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Selling your belongings when you downsize is unlikely to be of much help in paying your retirement expenses, experts say, thanks to a growing glut of secondhand goods on the market.
By Elizabeth O'Brien, Market Watch, The Wall Street Journal
Many boomers turn to estate sales to pare their possessions for a downsizing move, either their own or their parents’. Too often, those who expect to bank some serious cash are in for a rude shock: Their possessions are worth a fraction of what they imagine.
If the goal is simply to lighten the load for the next phase of life, then a modest payout isn’t a problem. Yet the stakes are often higher, according to estate liquidators—the professionals who conduct an estate, or “tag” sale on a property. Many people are counting on Aunt Betty’s silver set to help pay for out-of-pocket medical or long-term care expenses. When that’s the case, they’ll often come up short, as people attach more value to their items than most command at retail.
Partly to blame is a glut of secondhand goods, one that will only grow as the improving housing market unlocks pent-up demand for moving in general and downsizing in particular, experts say. In recent years, the slow economy and weak home prices have kept those who didn’t need to move in place. That has started to change. Twenty-nine percent of boomers ages 50 to 64 plan to move within the next five years, according to The Conference Board’s Consumer Confidence Index, released December, 2012. Of those, 46% plan to go to a smaller home.
Moves will likely accelerate given the recent uptick in the housing market, experts say. Last week, the March 2013 numbers for the Standard & Poor’s/Case-Shiller composite 20-city home price index were released, showing a 10.9% rise from the same period a year earlier, the biggest year-over-year gain since April 2006.
Even if they don’t choose to relocate, medical needs will eventually force the hands of many boomers. Ten thousand baby boomers turn 65 each day, and that trend will continue for the next 16-plus years. The average American home is 2,500 square feet. The upshot? “There is a tidal wave of stuff headed in our direction,” said Julie Hall, an appraiser and estate expert in Charlotte, N.C. who does business as The Estate Lady.
That means an already soft market for furniture and other household items will become even softer. “Everyone already has a dining room table,” said Chris Seman, president of Caring Transitions, a senior relocation and estate liquidation service. And young people setting up their first homes generally prefer modern-style furniture like that of IKEA, not the classic, sturdy pieces of their parents’ and grandparents’ generations, experts say. The market has softened even for serious collectible furniture, such as 18th- and 19th-century Georgian-period English antiques, said Frances Zeman, president of Appraisal Resource Associates in New York City. Pieces that sold for $10,000 at auction five years ago might have trouble selling for half that these days, Zeman said, although the market is showing some signs of firming.
Indeed, the market for high-end collectibles tends to be cyclical. It’s a mistake to believe that antiques can only appreciate in value, and an even bigger one to count on the sale of your armoire to fund, say, your first year of Medigap premiums. Regular appraisals will ensure your collectibles are properly insured and keep you updated on their current value, Zeman said. She recommends that you consult a professional appraiser every three to five years to see if there have been any major changes in the market for your items and to make any necessary adjustments in valuation. (People often think appraisers can casually eye a piece and rattle off its value, when in reality the process takes time, from a few hours to a few weeks depending on the item, Zeman said.)
Downsizers envisioning their take from an estate sale must subtract the liquidator’s fee, which varies according to region and experience but averages around 35% of the sale’s proceeds. Many estate sellers charge extra to dispose of items left unsold after the sale.
Alan Klug, franchise partner in Baltimore and Pittsburgh with 1-800-GOT-JUNK, a liquidation firm that often disposes of items left unsold after estate sales, recalls clearing out a home containing thousands of plastic dolls in the likeness of former president Bill Clinton. The deceased homeowner had invested in the company that made the dolls, and a family member was convinced the dolls held value. So he paid for Klug’s company to move them to a storage unit. After discovering that there was no market for the plastic Clintons, the client called Klug back to get rid of them, losing out on the extra moving and storage rental fees.
To be sure, it’s only natural to expect the most from your items. The Louis Vuitton purse you bought for $1,000 is still like new, so why should you feel lucky if you get a $300 offer? Sentimental value also adds to the perception that items have a higher dollar value than they really do. Then, of course, there are television shows like “Storage Wars,” which have trained us to think that there are treasures hiding in every basement, attic and storage unit. “Don’t even get me started on the cable shows,” said Hall, the Charlotte liquidator. To prepare her clients, she gives them a talk along the lines of, “I know what you paid for it; I know it was special to mom. We’ll do the best we can, but you need to check your expectations at the door.”
When it comes to a holding a successful estate sale, preparation is key, experts say. Estate liquidators are generally not trained appraisers, so people who think they might have something of value should get it appraised before hiring a liquidator, experts recommend. (A good liquidator will know when she is in over her head and will refer clients to an appraiser for hard-to-price items, but don’t count on it, Zeman said.) Truly rare and valuable items, such as an authentic Tiffany lamp—most on the market are reproductions—are usually best kept outside the estate sale and sold by a high-end auction company. As for Aunt Betty’s silver set, the value depends on a number of factors, including the style and completeness of the set, Zeman said.
Downsizers with realistic expectations can do themselves a great service by streamlining their possessions and moving on to life’s next phase, experts say. “There are so many people who are so stressed about what to do with their stuff that they don’t make a move that they need for their health,” said Barry Gordon, founder of MaxSold, an online auction liquidation company.
Of course, one way to take the stress out of shedding your belongings is to take steps long beforehand to make sure that you’re not counting on them to fund your next step. Funding for retirement health care expenses, for example, should start well before an estate sale enters the picture. Long-term care insurance has gotten more difficult to obtain in recent years, but it’s still worth a look for healthy people in their 50s or early 60s, some advisers say. To help defray long-term care costs, an increasing number of advisers are turning to life insurance policies with a long-term care rider for their clients. These policies are often universal life policies with a death benefit and a rider that allows the death benefit to be used as a living benefit for a fixed number of years, often four. An immediate income annuity—one that converts a lump-sum payment into an immediate stream of monthly payments for as long as the policyholder and/or a spouse lives—can ensure that you don’t outlive your nest egg.
The key to a successful move, Gordon said, is to focus on the larger goal, whether it’s relocating to a condo near the grandkids or to a continuing care retirement community. Don’t put up roadblocks by trying to get top dollar for everyday goods, said Gordon: “You don’t want to hold your dining set ransom.”
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