You can sell your house for any price a buyer agrees to pay for it, even if that price falls short of your home's market value. However, selling your home for a price below the market value does not relieve you of your duty to satisfy any liens on the property. You must pay off any liens with separate funds unless the lien holder agrees to accept less than the amount owed.
Recessions and Down Markets
During a recession, lenders tend to tighten underwriting guidelines, which means it becomes harder for people to obtain home loans. This eventually causes housing prices to fall; but even if prices in your area remain steady, the lack of financing for buyers in the market may mean you have to sell your home to a cash buyer. People buying homes for cash are often investors looking for good deals; so if you are in a hurry to sell your home, accepting a cash bid below market value may represent your best option.
Exploring Short Sales
Due to depreciating housing prices in some areas, many homeowners have mortgage debts that exceed their property values. In other instances, people have equity in their homes but cannot find buyers willing to pay the price necessary to settle the outstanding mortgage balance.
If you cannot sell your home for a price equal to your mortgage, your lender may allow you to complete a short-sale. In a short-sale your lender agrees to remove the lien for less than the balance owed on your home. However, short sales do negatively impact your credit score, and in some states lenders can pursue you in court for the remaining balance due on the mortgage.
Selling to a Family
Some homeowners decide to pass their assets to heirs during their own lifetime to spare their heirs the cost of going through probate. If you own your home free and clear, you can sell it to a relative for the price of the recording fee, which in some states amounts to just $10.
However, if you do sell your home to a relative for a below market price, you rather than your relative must pay gift taxes on the sale. You can "gift" up to $13,000 in cash or real estate to a relative tax-free but must pay taxes on any amount that you gift in excess of that.
Other Significant Considerations
When you sell your home for less than its market value, you may have to contend with taxes and unpaid loan balances. However, if you simply cannot afford to maintain your home, selling it for below market value provides you with a good alternative to foreclosure.
If you go into foreclosure, the lender seizes your property and sells it at auction. A foreclosure remains on your credit file for seven years and severely limits your ability to finance a home in the future. If you are facing foreclosure but do not want to sell for below market value, you could also consider turning your home into a rental property until such a time as you can sell it for market value.
