7 Steps for Handling a Last Minute PCS
by Karina Gafford
I had a completely different topic planned to discuss today until a friend, a fellow military spouse, called to ask advice about how to handle a last minute change of assignment. This made me realize the importance of having an easy step-by-step process to follow when your plans are sidelined by Uncle Sam. It’s okay, though, if that process follows the one that goes something like this: Get in the car, drive to the store, get a pint of ice-cream, eat the ice-cream, and wallow in self-pity for an evening. The self-pity must have limitations though; you’ve got a big task to achieve and little time in which to complete it!
We’ll discuss Julie’s situation (one most of us are familiar with), the options we saw for her,
which option she selected, and what steps she needs to take moving forward with her option.
Most of us have been in Julie’s situation, but after two or three years at one duty station, it’s easy to start to feel settled-in and complacent about the thought of moving. Maybe the military has forgotten about us, you may think, or maybe they’ll realize it’s more cost effective to leave us here. Alas, for Julie, the military did think of her family this summer. Twice! Despite having received Permanent Change of Assignment (PCA) from the Pentagon to Fort Belvoir, a distance of about 16 miles (though you’d never know it was that short given traffic around the greater DC area), less than three months into his new assignment, Julie’s husband received an unexpected call warning him to await orders for a PCS to Nebraska. The phone call referred to a report date of less than six weeks.
Now, any good military folk already knows that it’s a bad idea to move forward with any tangible commitments prior to receiving orders in hand, so Julie’s concern is that her husband has 6 weeks to report, but no orders yet. If she was renting a home or apartment, she would have two weeks until receiving the required 30 day notice to break her lease under a military clause without penalty. Even when orders arrive, they can’t always be trusted either. I vividly recall our own preparation to put the car on the ship with a destination of Okinawa three years ago, and yet here we are, still in Virginia! In Military Land, plans can still change in instant, orders or not. What’s that, you say, Grandma? Don’t count your chickens before they hatch?
Julie, however, does not have an easy out button; she owns a home that she and her husband bought with a VA loan three years ago. Based on comparable homes that have sold in her neighborhood this summer, it doesn’t seem as if the market has increased sufficiently to cover her cost of selling the property. Without any waivers or exemptions, buying a home on a VA loan as an Active Duty family requires a funding fee between 1.25 and 2.15-percent, depending on the amount of the down payment. Therefore, to sell and break even, Julie’s home would have had to have appreciated to cover not only the mortgage balance (after three years of mortgage payments, the reduction in principal is negligible), the VA funding fee, and selling fees. As real estate agent and broker fees can add up to an additional 6-percent, Julie and her husband were facing a prospective selling loss in excess of $20,000, and that’s not including the expenses involved in preparing her home for market (staging and repairs). Is this story sounding familiar to anyone yet?
Based on these facts, the options we determined for Julie are:
A) Convert the property into a long-term rental. This option will permit Julie the best opportunity to recoup her losses, as renters will essentially pay her mortgage until Julie has established sufficient equity in the property to either break even or sell at a gain. Based on what similar homes in her neighborhood rent for, Julie is pretty sure that the rental amount will cover her mortgages costs; however, if she hires a property manager, she won’t have anything remaining for maintenance costs, so these will all have to come directly out of Julie’s pocket. Despite the prospective out-of-pocket costs, this doesn’t seem like a bad option for Julie.
B) Converting the property into a short-term rental. If Julie selects to only rent the property for a couple of years, then she’ll still have a similar financial situation two years down the line, but she’ll also have to combat trying to sell the home as a rental property. It’s typically much harder to achieve a good sale of a rental because the home may require additional maintenance and repairs that a homeowner would otherwise have kept up with while living in the property. This doesn’t seem like a good option for Julie.
C) Try to sell the home with a real estate agent. This may help Julie achieve the best value for her home as well as the quickest sale. It is definitely the easiest option for Julie to pursue, assuming that she makes sure she is working with an experienced and successful real estate agent (always interview your agents!). It’s a good idea for Julie to find someone who has experience working with military families so that she will not encounter any issues when trying to manage a cross-country sale, assuming that the sale does not finalize prior to Julie’s PCS. However, the easy button comes at a high price. Though Julie can afford the necessary repairs to help sell the property, she will have to draw from her retirement account to cover the loss in the sale. This will incur both a 10-percent penalty and a tax liability; that also doesn’t account for the long-term loss she’ll incur from removing money from that account. This doesn’t seem like a good option for Julie.
D) Try to sell the home as a FSBO. A FSBO will require the most effort and work on Julie’s part. She will have to market the home, show it to prospective buyers, negotiate the sale, and manage all of the paperwork. To do this option successfully, Julie needs to move fast in order to avoid losing time and money in the process. Also, as legal liabilities abound in a real estate transaction, it’s important that Julie finds a good real estate lawyer to manage the paperwork. She can find the paperwork she needs through US Legal Forms, which will save her the cost of having a lawyer prepare the paperwork, but it’s a good idea to pay for someone to review the paperwork to make sure that the sale won’t come back to hurt Julie after her PCS. If, however, the home does not sell prior to Julie’s move, then she needs to consider that she will have more difficulty in showing the property and ensuring its maintenance. However, if Julie does succeed in selling the home as a FSBO, then she is more likely to either break even on the sale, or sell at far less of a loss if she does not have to pay seller’s agent and brokers fees. She may still have to pay buyer’s agent’s fees, though, if she cannot find a buyer willing to purchase independently.
Since Julie lives in a relatively competitive real estate market,
she has decided to pursue Option D with Option A as a back-up.
So, what steps should Julie take?
1) Call a real estate agent immediately to inquire about the value of her home. Don’t trust the online analytics to provide the correct value for your home; their algorithms are too limited. Julie has opted for a FSBO, but since she has already met the agent, she can contact her post-PCS if she later changes her mind.
2) Call a property manager to get a market analysis of her home’s rental value and the likelihood of finding renters this late in the moving season.
4) Post her home on Military By Owner as both a For Rent and For Sale to help her make her home available to other military families immediately. This will make sure her street signs are in transit to help increase the visibility of her available property.
7) Contact a real estate lawyer. It is possible to manage all of the paperwork independently; however, given the high liabilities associated with real estate transactions, the couple of thousand dollars spent on having a real estate lawyer review legal documents and assist with the titling of the property will help save your sanity if not your finances.
What about you, experienced military moving family? What advice would you offer to Julie?