Wealthy Americans tend to diversify their assets. They own stocks, bonds, private equity, real estate, collectable art, precious metals, and a variety of other assets. Less affluent Americans might have a 401(k) plan and a savings account, but their home is often the most valuable asset they own.

Owning a home has long been seen as a way for Americans to grow wealth. Family homes are an attractive investment because, in the long term, they almost always appreciate in value.

A homeowner’s equity grows with each mortgage payment and, assuming the home is properly maintained and the neighborhood is not in decline, the owner may eventually fund retirement, at least in part, by selling the home, using it to secure a line of credit, or taking out a reverse mortgage.

About a fourth of housing wealth in America is held by people who are 70 or older. While older adults may have made a prudent investment by purchasing a house in their younger years, research from the Federal Reserve Bank of Philadelphia casts doubt on the assumption that owning a home is the ticket to financial security in retirement.

Seniors and Selling Prices

Although retirees often plan to downsize by selling the family home, the research suggests that older sellers receive less for their homes than younger homeowners. The gap in selling prices begins soon after age 70 and increases each year after sellers reach that milestone. All other things being equal, a seller who is 80 will, on average, receive 5% less than a seller who is 45.

A few factors explain the disparity in selling prices. Young people tend to buy older homes, renovate them, and sell them for a profit. They fix up starter homes and use them as leverage to finance bigger or newer homes.

Older homeowners are more likely to have lived in their home for many years. They are also less likely to have modernized them in recent years. Even if they have maintained the home, older owners probably haven’t added smart appliances, replaced dated carpeting, or installed energy-efficient heating and cooling systems. Homes that have not been renovated are less attractive to buyers and command lower prices.

The researchers also found that older adults are less likely to list their homes on the Multiple Listing Service (MLS). Sellers who list their homes on the MLS tend to receive higher selling prices than sellers who market their property privately.

Private sales typically result when the listing agent markets the home through his or her personal network (often known as “pocket listings”). That network is often comprised of investors who want to “flip” homes for a profit rather than buyers who plan to live in the home. Shrinking the number of potential buyers reduces competition among buyers and depresses selling prices.

The researchers suggest that cognitive decline is a final factor that affects selling prices. Older sellers may be more vulnerable to unscrupulous realtors who steer them to private investors who make lowball offers. While realtors earn a lower commission when the selling price is lower, they may have financial relationships with private investors that allow them to receive kickbacks or share in the profit when the investor resells the house at its true market value.

Planning for the Future

Seniors who sell for less than market value may lose the opportunity to maintain the retirement lifestyle that they expected. Instead of downsizing to a two-bedroom condo, they might be forced to purchase a one-bedroom unit. Rather than purchasing a unit in a retirement community with many amenities, they might purchase a unit in a less desirable community.

The research paper suggests the need for reform of pocket listings. Since senior sellers cannot wait for reforms to be instituted, they may want to avoid realtors who discourage them from listing their homes on MLS. “Will you list my home on MLS?” should be one of the first questions that seniors ask when interviewing realtors.

Long before retirement beckons, homeowners should keep in mind the need to improve their property value. Major repairs, including roof repairs and furnace replacement, can be expensive, but they are necessary to maintain the value of a home. Renovations, including updating kitchen appliances, replacing unattractive counters and broken garage doors, and modernizing bathroom fixtures, should be undertaken a few years before retirement.

Consider taking relatively inexpensive steps to improve curb appeal shortly before the house is listed for sale. Power washing the house, trimming the bushes, painting interior walls, and adding modern faucets to bathroom sinks are the kinds of weekend projects that can significantly improve a home’s selling price.