Taking a loss, trading up

Your client is still in his home, but it’s not the home of his dreams. As a broker, it’s time to focus on this group of South Florida homeowners who face what some might call a high-grade problem. Plunging prices may present an opportunity to jump-start sales, even if the math is as buyers would like.

The plunge in property values presents a tantalizing proposition to the homeowner: Should she sell her current home and take what could amount to a loss in order to buy another home, taking advantage of today’s low prices in a better neighborhood and better suited to his or her needs?

Oliver Ruiz, managing broker for Fortune International in Miami, told his son, Oliver A. Ruiz, exactly that.

“That’s the advice I gave my son,” said Ruiz. “He wasn’t a parent when he purchased his small condo in the Brickell area. Now he has two small sons.” Although the condo’s value has dropped by $80,000, his son, Oliver A. Ruiz, can get a good deal on a single-family home, now, Ruiz pointed out.

His son lives in an older building, which has some advantages: larger rooms and a financially strong condominium association. But new condos are inexpensive and plentiful, with modern flair and amenities. In a normal market and with a price $80,000 less than the purchase price of $267,000, his son’s unit would sell in less than 30 days, Ruiz said. “Now, it will take longer. He would have to be competitive, price it right and stay on his toes.”

It’s a good time for brokers to make a pitch to wavering clients. Jesse Acevedo, broker manager for ERA Ace Realty in Fort Lauderdale, said. If he was talking to a fence-sitter who was worried about taking a hit on his current property, he says he’d emphasize that this market still offers possibilities.

For buyer with decent credit and equity, it’s a good choice to take the loss on a current home and use the money to purchase a better property, he said. “When the market switches around, your new property will gain value a lot faster.”

Real estate has always been a long-term investment, he said. “At this point, it will take 10 years to break even. A lot of people don’t want to waste time building back equity in a house they don’t want.”

Buying a new home, while renting the old home and keeping it as an investment, is a more typical scenario, he said. But for those who want to downsize or trade up, it’s OK to sell, take the loss, and move the equity into a better home. “They will make it up on a new property. “It’s a swap. Even-steven.”

But bear in mind, there’s no need to hurry, either, agents say.

Don’t make a hasty move, advised Christine Franks, owner and broker of Wilshire International Realty in Palm Beach.

The days of 20 percent increases a year on home values are over, she said, and once the market bottoms out, home values rise by 1 to 5 percentage points a year, reverting to historical patterns.

“Even as prices bottom out and begin to go up again, it still will not be too late to take advantage of low home prices. Rushing is never good. That’s what happened in 2005,” she said. “But it’s good advice to start looking around.”

Brokers should stay informed and see what’s available for potential clients. Look at the price of the homes they’re considering. Take into account how long the house has been on the market, the original asking price and the current asking price. “Do the legwork necessary to make an informed decision,” she said.

A twist on the renting angle might be worth thinking about, too.

What about Oliver A. Ruiz? Did he follow his father’s advice?

Well, no, acknowledges the elder Oliver, and, in retrospect, he believes his son made the right decision. “My son has fine credit, but only put 20 or 30 percent down, so he’s a little underwater. He will probably rent his condo and rent a house for his family for a little while, until he rebuilds some equity.”