Rising interest rates, increasing home values and waning affordability—the real estate market is changing, and divorce attorneys need to know what these changes could mean for their clients.
The answer depends in part on whether they can afford to stay.
Qualifying for a loan isn't easy anymore. Assuming the purchasing spouse will need to refinance in order to buy out the other spouse and keep the house, the buyer will need to be aware of the double-whammy of rising interest rates plus elevated home prices: together, these factors dramatically reduce affordability, which may make the decision moot. What was possible a mere 2 months ago in terms of qualifying for a loan may not be possible now, so the spouse who wants to keep the home must contact a lender to get prequalified before spending any time negotiating or seeking an order for buyout.
Note: If your client or the opposing party is working off of a preapproval that’s more than 30 days old, it’s time to get a new one. In today's real estate market, 30+ day old approvals aren't viable anymore.
If a buyout is not possible, the other option is to sell the house. To do so quickly and effectively, today's market demands a proactive selling plan.
Overpricing a house in this market is like chasing a ball downhill—days on market pile up followed by price reductions, then the vultures start circling. If your client prices the home right, however, it will have its best shot at selling for the highest possible price in a reasonable amount of time.
As the red-hot seller’s market cools, we can expect buyers to demand repairs, closing costs, and other buyer-favorable terms that are normal negotiation features of 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 anymore. It might take a few missed opportunities before they learn their new position at the negotiating table. The best thing you can do as a divorce attorney is mentally prepare your client for the realities of today's real estate market.
Ever since the rise of HGTV, buyers have demanded model-like conditions in the homes they tour. That's unlikely to change anytime soon, and selling your client's home quickly may boil down to a beauty contest they can only win if their home is prettier than its comps.
It's not uncommon for an in-spouse to refuse showings and deny access to the interior of the home. In today's market, showings are less frequent which means each and every one is invaluable. Passing up opportunities to show a home impacts its value and, ultimately, its saleability because it increases days on market (think of days on market as a “desperation meter”). Days on market (DOM) is a publicly available metric that potential buyers can easily find on Zillow, and seeing a lengthy DOM raises red flags that can stigmatize the home within the buyer community, making it virtually impossible to sell for full price.
It can be challenging to get sellers in the right frame of mind during a market shift, especially when the seller is in the midst of a traumatic life event like the break-up of their marriage. So many changes are happening in their lives at once—chief among them: the loss of sanctuary. As a divorce attorney, it will be critical to your client's financial and emotional well-being to set their expectations accurately and have all the necessary data and know-how in-hand at the outset of the case.
Real estate markets often shift faster than the mindsets of buyers and sellers. Protecting your client's equity and capturing the highest value for their home is part of a divorce attorney's fiduciary duty—and this is where a CDRE can really help. Taking complex and time-consuming real estate problems off your plate and putting them on the CDRE's is an excellent way to provide vital support to your clients and help you avoid expensive delays.
If you have questions or would like to know more about how a CDRE can you help you resolve property matters in your family law practice, please reach out. I'm always happy to help.
CDRE, SRES, CDPE, CLHMS, GPS
Los Gatos, CA
SHANNON ROSE/ROSE GROUP
KW BAY AREA ESTATE
16780 LARK AVE.
LOS GATOS, CA 95032