Personal finance: House in 'very nice shape' sits on market

John Perry is an assistant professor of economics at Centre College in Danville.
John Perry is an assistant professor of economics at Centre College in Danville.

Question: I've been trying to sell my former home for more than a year without any luck. It's assessed at about $115,000 and is paid off, but I can never get offers higher than $70,000, despite it being in very nice shape.

Should I look at renting the home so I have some income from it? I hear renting can be a real hassle at times, plus I worry that they might do some damage to the place. The money would be nice, though.

Answer: Forget the $115,000 number. Assessed value is the amount the government uses to figure your property taxes. Market value is the price a willing buyer and seller can agree on. Ideally they are the same, but we do not live in an ideal world.

Market value is what is important and does not take its cue from a tax assessment or what an owner thinks a property is worth. In fact, if the market value of your home is less than what it is assessed at, I would encourage you to contact your property valuation administrator to have the assessed value revisited because it could lower your tax bill significantly.

There is quite a bit I do not know from your question. Namely, are you using a Realtor? A high-quality Realtor — and not all are — will be able to give you a good estimate and explanation of your property's likely market value.

A Realtor's commission, which is negotiable but commonly around 6 percent of the sales price, might seem steep. But retaining a good one can be money well spent given how rarely people deal in the real estate market and how much money is at stake.

I also would encourage you to make sure your house is in as nice a shape as you think it is. Owners have a pathological tendency to overlook their home's defects. And by defects, I do not mean just major problems. Relatively minor things like unusual paint color, unfinished projects and poor landscaping can turn buyers off fast.

Even worse, owners tend not to realize how cluttered, crowded or even dirty their house comes across to outsiders. I have viewed an occupied home where the pet stench was overpowering and another where my son's socks were black from walking around inside.

My "favorite" viewing involved a house with porcelain dolls in every room in a variety of poses — one even getting its diaper changed. Creepy.

Even more mundane things like cluttered kitchen counters, too much furniture in a room, old copies of the newspaper piled high, walls of family pictures — it all has an effect. You want your house to invite buyers to think about living there, not wonder what weirdo currently does.

At the same time, vacant houses tend to scream "desperate seller" to would-be buyers and invite low offers. You might consider putting some furniture in the home in that case.

Of course, there are other factors, both local and national, that come into play as to why a home might not be selling. Again, a good Realtor should be able to field such questions, whether the answers are what you want to hear or not.

Given that you have been on the market for more than a year, something is amiss. But you know that. It has been my experience that competitively priced homes in a show-ready state tend to sell.

As for becoming a landlord, tread cautiously. The only good reason to become a landlord is that you want to be one. A "good" renter can make for a pleasant experience, though even they can involve hassle. A single "bad" one can make your life a nightmare. Property management companies can blunt some of the hassle, but they can be pricey.

It also tends to be harder to sell a home with renters living in it, and it is true that many renters simply do not take care of a property like an owner.

Another important consideration to renting is the tax treatment of an eventual sale of the home. A home sale is tax free up to $250,000 if you meet both an "ownership" test (owned the home for at least two years) and a "use" test (have lived in the home for at least two of the past five years). Depending on how long you rent the property, you could lose your tax exemption.