Not every homeowner is primarily concerned with selling price.
Some prioritise speed of sale, timing, or certainty.
So, can homes be sold for less than their value?
Keep reading to find out.
Selling a home for less than it’s worth
You can sell a property for less than it’s worth, even significantly less.
Ultimately, homeowners have a right to sell their property for whatever price they wish.
However, there are implications to this (see below, ‘Implications for selling a house for less than it’s worth’.)
Why homes are sold for less
To find a buyer quicker
When the speed of a sale is the priority, sellers price their homes to sell faster.
After all, more potential buyers are interested in getting a great deal.
It’s also more likely that a chain-free buyer will be able to afford it.
All of this contributes to a faster sale. There might even be a bidding war.
To sell to a relative
Sometimes, you sell your house for below its value because you want to help a relative. You can sell it to them at whatever price you wish.
This is especially common in private sales. No estate agent, marketing, or (formal) viewings are involved.
It’s in bad condition
Selling your home for less than it’s worth may be a necessity.
For example, if it’s in bad condition and you don’t have the time or money to fix it up yourself.
Viewers won’t offer on your house if it’s priced to the maximum. And if it’s impossible to get a mortgage due to its condition, then a cash buyer may be your only option (see below).
It’s an unpopular property type
There are many different types of property, from small flats to large mansions and a lot else in between.
And some types are less popular than others.
For example, retirement flats and bungalows, both of which are usually bought by the elderly, are often difficult to sell.
To resolve financial problems
Selling fast is critical for some sellers, which might be for several reasons:
- Debt
- Divorce
- Mortgage arrears.
In many of these cases, a faster sale will reduce other costs and provide quicker access to cash flow.
To reduce taxation
Some people try to sell a house for less than it’s worth as a means of benefitting from lower taxation.
This is a delicate subject, though. You should get well-informed advice from a qualified professional. It doesn’t always work out the way you expect.
To resolve sitting tenants issue
It’s not always possible to evict a tenant, even if they’re badly behaved.
The type of tenancy in-place could mean that they have the right to stay there indefinitely.
Properties are less valuable when a tenant is in situ. Owners are often limited to selling to other landlords – for below market value.
How homes are sold for less
There are several ways to sell your house for less than it’s worth.
Open market
The open market is the most common method for selling homes. Here, sellers can simply lower their asking price.
Most estate agents will try to discourage this (after all, it impacts their commission). But they can’t prevent it.
Private sales
Private sales involve selling directly to relatives or friends without marketing the property to anyone else.
These can be extremely efficient and fast. However, their pre-condition (that the owner knows someone willing to buy the property) is challenging to meet.
Property auctions
Property auctions are another method. These often specialise in properties in bad condition.
They involve some viewings and basic marketing. And the final sale price – or even a successful sale – is not guaranteed.
Cash buyers
Cash buyers can be individuals or companies. The latter are more convenient to find and work with.
They buy property without a mortgage and outside of property chains. This means that once a price is agreed, sales are usually guaranteed.
To cover their own costs, cash buying companies will usually only buy homes for 15 – 25% under value.
Implications of selling a home for less than it’s worth
Tax
There are tax implications of selling a home under value.
If the house you sell is not your main residence, then you may need to pay Capital Gains Tax (CGT).
This is paid on the difference between what you bought it for and what you sold it for.
Selling for a lower fee may result in a lower tax bill. Get advice from an accountant on this.
Before anyone can inherit a property, the probate process includes a valuation where its ‘true’ market value is determined.
An independent expert decides this. So, even if you sell the property for less than its value, you will still need to pay inheritance tax on the full amount.
Inheritance tax could also become relevant, even if you haven’t inherited your property.
When you sell to a family member for below market value, the difference could be considered a ‘gift’.
Your family member will often need to pay inheritance tax on that amount.
Mortgage
For the seller, selling a property for less than its value can result in negative equity. This is when the selling price doesn’t cover the amount still owed on the house.
This in turn can negatively influence their ability to get loans and mortgages in the future.
For the buyer, however, there aren’t any significant mortgage implications.
(Lenders are concerned that you may overpay for the property in case its value declines. But they’re not so concerned about you getting a great deal.)
