the seller is using this tactic, what else might they be hiding during the sale?

Even if the real estate market is hot, it is rare to receive an offer that is higher than your listing price (unless via an escalation clause). Thus, when you price your property below market value, expect that you’ll get even lower offers. 

A strategy made by many FSBO sellers and real estate agents, when this happens, is that they update their listing, stating that they’ll only accept offers at or above the listing price.

While this may work, there’s also the possibility that potential buyers will feel deceived since there’s no flexibility in the offers allowed in the real estate transaction.

When selling your property under market value, make sure your agreement with the real estate agent specifies that the commission is calculated based on the agreed-upon below-market price.

Be cautious of listing agreements that may be unclear. Sometimes, even if you reject an offer close to your asking price, the agent may still request a commission as if the offer had been accepted.

Selling a property under market price to a relative differs greatly from selling to an outsider or someone offering cash. This deal demands extra caution and awareness from you to avoid legal troubles or financial loss during the sale.

Here are some steps to safeguard yourself when selling a property below market value to a family member.

Seller Protection When Selling Below Market Value to a Family Member In SF Bay Area

Word of mouth means nothing in the eyes of the law. If you want everything to be perfectly legal, put everything in writing, even if you are selling your home to a family member.

Note all the significant terms and conditions of the sale so you can avoid misunderstandings as the sale progresses. This will also make things smoother and easier for the title company you choose.

Tax laws when selling to a family member can be complicated in a non-arms length transaction. We suggest seeking the assistance of a real estate attorney, tax attorney, or tax professional to understand capital gains tax, gift tax, and inheritance tax.

Always comply with the gifting laws of the IRS when you sell your house to a family member. To avoid any issues, ensure that the discounted amount is not more than 15% of the home value, so you don’t have to pay gift taxes.

Even if you’re not selling your property to a family using a realtor, it’s crucial to get it inspected and appraised. This benefits both you and your family member purchasing the property.

An inspector can identify all needed repairs so you can address them. Skipping this step could lead to blame if something goes wrong, like roof or wall damage or flooding.

An appraisal determines your property’s value, setting the discounted price for a family sale.

We get that you want to offload your property for a good deal to aid your kin. However, we urge you not to let sentiment dictate your sale.

Treat it like any other property transaction, even if it means offering a discounted yet justifiable price. This ensures you won’t rue your decision later, particularly concerning financial consequences.

Prioritize rationality over sentiment when dealing with family home sales, and maintain the appropriate formality throughout the process.

If you want to sell your property quickly because you’re downsizing, dealing with troublesome tenants, or avoiding upkeep on an inherited property, selling to a cash buyer might be the best move.

Compared to listing below market value on the MLS, selling to a cash buyer offers more security and speed, with some closing in just a week.

Plus, you won’t have to stress about setting the right price; cash buyers will make a fair offer. While you might not get as much cash as with a traditional sale, you’ll save on repairs since they’ll buy your property as-is.

Sell Your House Below Market Value to a Cash Buyer In SF Bay Area

Selling your property to a cash buyer involves just 3 simple steps in the real estate industry. First, request a no-obligation cash offer either online or by phone. Next, the cash buyer will arrange a property inspection to determine a more accurate offer.

Upon accepting the fair cash offer, the deal is formalized through contract signing, typically hassle-free with electronic signatures. Following contract signing, the sale progresses to closing, and you receive the cash in your bank account.

Opting for a cash buyer can alleviate the complexities, particularly if selling below market value. While profit margins may be similar to traditional sales in this scenario, cash transactions offer quicker closing times and are generally deemed less risky.

Selling below market value is a common strategy in varying circumstances. Done correctly, this can lead to a successful sale. But if not, your property may sit on the real estate market for an extended amount of time. 

To avoid all the hassles of working with a real estate agent and listing the property below its fair market value, we suggest exploring all of your options including cash buyers.

Here at We Buy Houses in SF Bay Area, we give fair no-obligation cash offers to homeowners who want to sell their burdensome houses fast. We also cover closing costs, so it won’t be an additional financial burden to you.

If you are ready to see what we can offer for your house, fill out our form below or call us at (408) 557-7554.

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The Easiest Way To Sell Your House Fast In SF Bay Area

You’re in the driver’s seat when you accept our cash offer for your house. We make the process simple, fast, and easy to follow when working with us. You have no obligation to accept our cash offer for your home when contacting us for a fair cash offer for your home. No matter the reason you want to sell your house, we want to buy your home as is. Remember that you get many benefits that include no real estate agent commissions, no cleaning, no improvements, and no stress. Our cash offer for your as-is house assures you of fast cash payment at closing with a reputable Title company. You can count on our company to give you a fair cash offer for your home! If you’re still thinking, “I need to sell my house fast”, calling us could be your best decision all day. 🙂

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Gagan Saini

Author: Saini

My name is Saini, and I founded the We Buy Houses in SF Bay Area team with years of experience in the real estate industry. I have assisted numerous sellers in selling their homes quickly, “AS-IS”, and for a fair price.

He’s been featured in multiple publications including Yahoo Finance, GoBankingRates, LegalZoom, The Mortgage Report, Apartment Therapy, US News and World Report, and SuperMoney among others.

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