No matter what your politics, there can be no question that after this presidential election, we are a country divided. Observing the nasty and divisive rhetoric coming from both sides, I was struck with the similarities of working with a family going through divorce, as they try to make decisions about how to go from one family, living in one house, to a functional two household unit. No matter how deep the anger, sadness, and feelings of loss, it becomes essential to have a solid plan, that is well thought out, and takes into account the new impending reality.
Many years ago, I was asked to observe a workshop that was being offered for those who are contemplating or going through divorce. While I was there, it occurred to me that everyone going through the divorce process will have to make some difficult decisions regarding their housing. I became one of their key speakers for four years until the workshop was discontinued. I have continued to work with attorneys and other professionals as a consultant, to help guide them through the complex transition from one home to two.
Although there are many things to consider during the process, these are my top 10 tips for good real estate moves through the divorce process.
No. 1 – Understand the emotional, psychological and financial factors that drive decisions about the home. I realized a very long time ago, that there is a large emotional and psychological component to every real estate transaction, and that needs to be balanced with the financial and procedural components, so that people can make decisions that are in their best interest, and that of their family.
It is no coincidence. that one of the most famous movie lines ever spoken was by Dorothy in “The Wizard of OZ.” Picture Dorothy as she closed her eyes, clicked her little red heels and said those famous words … “There is no place like home. There is no place like home.” Think about what your home means to you. For most of us, home is at the core of our lives. We begin and end each day there, and it is truly a reflection of who we are. Even Dorothy, finally understood that it is where our deepest emotional connections occur – both positive and negative. Few aspects of our lives are as emotionally charged as the place we call home. Because home is where the heart is and the place of many of our most precious memories, when our home is in jeopardy we can feel like our heart is being ripped out of our chest and our world is literally being turned upside-down.
Whether our clients decide to remain in their home or to let it go, it is important to make sure that they understand the emotional ramifications of the decision and help them get support.
Psychologically, it becomes important to determine what will give our clients the most peace of mind. Do they have positive or negative memories in the home? How might it affect the children, who are already going through so many changes?
I have found that when I am working with clients going through the divorce process, and we explore their housing options, it is critical that they understand all three factors that drive their decisions – the emotional, psychological and financial – so that they can make the best choices.
In addition to the emotional and psychological factors, it is essential to address the many financial factors that will impact this important decision.
Which brings us to the next steps:
No. 2 – Determine how much the house is worth. Learn the difference between the appraised value and the market value. The appraised value can be determined by a licensed appraiser, based primarily upon recent home sales. The market value, determined by an experienced Realtor, will address the marketability of the house, the average days on market, and current market conditions. Understand, that the value can change quickly, and is determined by many factors!
No. 3 – Search all the liens against the house. Include first and second mortgages, HOA dues, real estate taxes, and mechanics liens. Research open permits that could affect the ability to sell. One spouse may take out a lien against the property without the knowledge of the other, and this can affect the home as a potential asset or liability, if it is being included in a settlement.
Once you have determined the value of the house, the next decision is “can our client afford the house?” Understanding housing expenses and cash flow is critical at this stage of the process. This will comprise numbers 4, 5 and 6.
No. 4 – Consider all of the housing expenses and carrying costs. These include common housing expenses, such as the mortgage, real estate taxes, insurance, and HOA dues, but there are many other monthly housing expenses and carrying costs that also need to be considered, such as electric, water, pool, lawn, cable, telephone, etc. It is also important to understand exactly what the HOA covers. Sometimes this fee covers large expenses, like insurance, cable, water and reserves for repairs, and sometimes it merely covers common areas or less significant items. When considering the budget, it is important to include this information.
No. 5 – When it comes to monthly expenses, look at the big picture! As we help our clients look at the big picture, they should consider other expenses, such as savings for college, camp, and extracurricular activities, saving money for a car, clothing, a vacation and other “luxuries.” These are all things that our clients need to address with their trusted financial professionals, and communication is the key for me as a Realtor to help guide them into the best housing choices so that they can stay on track with their overall financial goals.
No. 6 – Make sure there is enough money set aside as reserves for repairs and emergencies and income tax. Within months after I finalized my divorce, the house needed a new roof, a new air conditioner, a new refrigerator, and we had a cracked toilet, that resulted in a flood and an insurance claim with a large deductible. This taught me a huge lesson that I pass along to my clients.
No. 7 – Find out if they can qualify for a mortgage. Whether our clients decide that they want to stay in their current house and refinance, so that they can remove their current spouse from the title and mortgage, or they decide to move on and purchase or rent a new home, it is important that they meet with a qualified, trusted mortgage broker so that they can find out what options they will have. With the constant changes in the lending industry, it is especially important to have up to date information, prior to making a recommendation or putting together a settlement agreement.
In addition to housing expenses, lenders will evaluate other revolving debts, such as car payments, credit card debt and school loans. Usually, they will only focus on what is on the credit report. However, when going through divorce, they will need to consider child support and alimony, and this can get complicated. They will most likely need to look at the divorce paperwork, to determine length of time of payments, as well as the tax consequences of the payments.
Once we gather all the financial information and weigh the emotional attachment to the home, and think about what makes the most sense psychologically, it becomes important to determine what will give our clients the most peace of mind and security.
No. 8 – Understand the importance of preserving the credit/FICO score. The importance of preserving optimal credit cannot be overstated. There are many factors that can impact a credit score, and it is essential to understand the specific do’s and don’ts while going through the process. While this plays a critical role in obtaining a mortgage, credit score can also wreak havoc when buying or leasing a car, obtaining other types of credit, and even getting a job.
No. 9 – Have written prior agreements. Often overlooked, this is one factor that is very specific to the divorce process. When listing the house, it is essential to put agreements into place with agreed upon automatic price reductions and minimum acceptable contract prices and terms. It is not uncommon to have one spouse use negotiations about the house as leverage to get other things throughout the process, and putting written prior agreements into place can help to avoid this pitfall.
No. 10 – Leave enough time to pack and move. Under the best of circumstances, the process of packing and moving can be stressful. When someone is juggling work, family and the emotional trauma of divorce, the move from the family home can cause extreme distress. It becomes even more important to leave extra time to minimize the panic and make the transition as easy as possible.
Bonus Item: Make sure that you have a good team by your side every step of the way!!! It really does take a village to help a family navigate through the divorce process, with input from a variety of professionals. In divorce, our clients are often looking for answers, trying to re-create the security that they felt when they were in their marriages. Even as their financial and emotional lives continue to shift, there are always options, and it is more important than ever to explore what those opportunities might be, with knowledgeable and understanding professionals.
As we discussed, every couple going through divorce is taking one home and dividing it into two – and often difficult decisions need to be made. Many people are faced with the difficult decision of whether to stay in their homes and struggle to make payments that are above their heads, or let their home go and try to find a way to move into a new home. At the same time, they are trying to make sense of the new rules and navigate their way through constant changes.
Either way, the choice is often complex, and it is difficult to sort through the field of information so that they can make an informed decision based upon real options. Whether they decide to stay or move, we know that we have helped our clients make an informed, well thought out decision as they move through the divorce process! Laurie Dubow