Unfortunately for you, it’s just how supply and demand works. I’m far from deeply knowledgeable (unlike the comment before me) but I suspect you’ll end up settling for just under your ‘fair’ valuation if you end up simply selling the house. Frankly, it’s not worth what you WISH it were worth, only what somebody’s willing to pay for it.

I find this predicament especially intriguing because it applies to the most basic economic principals: Supply and Demand, Equilibrium, and Opportunity Cost. To make the right decision, you must do a risk/reward analysis and have some foresight into the future of the housing market.

First, take a look at the current housing market environment. People have realized that real estate has been appreciating at unprecedented levels. Ultimately, this is what caused the credit crunch. People started taking loans that were worth more than the actual value of their home. This has caused buyers to become very weary of the housing market and owners to panic and try to obtain liquidity by putting their houses on the market, thus creating a glut of supply. When the supply exceeds the demand, there is more competition which drives prices down. Eventually, once a fair and reasonable price is offered, houses will begin to sell again. Unfortunately, I do not foresee supply = demand happening in the near future because there is a steady supply of homes popping up on the market due to foreclosures and people who need to move (like yourself) are also adding to the supply.

So what can you do about this? My advice is to sell ASAP (Remember: A dollar today is worth more than a dollar tomorrow) or consider a land contract, like you mentioned. In the next three years, I would not count on 5-8% appreciation due to the mere fact of the supply of houses currently on the market. The only chance would be if you are in an inelastic location (near a college, on the coast, etc) where the demand will not be affected by the health of the economy. Your opportunity cost is to continue to pay 75% of your income on housing vs. getting a lump sum of money today from a sell or payments in the form of rent that will help pay your current rent in Colorado.

This is a buyers market so, unfortunately, it is hard for you to dictate terms of a land contract. Therefore, if you enter a land contract, you might consider having the potential buyer pay interest on the delayed principal of the home rather than charging 5-8% appreciation. The best option to protect yourself is to peg this interest to the 10-yr US Treasury Note on a monthly or quarterly basis. Doing so will protect you and the potential buyer in a good and bad housing market.

The 10yr Note is often used by investors as a benchmark of the health of the economy and people usually flock to it in terms of uncertainty, often referred to as “a flight to quality.” If the stock market were to continue to fall, the yield of the note will go down, but the chances of the housing market continuing to be flooded with homes is high and it keeps the price of the home reasonable for the potential buyer. If the economy starts to recover, people will take their money out of Notes and put it back into the stock market and the yield of the note will increase, most likely to a yield between 3.5% – 4.5%. The buyer shouldn’t mind this proposal because he is also protected in a bad market and the yield of the 10yr not is not likely to exceed 4.5% anytime soon. This is not your 8% appreciation, but its better than nothing and I bet days of real estate appreciation like you have seen in recent years are gone for a while after the mess it has created in the credit markets.

Doing this will take a lot of pressure off of your family’s income and it potentially creates a win/win situation for yourself and your potential buyer.

Hope that is not too much information and that it will help you in your decision to sell/rent your home.

I think selling it outright is the best thing to do.

Mike

So if this buyer walked, and if you think the price is fair, there should be other buyers.

It may also be useful to input opportunity costs of the property lying idle.