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If you recently bought a house and now realize that you need to sell it, don’t panic. While there are financial implications of selling a house soon after buying it, certain circumstances and life changes may make selling quickly a necessity and leave you wondering, “How soon can I sell my home after purchasing it?”
In addition, selling a home shortly after buying it can cause significant stress and concerns about how much money you could lose and if you’ll scare off potential buyers by selling so soon.
To help you navigate an earlier-than-expected home sale, we talked with a top real estate agent and some seasoned property investors to create this in-depth guide. It covers everything you need to know to decide whether to sell now or wait, including the costs of selling, tax considerations, and how to calculate whether you might lose money on the sale.
What are some common reasons homeowners sell early?
A homeowner’s decision to sell abruptly often stems from an unplanned life change, such as a job relocation, a death in the family, a divorce, or an injury or medical condition, notes Pennie Carroll, one of Des Moines, Iowa’s top real estate agents. Let’s take a closer look at a few scenarios.
Unexpected family change
Whether you find out you’re having another child, a parent is moving in, you decide to do foster care, or you get a divorce, an unexpected change in your family can prompt an unexpected move.
A new job, job relocation, or move to remote work may mean that selling quickly is your best option to take advantage of a job opportunity. If you’re experiencing a loss of employment, you may need to sell to reduce costs until you find another job.
Family health emergency
A family health emergency can create the need to move to a new location or downsize to cut back on expenses. In the event that a family member needs certain accommodations in the home, you may need to sell and purchase a home that is more accessible.
Buyer’s remorse about your current home or location
If you bought a house that you regret, selling quickly might help remedy the situation. Or if you bought a house and then determine that the location isn’t what you expected, you may need to sell so you can move to a better location.
If a life change occurs — job change, increased or unexpected expenses, etc. — you may need to sell to get your finances back on track.
Take advantage of a hot seller’s market
If you bought your house in 2019 or early 2020, you might have already built substantial equity as home values increased throughout 2020 and 2021, and even into 2022. If that’s the case, it may make sense to sell quickly and take advantage of those gains — though beware of the tax implications (we’ll get into this soon).
What is the 5-year rule for selling a house?
The so-called “5-year rule” is basically a rule of thumb that says you can be at a greater risk of losing money if you sell before you’ve owned a house for five years. There is also a tax rule in place that allows a seller to exclude up to $250,000 of the capital gains ($500,000 if married and filing jointly) from the sale of their home if they’ve lived in the home for two of the previous five years.
Owning a house for five years typically allows it to appreciate while you pay down the principal (the amount you borrowed), building equity that you’ll earn back when you sell. Selling before the five-year mark could result in a financial loss — but that isn’t always the case.
Has your home appreciated enough to sell?
According to the National Association of Realtors® (NAR), the national median existing-home sales price in April 2022 was $391,200, up 14.8% from last year. The first quarter of 2022 saw the median sales price of single-family existing homes rise 15.7%, and 70% of the 185 metro areas included in the data saw double-digit annual increases. So what does that mean for your home sale?
Using the April 2022 appreciation rate, if you purchased a home for $350,000, that home would see an increase of around $51,800 in one year, or $25,900 in six months.
Keep in mind that rates change monthly, and this level of appreciation is a result of an incredibly hot seller’s market and is not typical of appreciation rates. The NAR also reported that existing-home sales volume for April 2022 fell 2.4% from the prior month and 5.9% from one year ago.
Caleb Liu, a property investor with House Simply Sold, explains that there are two types of home appreciation:
- Natural appreciation: This type of appreciation is governed by forces in the market. “Under normal market conditions, natural appreciation cannot be controlled and is typically a few percentage points per year,” explains Liu. “Prices rise and fall month over month, and there is no guarantee that they will be higher in any given month compared to the previous month.”
- Forced appreciation: This can be triggered either through buying a property below market value and/or remodeling the property to sell for a higher price. “You can force some appreciation in a short amount of time by investing money into cosmetic upgrades, such as new paint and flooring,” says Liu. “But major remodels can take months and aren’t typically done on a short timetable.”
