Although it might seem counterintuitive, selling your house below its market value can be a good strategy if you have other benefits beyond the purchase price.

There are two options: selling your property at market value or selling it because of personal circumstances.

What Does It Mean To Sell Below Market?

A property is considered to be selling below its market value if it is discounted below its perceived market value. Based on comparable properties, your best estimate of the value of your home is its perceived market value. Your home's market value is the amount a buyer will pay to purchase it. You don't know what price someone will pay until your house is listed.

Remember that the market value of your house is not the same thing as the appraised or assessed value. This is especially true in extreme buyer or seller markets.

• Appraisal Value:

  A professional appraiser will provide an estimate of your home's value. A professional appraiser will visit your home, conduct comps, and assess how your home's features, condition, and location affect its value. An appraisal report can be a useful tool, but it is subjective and will vary depending on the appraiser's knowledge of the area and the real estate market.

• Assessed Value: 

  The assessed value of your home is determined by a local tax assessor. Each year, it is recalculated to determine the amount you will pay in property taxes. Therefore, it is not recommended to use your home's assessed value for determining your fair market price.

  These facts are important to remember, regardless of the reason or method you use to sell below market value.

• Tax Deductions Are Not Allowed: 

  For example, if you sell below market value, you can't deduct the loss. If you have any questions regarding tax deductions in real estate, please contact your tax professional.

• Even If Your Home Is Selling At A Low Price, Closing Costs Will Still Be Due:

  Closing costs may be anywhere from 8% to 10% of your sale price. They include attorney fees, property transfer fees, escrow, and title fees.

Common Reasons To Sell A Home Below Its Market Value

Many factors can lead to properties being sold below their market value. However, these are the most common reasons:

1. Selling to a friend

2. Low performance on the open market

3. Quick sale

4. Financial hardship

Sell To A Friend Or Family Member

You might be able to sell your home to someone you care about, regardless of how sentimental or generous you are.

It is still legal to sell a home to someone you know. The most common family transaction involves parents selling their children a house as a financial favor. However, the details of such transactions can be complicated. These are important things to remember when you sell to a friend or family member for less than the market value.

• Always Sign A Contract:

  Even if you are the buyer and feel uncomfortable with the formalities, it is important to have everything in writing. This includes documentation of contingencies, purchase price, and closing date.

  While you don't necessarily need a real agent to market your property or find buyers for it, you can still use a real estate attorney to help you navigate the transaction and ensure you are protected.

• Learn About Tax Laws:

  The IRS considers a home a gift if it is sold for less than 25% of its market value. The buyer (your child) may have to pay gift taxes on the reduced amount. Consider the following options if you are selling your home to a child in order to help them financially:

  Seller Financing: 

  You can sell your home using seller financing. This allows you to offer better terms and rates than traditional lenders, making the purchase more affordable for you and saving your child money.

• Make A Plan For Future Tax-Free Gifts: 

  For example, to avoid the annual gift tax limit, you might sell the house at $15,000 less than its market value. This is the annual exclusion limit. You can then gift them $15,000 each year thereafter until you have given the same amount as the initial discount.

• You Can Transfer Your Property To Another Person By Using A Quitclaim Document: 

  If you wish your child to take out a HELOC (or a home equity loan) to repay you for the agreed-upon discount on the purchase price, you can transfer the home to their ownership. This process has tax implications. Before you proceed, make sure to consult your tax professional.

Performance On The Open Markets Is Poor

If you have had your home on the market for a long time and you've received no offers or poor inspections, it might be worth considering selling your property below market value.

Poor performance is often caused by incorrect pricing. Comps can only be accurate if all homes are in the same condition. To correct the mistake of comparing your home with homes in better conditions, you may need to do a price drop.

The state of the local real estate market will also affect how quickly your house sells. A seller may receive a full-price offer in a hot market. However, you might receive a few low offers in a slower market before you get the right offer. Some sellers cannot wait,, so they take low offers to close the deal faster.

Quick Sale At A Low Listing Price

Sellers may list their homes at a lower price in order to sell faster. You might need to sell your home quickly for a variety of reasons. Here are some strategies to sell quickly if you don't care as much about the profit but more about the timeline.

Pricing As It Is:

Your property might appear to be equal in value, based on its location, finishes, and size, but it may not be. Assuming the market is healthy, there will likely be an offer.

However, you may end up spending more on credits or pre-closing repair costs once it is time for the inspection. The inspection report could make the deal fall apart or scare the buyer off. It might be more sensible to lower the price than the start in order to cover the costs of repairs.

You might also consider selling your home to an all-cash buyer, who will waive inspection fees and make necessary repairs.

• Share FSBO Discount:

  You don't need to pay a commission if you sell by owner (FSBO). You can list lower and still get the same amount, but you won't have to pay commission to a listing agent.

• Market To Cash Buyers:

  An all-cash buyer will speed up the closing and reduce listing time. In addition, because they don't require financing, all-cash buyers are able to close fast.

Negative Equity Or Financial Hardship

Your lender may agree to short sales if you are underwater on your home or owe more than your property is worth. Your lender will allow you to sell your house for less than the amount you owe on your mortgage in a short sale.

• Your Lender Needs To Approve The Short Sale: 

  A short sale is not an easy way out of your mortgage. To prove that you are in hardship, your lender will likely request a letter from you. If the offer is not qualified or too low, the bank may reject the hardship letter.