There may be a difference between the market value of a home and the actual sales price. This can have a major impact on the profit and loss on home sales, both when the housing market is rising and falling. If we are doing well, prices will rise, but they can also fall again during bad times. What influence can the difference between market value and sales price have on the situation of the citizen?
Difference between market value and sales price
- Fluctuation of the housing market and economic cycle
- Rising house prices
- Declining housing market
- Forced sale
- Influence on WOZ objection
Fluctuation of the housing market and economic cycle
When the economy is doing well, people and companies have money left over to invest. Consumer satisfaction is high, which means people quickly make a purchase. This also applies to the purchase of a home. Profits can be achieved quickly in this situation. The chance of a housing market hype and the inevitable excess thereof are real. Good times always follow bad times, with the economy performing poorly. People have less money to spend or are keeping their hands tight. Consumer expenses are postponed and home purchases are not made. In addition, people prefer not to sell, because the accumulated value can disappear like snow in the sun. Within this fluctuation of the housing market – which is linked to the economic cycle – gaps regularly arise between the market value and sales price. What are the consequences of this?
Rising house prices
If the economy is going well, house prices will gradually rise over the years, allowing people to make a profit from the purchase of a property. Investing in real estate and homes provides probable security, which means that a nice profit can be achieved when selling. The sales price is above the value of the outstanding mortgage debt, which means that a profit can be made upon sale. If additional repayments are made during the term, the profit can only increase. It then also becomes interesting to invest the profit from one home sale in the purchase of the next home. Gradually the equity grows.
Declining housing market
If the housing market has become overheated with unrealistically high prices, then it is inevitable that bad housing market times are ahead. The balloon can then, as it were, burst. Value build-up is slow, but value loss is usually quite rapid. A crisis can therefore have major consequences for the entire housing market, causing citizens, but also banks and possibly a country, to experience financial problems. If there is a correction to the unreal market value, house prices may fall significantly over a few years. In addition, there are three important arguments why homes sell poorly:
- citizens no longer spend money. People are careful about purchasing a home during bad times;
- the seller would rather not sell anymore, because they would then have to take on a debt on the purchase. Despite this, that debt will only grow over time due to a declining housing market;
- the bank does not cooperate in the purchase, because the value of the collateral only decreases in value.
This unfavorable situation can only improve again when the economy picks up again and the housing market goes through the trough. Only then will confidence increase and people will buy more homes again. In the meantime, the value of the home has fallen significantly and may result in a significant residual debt when sold. The mortgage debt far exceeds the sales price.
During the term of a mortgage, circumstances may arise that force you to sell the home. There is a real chance that the value of the sales price is below the mortgage debt. This is certainly the case in a declining housing market, if one has purchased a home relatively recently. Even if you pay off your mortgage properly every year, with the annuity mortgage you will have paid off approximately twenty percent in ten years. House price declines can amount to eight percent per year and the paid-off portion will catch up fairly quickly. Forced sale therefore causes great concern for many citizens, because they are left with a significant residual debt. If one has not taken out a mortgage under the National Mortgage Guarantee, the consequences for the selling party are major.
Influence on WOZ objection
If you remain the owner of your own home during all fluctuations, you will also have to deal with this. The gap between the actual value and the value of immovable property established by the municipality is incorrect. The municipal authority uses value figures from a year ago, which means that everything is by definition outdated. The following circumstances may arise. In both cases, it may be advisable to submit an objection to save on costs.
The housing market is rising
The municipality’s value determination is delayed by one year, which means that in principle people pay less tax than necessary. However, it may be that the value of the home is compared with homes that are too expensive. In other words, the home may still be rated too high. If you receive the value assessment from the municipality, also request a copy of the valuation report to estimate whether it is realistic.
House prices are falling
If the development of the sales price has been poor for several years, the municipality’s data is also lagging behind. People will certainly pay too many levies and taxes. The WOZ value is classified too high and people are paying the bill for that. If the difference becomes too large, it may mean that part of the provisional refund must be paid back to the tax authorities. So pay attention to a declining market value.
- The residual debt problem in forced sales
- Forced sale with residual debt and debt elimination
- How far underwater is your mortgage?
- Declining market value of home and tax refund
- Cancel residual debt through the NHG guarantee fund