How does loan amortization factor in?
When you take out your mortgage, your lender will provide you with an amortization schedule that shows each monthly payment and how it’s broken down into principal and interest. The longer you stay in the home, the greater portion of the monthly payment goes toward the principal. That means if you sell within those first couple of years, you’ll likely have earned very little home equity as most of your payment went to the interest rather than the principal.
How can I estimate the cost of selling my home early?
Regardless of when you sell, there will be costs associated with the sale. The difference is that with a quick sale, the property hasn’t had much time to appreciate, which means the expenses could cut into (or even obliterate) any equity.
The typical costs associated with selling add up to about 9% to 10% of the sales price and include:
- Staging and house prep fees: 1% to 4% — though some agents will pay for staging depending on the situation
- The standard Realtor® commission which averages 5.8% of the sale price
- Closing fees, which include title fees, transfer taxes, escrow fees, recording fees, and prorated property taxes: 1% to 3%
- Seller concessions: 2% to 6%
- Overlap costs: 1% to 2%
You’ll also need to factor in inspection and appraisal fees, moving and relocation costs, and mortgage payoff amount. To estimate the cost of selling your home, enter your information into HomeLight’s Net Proceeds Calculator.
Bill Samuel, a property investor and owner of Blue Ladder Development, offers up a real-world example: A home purchased in June of last year for $246,000 cost the buyer $5,145 in transaction fees (title, attorney, transfer stamps, etc.) with a total cost basis of $251,145. If the buyer then sells the property the following year, they should expect to pay about $15,000 in fees alone.
Will an early home sale cost me more in capital gains tax?
Even if you do experience a quick appreciation in property value, the capital gains tax could take a big chunk out of any potential profits. If you sell:
Less than a year after buying, you’ll have to pay a short-term capital gains tax, which is assessed on assets held for a year or less and taxed as ordinary income according to your tax bracket, which can range between 10% to 37%.
2022 short-term capital gains tax brackets
|Tax Bracket||Filing Single||Married Filing Jointly||Head of Household|
|10%||$0 to $10,275||$0 to $20,550||$0 to $14,650|
|12%||$10,276 to $41,775||$20,551 to $83,550||$14,651 to $55,900|
|22%||$41,776 to $89,075||$83,551 to $178,150||$55,901 to $89,050|
|24%||$89,076 to $170,050||$178,151 to $340,100||$89,051 to $170,050|
|32%||$170,051 to $215,950||$340,101 to $431,900||$170,051 to $215,950|
|35%||$215,951 to $539,900||$431,901 to $647,850||$215,951 to $539,900|
|37%||$539,901 or higher||$647,851 or higher||$539,901 or higher|
For instance, if you purchased a property for $300,000 and sold it 10 months later for $370,000, your gain would be $70,000. If your regular income is taxed at a rate of 22%, that means you would have to pay 22% of the $70,000 gain, which would be $15,400.
More than a year after buying, but less than two years, any profits will be taxed at the lower long-term rate — either 0%, 15%, or 20%, based on your capital gains tax bracket.
2022 long-term capital gains tax brackets
|Tax Bracket||Filing Single||Married Filing Jointly||Head of Household|
|10%||$0 to $41,675||$0 to $83,850||$0 to $55,800|
|15%||$40,676 to $459,750||$83,351 to $517,200||$55,801 to $488,500|
|20%||$459,751 or higher||$517,201or higher||$488,501 or higher|
At least two years after buying, you can deduct capital gains up to $250,000 for single homeowners and $500,000 for married homeowners filing jointly and typically won’t have to pay capital gains taxes on that amount of your home sale profits.
To qualify for the capital gains tax exemption, you must meet certain conditions set by the IRS, such as you must have owned and occupied the property as your primary residence for at least two of the five years prior to its date of sale. In addition, the exemption is only available once every two years.
