FREE NEWSLETTER
MY WIFE DECIDED TO sell the house she bought before we were married. We’re both retired and I view it as another step in our ongoing efforts to simplify our financial lives as we age.
My wife and I interviewed a real estate agent who was recommended by a friend. Steven suggested we do some minor repairs before listing the house. Steven also gave us his opinion on the sale price. He told my wife she had a nice little starter home and we should list it in the middle of the estimated price range. That way, there’d be a better chance of getting multiple bids that would drive the price much higher.
Steven, who is Chinese-American, recommended a sale price of $968,000. I almost fell down when I heard that number. A starter home commanding almost $1 million doesn’t sound right. I know this is California, where real estate prices are through the roof, but this seems unrealistic.
My wife gave me some insight into how Steven came up with that price. She said, “Six and eight are lucky numbers in Chinese culture.” I guess it doesn’t hurt to have a little luck on our side. But that didn’t explain the most important number—the number nine.
The size of the house is 1,154 square feet. If you divide the $968,000 asking price by the square footage, a buyer would be paying $839 per square foot. That seemed awfully high for a home in a middle-class neighborhood.
The house does sit on a decent-size lot, so someone could easily add on to the house. But how could a first-time buyer afford to do that after spending that kind of money to buy the place?
One day, when I was over at the house watering and making sure everything was in order for a prospective buyer, a real estate agent and his client approached me. They wanted to know if the list price of $968,000 was the price we’d accept. I wasn’t sure how to answer. I told them they should talk to our agent.
After I thought about it, they must have thought we’d already received an offer above our asking price. Steven was right about listing the house at a price that wasn’t too high. The strategy did indeed ignite a bidding war for the house. We had multiple buyers bidding against each other. That drove the sale price of the house well over what we expected.
The main reason this bidding war occurred: Demand for housing far exceeds supply in Southern California. My wife’s house was one of only a few in the area that was for sale.
Although it wasn’t the highest bid, my wife accepted a bid from a couple because they had a mortgage preapproval letter and wrote a nice note about how much they wanted the house. It’s hard to believe my wife’s 1,154-square-foot starter home sold for more than $1 million.
I wanted my wife to sell the house two years ago, but a real estate agent we talked to thought we should wait. He was right. Real estate prices have increased quite a bit since then. Since the start of the pandemic, the number of U.S. homes worth $1 million or more has doubled, with a record 1 in 12 residences exceeding that figure.
If it was my house, I still would have sold it back in 2020. The agent knew it at the time. He made sure I wouldn’t undermine his advice by asking me, “If you sold the house, what would you do with the money?” He also said, “The stock market is at an all-time high and interest rates are close to an all-time low.”
My wife looked at me, waiting for my answer. I had none. If I told her to invest in a broad-based stock index fund and the market nosedived, I’d have felt terrible.
We rented the house for a year. I never wanted to be a landlord, especially in retirement. My parents owned an apartment building when I was growing up. I saw the problems they experienced.
I remember my dad telling me about one tenant waking him up late one night to complain about her husband. He hadn’t come home, and she thought he was out with another woman. My dad didn’t know what she wanted him to do. I think she just needed someone to talk to.
I told my wife we needed to protect ourselves from lawsuits if we were going to rent her house. I called our insurance agent and said I wanted to increase our umbrella liability policy to $5 million. My wife thought I was crazy and so did our agent.
Now that the house is sold, I have an answer for my wife about what she could do with the proceeds from the house. I would tell her this: “We probably won’t need the money. We skimped and saved most of our lives. We have a financially secure retirement. Why don’t you plan on leaving the money to your son? You can invest the money in the stock market over a six-month period. There’s no need to be concerned about market volatility. You’re investing for his future, not ours. This money will compound over many decades, helping him reach financial freedom. It would be a great way to leave a legacy.”
Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
Consider spending some of the windfall on shared experiences with your children, i.e. paying for exotic vacations and such. Also, if they are responsible, giving them money now vs. later. Funding education for grandchildren. Also, as a retirement hobby/activity, how might the money be used to help others? Seed money for some sort of charity/self-help activity. For example, one fellow built a shop to build dog houses for the rural poor. His wife runs the organization.
These high prices are really shafting the next generation. Sad they will likely never be able to buy in the neighborhood they grew up in. One day, when the demographic shift kicks in, this will all reverse and we may end up with empty houses.
Great post Dennis! By comparison in our LCOL part of Arkansas our 2,900 sq ft four bedroom, four full bathroom house with attached garage and two acre lot is worth about $200,000 today. Maybe a little less. And its in a nice neighborhood conveniently close to jobs and shopping though it is surrounded by a forest and feels very rural. My commute to work was 8 minutes at the worst. I think its exciting you got one million plus! I need to up my umbrella too, thanks for the reminder!
I don’t think increasing your umbrella to 5 M to protect your net worth was crazy. I’m sure it helped you to sleep better at night without spending a lot on the premium. I worked for an insurance company and can recall some insureds losing their homes because the court judgment exceeded their liability coverage limit.
Congrats on your timing, Dennis. As we all know, you win some, you lose some. It’s nice to be on the winning side, especially for high dollar amounts.
Leaving a legacy is a great idea. Hopefully you don’t have a son who will p*ss it away inside of a year on “lifestyle”.
I’m glad your wife was able to take advantage of this crazy home buying period. I thought the $532/square foot price I got was insane–I can’t imagine getting over $800/square foot.
Thank you Mr. Friedman. We live on the coast in the northeast. I presume virtually all coastal cities/towns will continue to be strong real estate markets as 50% of “property” is unbuildable cuz it’s ocean. And in southern CA you have mountains on one side and ocean on the other. I do feel bad for younger generations who will not grow their wealth as much as boomers have by owning a primary home and also, I suspect, owning stocks. The math just doesn’t work when you look at various metrics.
My wife is an avid HGTV watcher and I am amazed at the prices for houses in California. I can’t understand why anyone would pay those prices – other than not much of a choice of course.
I recall one woman paying $4.7 million for a house and the houses on either side were barely eight feet away. The only actual view was out the front of her house.
Similar price craziness is happening in the Northeast. A small (two bedroom one bath) house on my street on Cape Cod just sold for $75,000 over asking price of $700,000. I was recently told my house would sell for over seven figures which is nuts.