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There are a number of reasons why you might end up selling your freehold or leasehold house or flat at a loss, meaning less than the amount you originally paid for it and spent on any improvements like an extension. However, this outcome can sometimes be avoided, and there are some methods of selling your home that still might be able to help you make a profit.
- What is selling your property at loss?
- Reasons why some homes might sell at a loss
- What happens to your mortgage when selling your home at a loss?
- Tax implications of selling your house or flat at a loss
- Different ways to sell your property when risking a loss
- Frequently asked questions about selling a home at a loss
What is selling your property at loss?
Selling your freehold or leasehold house or flat at a loss, in basic terms, refers to a situation where the price at which you sell the property is lower than price you originally paid for it.
The difference between the two values is the amount of loss that you make. For example, if you originally bought your home for £125,000 and then sell it £100,000, your loss is £25,000. This outcome can cause a wide range of problems, as the guide elaborates on below, such as making it harder to afford the purchase of your next home. Or it could place you in a precarious financial position if you still owe a lot of money on your mortgage after selling at a loss.
As discussed by Forbes, the UK property market shows signs of potentially slowing down after a long stretch of many sales at rising home prices, it could become harder for homeowners to sell at a profit. When demand for properties starts to drop, it often leads to an overall lowering in the average home asking price because potential buyers can be more selection with offers.
Reasons why some homes might sell at a loss
There are a number of reasons for why a property might sell at a loss that aren’t entirely dependent on the status of the housing market and the level of demand and supply of flats or houses. Various other developments that can happen during the time that you own the property can also have a potential negative impact on its potential asking price in the future.
There’s a problem with the property that you haven’t fixed
One top reason why homes might sell at a loss is that they have some problem that developed during your ownership that has not been resolved. This could be anything from vandalism to a bad roof or from dry rot to an invasion of Japanese knotweed in the garden. Whatever the reason, prospective buyers might see it as a major problem that justifies offering less than the asking price you’re seeking.
One option to prevent this outcome is to invest time and money in fixing whatever the problem might be, for example by spending time and money on repairing damage from a flood. However, this is not going to be an option in many cases – particularly for owners who are trying to sell their homes as quickly as possible, or that lack the funds to pay for the necessary work. In those circumstances, they will have to sell the home “as is” without first addressing the flaw.
In those cases, buyers will have to be made aware of the problem because they can sue you if you fail to disclose it and they discover the issue after moving into the property. You should expect that buyers will want to offer less money for your home as a result, and it’s possible that this lower value might be below the original price that you paid for your house or flat. In that situation, you will be selling at a loss, with all the negative financial implications that ensue.
The value of your home dropped due to economic conditions
Unfortunately, poor economic conditions that are entirely outside of your control can also have a negative impact on your home’s value that might result in you having to sell at a less.
In a strong economy, demand for properties typically increases, which means more people seeking to buy an ever-decreasing amount of homes. This supply shortage allows owners to increase property prices because buyers have fewer options, and many sellers are willing to spend more money in this situation.
However, the opposite is true when the economy takes a negative downturn, because demand for homes drops as people try to conserve their money and avoid significant investments like taking on a mortgage for buying a property. This reduced demand turns the market into one that’s more favourable for buyers, because they have many more houses or flats to choose from. This often means that homeowners have to lower their asking prices in order to entice sellers, and sometimes this reduced price might result in selling the property at a loss.
You owe a large amount of money on your existing mortgage
As described in more detail in the next section of this guide, there are certain situations where you might have to sell your home at a loss because you still owe money on your mortgage.
There are various situations where this can happen, for example if you need to sell fast to avoid repossession of your current home, you need to move overseas or somewhere else in the UK for work or personal reasons, or you’ve found a dream home that you’re determined to buy.
That outcome will occur if the sale proceeds will not be enough to cover the cost of paying off the mortgage. If you are only able to pay off a portion of the mortgage with the sale proceeds, all of that money will go to the lender (whilst still owing the lending more), and when you factor in all of the other costs of moving and the fact you’ll still owe money on the mortgage, you will be effectively selling at a loss.
What happens to your mortgage when selling your home at a loss?
It’s possible that you might be selling your property even though it still has a mortgage with a significant amount of outstanding money that you owe your lender. Note that in this situation you will remain liable for repaying the funds, because you signed a contract with the lender. This could mean you will end up selling at a loss, and then you will be required to work with the lender on agreeing to a timeline for paying back the rest of the money.
Failure to comply with the terms of your mortgage agreement by trying to avoid any repayments could prompt the lender to sue you, which can be a very expensive and stressful outcome.
If you have sold your home at a loss because you wanted to move quickly with buying your next dream home, it might be possible to "port" your mortgage over to your next home. This effectively transfers a loan with the same lender, and the terms and conditions, to the new property. The difference is the new property will now be the security for the mortgage, rather than the home you’re selling. But you would have to first pay off the mortgage on the past home before the lender issues a loan for the new property, so it might not be financially feasible for you. If that’s the case, you’ll have to devise a repayment agreement with the lender for paying off the original mortgage.
