True. So assume they put down 20% and hae 20% equity. A sale will cost you 6% (up to 8% in places like NY where you have transfer taxes.) That leaves the person

True. So assume they put down 20% and hae 20% equity. A sale will cost you 6% (up to 8% in places like NY where you have transfer taxes.) That leaves the person with 12% equity (of which 4-8% will wiped out on the purchase.) This is painful but they arent yet losing money they dont have. If the house is underwater (which the OP discussed) then you literally cannot sell without making up the difference.* Meaning, YOU PAY someone for them to take the house. That is a horrible situation. Also, that means you have less than 0 left to purchase the next home.