That means the longer you stay in the home, the less tax burden you’ll have to carry.
Can I sell my house within 6 months of buying it without losing money?
What about after one year? Or after two years? Let’s take a look.
When selling after six months, Liu says sellers should generally expect to lose money. That’s why unless there is an extremely compelling or unavoidable reason, selling within six months should be avoided. “Depending on the underlying issue, the homeowner may consider renting out their home and moving into an apartment short-term,” Liu suggests. “While it is extra work, this will allow them to hold onto the property and avoid the expensive selling costs.”
When selling after one year, the seller could possibly break even if they’re in a fast-growing market that has seen strong appreciation. “In most situations, they’ll probably lose money when selling at the one-year mark,” Liu says.
When selling at the two-year mark, the biggest benefit is that you might qualify for the capital gains exemption if you lived in the home for at least two of the past five years before the sale. “While you will still incur selling costs, the tax-free appreciation after two years may be enough for you to at least break even,” says Liu. Be sure to consult with your tax professional to find out whether you’re eligible for the exemption.
How can I calculate my potential loss?
Every situation is different. To determine whether you might lose money — and how much — follow these steps:
- Get an estimate of what your property is worth using a home value estimator. HomeLight’s Home Value Estimator walks you through a seven-question quiz to learn more about your home so we can provide the most accurate preliminary value estimate possible.
- Deduct your outstanding mortgage balance (check with your loan servicer to find out the payoff amount, which could be different from the balance shown on your monthly statement).
- Deduct any costs of selling, such as real estate commissions, closing costs, title fees, and any expenses to prepare the home.
- If you come up with a positive number (potential profit), deduct any short-term or long-term capital gains taxes if selling before the two-year mark.
You can also try HomeLight’s free Net Proceeds Calculator to estimate the cost of selling your home and the net proceeds you could earn from the sale.
In these cases, it’s important for the seller to let the agent handle communicating to buyers about the reason for the quick sale. Sometimes the seller can say too much, or say the wrong things, and put the sale in jeopardy.
- Pennie Carroll Real Estate AgentClosePennie Carroll Real Estate Agent at Pennie Carroll & Associates | Real Estate Currently accepting new clients
- Years of Experience 21
- Transactions 1352
- Average Price Point $236k
- Single Family Homes 1218
What should I tell buyers about why I am selling so soon?
Carroll has seen quick sales trigger questions on the buyer side — and generally speaking, she says the seller should leave the explanations up to the agent.
“In these cases, it’s important for the seller to let the agent handle communicating to buyers about the reason for the quick sale,” she advises. “Sometimes the seller can say too much, or say the wrong things, and put the sale in jeopardy.”
Liu says it’s a delicate balancing act. “You don’t want to appear to be hiding anything, but at the same time, you don’t want to appear desperate to sell,” he says. “It’s best to strategize with your Realtor®, but a short explanation such as a ‘family issue’ should suffice.”
At the end of the day, notes Liu, if you have a well-maintained home that is priced right for your market, buyers generally shouldn’t be too concerned about why it’s available.
To sell quickly, or hold off?
While selling soon after buying does present the risk of giving up some equity, or even putting yourself in the red, it’s not always a recipe for financial disaster.
Particularly in a market like what we’ve seen in recent years, where inventory is at a historic low and homes are seeing multiple offers, Carroll says homeowners could actually benefit from selling soon after buying — particularly if they’re under 50 years old and have a lot of homeowning years ahead of them.
“Even if you end up losing $5,000 on a home, will that really have a big impact across the homeowner’s lifetime?” she asks. “If they get a good deal on the next house, what they lose on the sale, they could gain on their next purchase.”
In the end, it comes down to making the best decision for your life and your finances. But whether that means selling quickly or holding onto the property and selling down the road, partnering with a top agent through HomeLight’s free Agent Match platform can often net you more money than if you sold with an average agent or sold the home yourself.
Header Image Source: (Michael Pierce / Unsplash)