Tax implications of selling your house or flat at a loss
One important financial issue that arises when selling a house, flat or guest house is assessing whether you might be liable for paying Capital Gains Tax. This is a tax imposed by the UK government that typically does not apply to your main house or flat where you live, but it can apply to certain homes you might own.
Capital Gains Tax is charged on whatever profit you make on an asset like a property, not the full sale price of a home. For example, if you bought a house subject to the tax for £100,000 and sold it for £125,000, the tax would be charged on the £25,000 profit you made from the sale.
The properties that are subject to the tax include homes that you bought and then rented out, plots of land, offices or other business properties, and inherited retirement homes or other properties you’ve taken ownership of through the probate process. You’ll likely have to pay tax on all these homes when selling them, but what happens if you sell this type of property at a financial loss?
You most likely won’t have to pay any tax, because it only applies to the gain (or profit) that you make from the sale of a second home or investment property. However, you should still discuss this situation to HM Revenue & Customs, the non-ministerial government of the department that collects taxes. They should be made aware of the situation so that they don’t attempt to pursue tax collection later.
If you sell a second / investment property at only a small profit, you should look at whether some of the costs involved with owning the home actually mean that you have sold it at a loss. As a reminder, certain expenses – such as for decorating or maintaining a buy-to-let home – cannot be deducted when you’re calculating your Capital Gains Tax liability.
However, other expenses can be subtracted from the liability, including any fees that you might have paid an estate agent or solicitor when selling or buying the home, any applicable stamp duty on the property, and any funds that you spent on major physical changes to the flat or house such as an extension or renovation, regardless of how it impacted the home’s value.
Always report your tax liability to the government, even if you made a loss on the home. When you sell at a loss, you have four tax years from the date of the property sale to report it.
Different ways to sell your property when risking a loss
If you are potentially facing a loss when selling your property for any of the reasons outlined in this guide (such as selling mundic property), you might be able to reduce your losses – or possibly even break even or earn a slight profit – depending on the approach you choose to find a buyer for the home.
There are usually four main ways to sell a property; using an estate agent, using an auctioneer, using a fast home buyer, or selling the home on your own. There are clear advantages to each method, but there are also some important disadvantages that you should know about. Be sure to consider the pros and cons of each option before making a final decision on selling.
You should try to write a budget for the sale of your home that includes how much time, money and work you are willing to invest in the process, as well as your ideal sale price to avoid selling at a loss. This can be incredibly useful as you try to determine which of the four methods has the best potential to avoid you having to suffer the financial setback of selling at a loss.
Using an estate agent
When you sell this way, you won’t have to do much work, because the estate agent will have the responsibility for most aspects of the sale. They will put together a listing for your home that describes the property and includes photographs of the interior and exterior, and then they will advertise this in their office, local newspapers, and online to get interest from buyers.
They will organise viewings where potential buyers come to visit your home, and estate agents typically host these visits as well. Some sellers have reported that they find viewings to take up a lot of their time and to be quite intrusive, which be a major setback for many.
In exchange for all of this work, estate agents will require that you pay them commission. The fee will be deducted from the sale proceeds, which will reduce any profit you might make on the flat or house, and it could even risk meaning you sell at a loss.
Selling this way can also take a very long time, and you should be prepared to wait for many months, or possibly more than a full year in some worst case scenarios, before finding a buyer. This can be a very problematic timeline if your main goal when selling is doing so quickly.
Beware that some estate agents might quote a high sale price for your property, in a bid to convince you to sell through their company so that they can earn the commission if they find you a buyer – even if they know the home will only sell at a lower price. This trick can cause significant complications for your sale in the event that the honest asking price will result in you selling at a loss, after you have paid the estate agent whatever commission you owe.
Using an auctioneer
Selling through an auction means you set a reserve price, or lowest value at which you are willing to sell your home, and then wait for people to place bids on the house or flat.
Your goal is to get many people interested in purchasing your property, because they will try to outbid each other by offering more and more money for it, which will raise the final sale price. In this outcome you could stand to make a decent profit compared to what you paid for the home.
But if you are already risking the end result of selling at a loss, an auction might be too risky. It’s possible that you receive no bids on the home, which means that it will not sell, and you will have to begin again with trying to find a buyer. This will add further delay to selling your property, which might not be ideal if there’s a reason why you need to sell urgently. Or you might only get a single bid at the reserve price. That’s why it’s vital the reserve price is set at a value that will still earn you a profit on the sale, even after subtracting the auctioneer’s fees. But this might not be possible either depending on various factors affecting demand for your home.
Most auctioneers charge commission, and this will be subtracted from the sale proceeds before you receive whatever is left. If you sell at a price close to, or less than, your original purchase price, you will therefore be selling at a loss once you factor in the auctioneer’s fees. You want to avoid this outcome, and therefore it might make better financial sense to find a method of selling that won’t impose any fees.
