Thursday, April 4, 2013

Homes Gone Wild, Part 2: The Cost of Stuckness

In yesterday’s post I said that allowing your house to fall into wrack and ruin around you is not a good idea. Here’s why:

For most people--and particularly for the Baby Boomers--your home is your largest single financial investment.  You purchased it when you were young on the expectation that it would grow in value while you lived in it.  You planned to sell the house eventually at a higher price and reap the profit to use for another mode of living.  

House In the Process of Getting Lost
If you don’t keep up the maintenance on your house, however, its value will peak and then begin to decrease.  The worse your house looks, both outside and inside, and the more money it takes to repair it, the less value it will have on the market.  Eventually, this cycle ends in something called “tear-down value.”  That means the house is essentially worthless and the only likely purchasers are developers who will demolish it and build a new home on the property.

A friend once asked me how much a homeowner was likely to lose in this scenario.  While the number that applies to you depends, of course, on the value of your house and your land, there are some measures to look at.  My realtor, Anne Hollows, provided some enlightening numbers.  The chart on the left shows the value of the house as a percent of the total value of the property.  The chart below illustrates the difference between the value of the house and the value of the land at different prices.

You can find your number by going to the assessor’s office in the town or city where you live and looking up your property.  You’ll see both values listed separately.  If your house only has tear-down value, cross out the number for your house.  That’s the cost of staying in your house without maintaining it.

I really understand the reasons why it's so easy to get stuck where you are:
  1. The fear of abandoning your comfort zone. (“But this is our house, where we raised our children.  We can’t just leave it.”)
  2. The power of denial.  (“It doesn’t really look that bad.  I kind of like the tall shrubs.”)
  3. The bind of feeling like you can’t afford to move.  (“The mortgage is paid off.  We only have to pay the taxes.”)
  4. The resistance to change.  (“This is MY house and no one is going to force me out of it.
  5. The force of procrastination.  (“I know I have to do something but today [this week, this month, this year] I have other, more important things to focus on.”)
House After Being Fixed Up

Just keep in mind the true cost of being stuck in a home that is bigger than you can handle.  You are going to need the money you get from selling it.  The longer you wait, and the older you get, the greater the likelihood that your immediate future will include an assisted living facility or even a nursing home.  Both options are expensive.  Medicare doesn't cover the former at all and it only handles the first 90 days of the latter.

At the risk of sounding hard and callous, here are the simple responses to the five objections above:

  • It’s a house, not a family.  Sure you can just leave it.  The house isn’t going to call 911 if you fall on the stairs or warn your kids that the water heater is leaking.  Take care of yourself.
  • It looks worse than you think.  Like the frog in the pan of heated water, you’ve just become accustomed to the way your property appears.  Get an objective opinion.
  • You have to pay more than the taxes—which are considerable in some communities.  There's what you pay for heating oil or gas, utilities to light and cool all the rooms you don’t use any more, lawn moving, snow plowing, yard raking, and gutter cleaning, etc.  Know the real numbers.
  • No one is forcing you to do anything.  You can choose.
  • You won’t be younger is another day, week, month or year. Your house won’t look better, either.  Act now, while you’re strong.
I used to drive by one of these “lost houses” every morning on my commute to work.  I knew someone still lived in it, although the shades were always drawn, because lights would go on and off.  But the yard was unkempt and overgrown.  The faded house paint peeled off in big pieces.  The gutter hung at an angle.  I hoped that a neighbor or family member was taking care of whoever lived there because he or she, like the gutter, was clearly just hanging on.  Then a big windstorm blew a tall white pine onto the house, bashing in the garage roof and lying on the roof of the house.  Still nothing changed even though the roof had to be leaking.  Then, one day, I saw a No Trespassing sign on the lawn and a For Sale sign appeared the next week.  I’m an extraordinarily curious person so I asked around and discovered that, in the face of the owner’s intransigence, the town had declared the house uninhabitable and removed him or her to assisted living. 

If you—or your parents—have a house in this condition, I strongly recommend that you pour some coffee, take a deep breath, and run the numbers.  The cost of stuckness is high and it can’t always be calculated in dollars.

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