As the Housing Market Deteriorates for Sellers, Divorcing Couples Need to Take Heed

By Douglas Katz – 08/10/2022

Realtor.com reported this week that listings have grown at a rate of 30.7% from the same time in 2021.  This is great news for the market in general as we move toward a more balanced market, but makes things complex for divorcing couples. When analyzed with other indicators such as busted deals and general home pricing, it is undeniable that the seller’s market is waning.  Specifically, cancelled deals moved to 15% of all homes under contract in June which was the highest since 2020.  While pricing reductions were up, they still remain near the record highs, but we are definitely not done with lower list prices and reductions as more and more buyers remain on the sidelines until they feel comfortable buying.

For many of my clients in divorce, understanding this market is exceptionally important.  I have yet to find more than a handful of clients who inject the market or buyer behavior into their analysis.  Most cling to the assumptions from the previous market and become frustrated.  This is problematic enough when selling without the added complexity of a divorce, but, when a home is splitting up, it gets much worse.

    • VACATING SPOUSE – The vacating spouse will always want to see the highest value possible to maximize their equity buyout.  In this declining market, they will feel the most pain and the longer the process in resolving the divorce, the more profound that the impact on them will be.  It is in their best interest to take this into account while negotiating as the final numbers could be impacted by double digits if prices really begin to plummet, especially if the proceeds are needed for another purchase.  If in this situation, ensure that your team is coordinating with a real estate and lending professional to ensure that the assumptions are accurate and up to date.  Additionally, ensure that you are working with a real estate lending professional who will be able to run what if scenarios for greater price drops and how it will impact you.  If you are working without legal representation, you NEED to determine the rules of engagement with the valuation to avoid a deadlocked process.  I recommend using a mediator or similar professional to diffuse disagreements and help you reach common ground.
    • REMAINING SPOUSE – The spouse keeping the property always wants the lowest value possible to minimize their payout.  For them, this is seemingly a great time as they get a month to month negative drop in the pricing.  For them, the key to managing their piece of the transaction is documenting any significant price drops.  If you are buying out your spouse, you cannot reference an article communicating a nationwide price drop to justify altering an agreed upon price.  If you are in a divorce with full legal representation or a very contentious one, work with you legal team to assist you with working this out.  If, however, you are not using an attorney, you should ensure that you and your spouse are on the same page for when and how you will value the property.
    • SELLERS – Sometimes neither spouse wants the house or a determination is made that it is not viable for either spouse to keep it.  In this unpredictable and tumultuous market in a downward trend, tensions and anxiety runs high with these divorcing sellers, especially because this is the most expensive option with the requirement for divorcing sellers as they need to pay realtors.  This option is the one for which divorcing couples have the least control.  In the previous two situations, the agreement is between the divorcing parties, but this scenario also includes a buyer who wants the best deal possible.  In this scenario, the divorcing couple needs to find, hire and, most importantly, empower real estate professionals who can get the property sold.  All to often, the plan goes off the rails when one or more of the spouses get frustrated and refuses to accept what may be the most beneficial price to get the property sold.  This is not that different than any seller but for the additional need to get on with the next act of their lives.

Regardless of where you may be categorically, selling during a divorce is emotional and tough.  Where the home is concerned, objectivity is the key to success.  Under every scenario, setting agreed upon rules and assumptions, hiring and trusting divorce professionals and keeping productively engaged in the process are the recipe for success.  These are simple but difficult things to do, but the outcomes are worth it.

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