Selling this way can also take quite a long time, starting with a delay of at least several weeks between the day that you first list your property for sale and the day on which the auction takes place. Even if your property sells at the auction, the buyer will then have an average of 28 days to sign all of their required paperwork and complete all of the other steps for finalising the purchase of you property, meaning the typical sale timeline this way will be a few months.
Using a fast home buyer
A quick and stress-free way to sell your home is using a fast buyer like LDN Properties. These companies can provide owners with a streamlined, no-hassle and straightforward way to receive speedy and competitive offers for selling their freehold or leasehold houses or flats.
Fast buyers are able to make offers for almost any type of property, and the age, condition, type, shape or size of the home doesn’t matter. The lengthy list of offers made by LDN Properties in London since launching in 2003 includes houses of multiple occupancy, flats with noisy neighbours, properties located by railway lines, flats with very short leases remaining, listed properties, houses that are in high risk flood zones, and plots of land.
If you’re facing the risk of selling your home at a loss, fast buyers can be a great choice because they never charge owners any fees. This means you can count on receiving the full proceeds, and this might be the difference between selling at a profit or loss. If the only reason that you would have to sell at a loss is the commission that you would have to pay a third party like an estate agent or auctioneer for selling your home, you can avoid this with a fast buyer.
As the name suggests, fast buyers are also one of the swiftest ways to sell your home. These companies have the financial ability to immediately purchase properties without having to wait for several weeks or months to first get approved for a mortgage. This means they are usually able to complete every step of buying your home within a handful of short weeks, and that includes every aspect of the process such as exchanging contracts and paying you the proceeds. It’s much quicker than the average timeline when selling via other methods.
And for your additional peace of mind, legitimate fast home buyers belong to The Property Ombudsman (TPO), an independent entity that writes policies which are crafted to guard owners against possible fraud in the quick home buying industry. All genuine TPO members are required to follow these regulations for your extra protection.
You can check the membership status of an individual fast buyer for free by visiting TPO’s website and clicking on the “Find a Member” tab on the left side of the home page. You’ll be prompted to type in the name of a specific company, and if they are truly registered with TPO you’ll then be shown their membership details. Avoid any fast buyer that claims to be a TPO member but cannot prove this status, or that refuses to join TPO, as it may be a scam.
Selling the home on your own
Selling on your own means that you will be responsible for every step, from crafting and advertising the initial listing through to scheduling and hosting viewings, and to overseeing any serious offers through to completion. This is a huge amount of work and it’s recommended only if you have in-depth knowledge and experience with selling properties, or you have a friend or family member with that expertise who is willing to help you sell without charging you.
The timeline for selling this way is incredibly unpredictable, and you might be waiting more than a full year before you can guide a sale through to exchange of contracts. This can be far too stressful and unpredictable for many people, and is only a good option for a few people.
Perhaps the one obvious advantage of selling on your own is that you won’t have to pay a third party, like an estate agent, any fees, and you might be able to stave off a loss on your home if those fees would be the only reason for losing money on the sale. However, you can achieve this exact same outcome by using a fast home buyer like LDN Properties – and selling to them would also avoid all of the stress that you’d have to endure when selling on your own.
Top queries and answers about selling a house at a loss
Homeowners looking for a quick sale usually have a few questions for us, ranging from repairs needed to sell through to selling a run down home . Here are some of the top questions and answers we’re asked about selling a property at a loss:
Your top questions when selling a property at a loss
If you sell your home for less than the value of what you originally paid for it, including any money that you later invested in major structural improvements to the home – such as a renovation or extension – then it is considered to be sold at a loss. Your goal when selling should always be to make a profit by getting offers above the original purchase price.
No. The two main factors that are considered when calculating whether or not you’ll make a loss when selling your property are the original purchase price, and the amount of money you spent on extensions or other major physical changes to the home. Expenses that shouldn’t really be factored into the loss calculation include money that you spent on furnishing and decorating your home.
Yes, if you sell to a fast buyer like LDN Properties, because they will never charge you any fees and you can count on receiving the full proceeds from the final price offer they make for your home. By contrast, auctioneers and estate agents will charge commission for selling your house or flat that will be deducted from the sale proceeds, possibly resulting in a net financial loss.
If selling a house or flat as quickly as possible is your top priority, you should consider using a quick home buying company like LDN Properties. They can generally complete the process of buying a property within a few weeks. Auctions, by contrast, will take at least a few months from beginning to end, and selling through an estate agent might take more than a complete year.
You may be able to achieve a higher price by finding a buyer yourself however bear in mind there often is a large amount of work involved with selling a property, with the only benefit being that you won’t have to pay any fees. If you sell your home to a fast buyer then you won’t get charged any fees and it will also be stress-free.
When you sell your home whilst it still has a mortgage, the sale proceeds will first be used to pay off as much of that loan as possible. If you sold at a loss, this could create some financial problems in the future because you’re legally obliged to pay the rest of the mortgage back. You’ll have to work with the lender to agree on a timeline for making those payments.
