Selling your home at a loss? Everything you need to know before you list.

Yahoo

25-07-2025

During the pandemic-era housing boom, bidding wars and over-asking-price offers became the norm. However, some buyers may face a tough reality today: They need to sell — but at a loss.
Whether you're facing a job change, financial hardship, or another one of life's twists and turns, taking a hit when selling your home is never ideal. However, it's not the end of the world, and you may have options that put you ahead financially.
Read more: The best mortgage lenders for bad credit scores
In this article:
Reasons for selling a house at a loss
How to know if you're actually taking a loss
Options if you're facing a loss
When it might make sense to sell at a loss
Tax implications to note
FAQs
Reasons for selling a house at a loss
Not every home sale ends in profit, especially if you haven't owned your home for very long. Even in a strong housing market — like the one we're in today — it's possible to walk away with less than you put in for several reasons.
You lack equity
If you bought your home with a low down payment using mortgages like VA loans or FHA loans, you didn't have much equity in your house to begin with. And in the early years of homeownership, most of your early mortgage payments go toward interest rather than paying down the principal.
Selling in the first few years means you likely won't have built up much equity, and selling costs can easily wipe out what little you have.
Your local housing market has cooled off
Home values don't rise evenly throughout the country. If prices in your area have stalled or dipped while prices in other regions have continued to rise, your home might sell for less than you paid — especially if inventory has increased, buyer demand has slowed, or there's some other reason for depreciation.
Life changes force a move
Sometimes the decision to sell isn't about money; it's about necessity. A new job, growing family, unexpected expense, or divorce with a co-owner of the house can create pressure to sell before you're financially ready.
Selling costs add up
Between commissions, closing costs, and other expenses, selling a house often costs 6% to 10% of the sale price. Those fees alone can quickly turn a small gain into a net loss.
How to know if you're actually taking a loss
It's easy to assume you're losing money on your home if it sells for less than you paid. However, that's not the whole story. To really know where you stand, you'll need to do a little math and factor in a variety of costs.
Your purchase price: This includes what you paid for the home, plus the cost of any upgrades or improvements you made while living there.
Your current mortgage balance: Your remaining loan balance may be more than you expect, especially if you haven't owned the home very long.
Estimated selling price: This is what a buyer is willing to pay in your current market, not necessarily what you'd like to get.
Agent commissions: A typical real estate commission for sellers is 6%, as sellers have historically covered both the seller's and buyer's shares (or 3% each). Now, sellers aren't necessarily required to pay buyers' agent fees, so depending on your situation, you could find yourself paying roughly 3% to 6%.
Closing costs: These can include, but aren't limited to, the title search, escrow fees, and real estate attorney fees.
Repairs and prep work: From painting and cleaning to various other home improvements you pay for before listing the home, don't forget to include these costs in your total expenses.
Dig deeper: How much does it cost to sell your house?
A real-world example
Let's say you bought a home in 2021 for $460,000 and put 5% down ($23,000). From the get-go, your mortgage loan balance is $437,000, and you start making monthly payments toward the principal and interest.
Now, you're the new caregiver for your aging parents and need a bigger home. Your real estate agent says the best asking price you can get on your current house is $445,000, and you still owe $420,000 on your mortgage.
You pay a 3% agent commission (~$13,350), $6,500 in closing costs, and another $2,000 to get the house ready for sale.
Here's how it all breaks down:
So, even though you sold your home for $15,000 less than you paid, your final loss on the transaction is $3,150 — not counting your original down payment and the mortgage payments you made along the way, which helped you gain equity in the home along the way.
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Options if you're facing a loss
If the math shows you're selling your house at a loss, you still have choices. Some may help you avoid selling altogether, while others can help you strategically cut your losses.
Stay put and ride it out
If you're not in a rush to move, holding onto your home for a few more years could help you build equity and recover value. You could also save significantly if you locked in a lower mortgage rate when you bought the house than those available today, making your current payment more affordable than one you might get on a new home.
Rent it out
Becoming a landlord isn't for everyone, but depending on your local real estate market, it could be a highly profitable move.
'Some would-be sellers simply can't believe what their units would rent for when I tell them,' said Mark Zipperer, owner and broker with The Zipp Group in Chicago, in a phone interview.
Rental income could more than cover your current mortgage and still let you make the housing move you want, especially if you live in a major metropolitan area where competition for rentals is fierce.
'Here in Chicago, we're doing open houses for rentals and getting upwards of 20 applications per unit,' said Zipperer. 'Prospective renters are even bidding up the rental price in hopes of being selected for the unit.'
While Chicago's market might not reflect yours, there's no harm in checking into what your unit would rent for. If you decide to go the landlord route, Zipperer also advised getting up to speed on local rental ordinances so you're legally protected. You can also work with a property management company if you'd prefer someone else to handle the day-to-day details and legalese on the rental side.
Consider a short sale
If you owe more than your home is worth, you may be able to negotiate a short sale with your mortgage lender. With a short sale, your home sells for less than the mortgage balance, and the lender agrees to forgive the difference.
Short sales typically require that you be behind on your mortgage payments and require lender approval. This move can also impact your credit — a consideration if you're looking to short sell and then buy another home.
Bring cash to closing
If you're close to breaking even, you could bring money to the closing table to cover the gap. It's not ideal, but it might prove a good strategy if selling will free you up to make a better financial decision elsewhere, such as relocating for a better job.
When it might make sense to sell at a loss
In some cases, taking a loss isn't a sign of financial defeat — it's a strategic move. Here are times to consider selling your house at a loss.
You're struggling with monthly expenses. Selling a home you can't comfortably afford may hurt now, but it could help you get back on firm financial footing sooner.
You're relocating for a better opportunity. A higher-paying job, lower living costs, or being closer to family may all justify the short-term loss.
You're facing changing household needs. A growing family, aging parents, or accessibility needs might mean your current home no longer fits.
It brings you peace of mind. Shedding an asset that feels like a burden could lighten your financial burden and spirits.
Dig deeper: Do you have home buyer's remorse? Here's what to do next.
Tax implications to note
If you're thinking, 'Oh, I'll just write the loss from selling my home off on my taxes,' think again. In most cases, the IRS doesn't allow you to deduct a capital loss on the sale of your primary residence on your federal taxes.
However, if the home you want to sell was used as a business or rental property rather than a personal residence, it's treated differently by the IRS. Losses in those cases may be deductible depending on your tax situation. To be safe, consult a licensed tax professional.
Read more: Capital gains tax — How much you'll pay when you sell a home
Selling a house at a loss FAQs
What happens if you sell a home for a loss?
If you sell a home for less than your remaining mortgage balance and sale costs, you'll need to cover the difference out of pocket. This is considered a financial loss, but it won't impact your taxes unless the home was a rental or investment property. If you're behind on payments, a mortgage lender may agree to a short sale; however, this can negatively impact your credit.
Can I write off a loss on my house?
Generally, no. The IRS does not allow you to deduct a loss from the sale of your primary residence because it's considered personal-use property. However, if the home was used as a rental or business property, a loss may be deductible under certain conditions. Always consult a tax professional to understand how the rules apply to your situation.
Should I sell my house at a loss or rent it out?
Renting your home could help you avoid selling it at a loss, especially if it covers your mortgage and other costs. However, being a landlord comes with its own responsibilities and risks. Be sure to speak with a real estate professional well-versed in rentals in your area before jumping into the rental market with your property.
Note: The author has bought and sold property through Mark Zipperer.
Laura Grace Tarpley edited this article.