What Is the 5-Year Rule for Selling a House? There Are Actually Two

How long do homeowners typically stay in their homes before selling?

Although the five-year rule suggests living in a home for at least five years to maximize equity, the data from the National Association of Realtors (NAR) shows that most homeowners stay much longer, around 10 years, before selling. This longer tenure allows them to build even more equity, potentially increasing their return when they move.

While the five-year rule is a helpful guideline, the median tenure indicates that many homeowners benefit from waiting well beyond that minimum. Staying longer can also help homeowners ride out market fluctuations and avoid selling during a less favorable period. In this way, the five-year rule provides a baseline, but the actual trend shows that patience often pays off.

How do I decide if the 5-year rule applies to me?

Allen Studebaker, a top real estate agent in Scottsdale, Arizona, who works with over 71% more single-family homes than the average Phoenix area agent, shares information to help homeowners decide if it’s worth it to move from their primary residence in fewer than five years.

When it comes to buying and owning a home, the general advice is that it will gain more value the longer it is owned by the same owner, especially if the area where it’s located is growing or becoming more sought after. This is known as appreciation, and it comes from a variety of factors that influence each other to drive home values upward.

When homeowners need to sell their homes quickly, determining whether the sale is worthwhile can be confusing. This is where the five-year rule becomes important.

So what factors should be considered when you’re wondering if your home’s value has increased in the time you’ve owned it?

“The key thing for people to do is to gain knowledge of their market,” Studebaker says.

A major factor in determining whether the five-year rule applies is the current appreciation rate for homes in your area. The appreciation rate in the United States can vary wildly. In July 2025, the average appreciation rate was 1.8%, down from 2.5% a month ago and 4.5% in July 2024.

A slower appreciation rate may mean it takes longer to build enough equity to offset the costs of buying and selling a home. On the other hand, in a fast-growing market, homeowners might see enough value increase in just a few years to make an earlier sale financially worthwhile.

Use HomeLight’s online Home Value Estimator to find a ballpark estimate of your home’s worth right now. This free tool will give you an idea of what your home’s value is in real-time, compared to the purchase price, so you can gauge the appreciation.

What if I need to sell my home before five years?

Sometimes, the need to relocate less than five years after purchasing a home cannot be avoided. Life happens, but there are options other than selling that can help you build up enough equity in your home before putting it on the market.

A common option for people who do not want to sell their home before reaching the five-year mark of ownership is to turn it into a rental property. You can explore renting it out for the long term or as a short-term vacation rental to delay selling while still earning income from ownership.

Vacation homes do well in states like Studebaker’s market, which is in a year-round warm part of the country. “Unlike some of the cold-weather states, we have a lot of vacation rentals here,” Studebaker says.

He noted that while some regions experience harsh winters with snow and rain, Arizona’s mild and sunny climate makes it a popular destination for those looking to escape colder weather.

The other 5-year rule: Tax implications for selling your home

The IRS taxes capital gains from a home sale differently based on whether the property has been owned long-term or short-term. This distinction helps differentiate average homeowners from investors.

Average homeowners typically sell their homes to relocate, upsize, or downsize. Investors, on the other hand, frequently buy and sell homes within a year for profit, which is considered taxable income.

Understanding taxes on a home sale can be complex for most people, as the IRS treats your home as a capital asset subject to capital gains tax. This means you may owe taxes on any profit from the sale if your home’s value has increased.

However, certain exemptions allow you to avoid capital gains tax, making the five-year rule beneficial for homeowners who adhere to it. The IRS offers a capital gains tax exclusion, but it depends on the duration of homeownership and primary residence, your filing status, and the amount of the profits you earned from the sale.

In a nutshell, you must have lived in the home as a principal residence for any two of the five years before selling. If that condition is satisfied, up to $250,000 of profit is typically considered tax-free if you’re a single filer, or up to $500,000 if you are married and filing jointly.

Profits exceeding these thresholds generally must be reported as a capital gain and are subject to taxation. Consult with a tax professional for personalized advice on your specific situation.

In a seller’s market, where there are fewer homes available for sale, increased demand can drive sale prices above the list price, potentially resulting in larger profits for homeowners. This is why being knowledgeable about tax implications is more important than ever when navigating this type of market

Building on this trend, HomeLight’s 2025 Top Agent Insights: AI Edition report shows that 41% of agents believe homebuyers currently hold the most bargaining power. Still, regional responses highlight that the U.S. housing market is far from uniform, with sellers maintaining the advantage in the Midwest and Northeast.

This regional divide highlights the fact that market conditions ultimately depend on location.

Testing the 5-year rule: How much does it cost to sell my home?

If you’ve purchased a home within the past five years, you may remember the costs associated with purchasing it, from inspection fees to closing costs. These costs can add up and will also factor into whether it’s worth it to resell within five years, since most people who sell their home often need to purchase a new one to live in.

To make money on your home sale, it needs to have appreciated in value more than the sum of all the selling fees you will face when moving. Your costs will vary depending on the condition of your home and the availability of homes for sale in the market in which people are buying.

Here are some common costs associated with selling your home:

• Staging fees and costs to prep the house for showing (varies)
• Realtor commissions for the sale (3% to 6% of the home’s sale price is standard)
• Inspection and repair fees (varies)
• Closing fees to sell, which include title fees, transfer taxes, escrow fees, recording fees, and prorated property taxes (1% to 3% of the sale price)
• A possible second set of closing costs if buying a new home
• Seller concessions (2% to 6% of the sale price)
• Overlap costs (1% to 2% of the sale price)
• Moving and relocation costs (varies)
• Mortgage payoff (varies)

Beating the 5-year rule: Get experts involved

“One of the things that homeowners need to think about is what your strategy will be on how you’re going to get to the next house,” Studebaker says.

“Some people are upsizing, some people are relocating, some people are downsizing. They really need to get with a professional [to] put together a plan […] a strategy on how you’re going to make that next move.”

Consulting your CPA or tax professional is crucial when considering selling your home within five years of purchase. A tax professional familiar with your financial circumstances can provide invaluable insights into whether selling would be advantageous or lead to additional expenses.

It’s important to think about how long you want to live in a house before you make a purchase because there are many benefits to following the five-year rule. Losing money on a home purchase is never the goal, so make sure it’s the right choice before signing on the dotted line.

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Partner with an experienced agent to truly evaluate the 5-year rule

If you’re thinking about selling your home, consider where you want to be five or ten years from now. Following the five-year rule can help you maximize the value of your current property and position yourself for the best return when it’s time to move on.

And when it’s time to sell your next home, use HomeLight’s Agent Match tool to find a top agent to partner with. No matter how long you have lived in your home, our data shows that the top 5% of real estate agents across the US sell homes for as much as 10% more than the average agent.

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