Selling a House
If you own a home, these things are true:
- At one time, you probably bought the property, so you are familiar with what it takes to find real estate, apply for a loan, negotiate with a seller and close on a property.
- The odds are very high that someday you will sell your home. (In America, more than 4 million homes are sold annually by owners who typically lived there only nine years.)
Although selling a home is arguably less complicated than buying one, there are still many details to consider. By understanding the process and then following accepted procedures, you can minimize the hassle and increase your chance of reaping the best return on your investment.
As a result of the economic downturn since 2007, the housing market has changed. The explosive growth of foreclosures and short sales, which in 2011 made up about 23 percent of all home sales in America, has altered what had been mostly voluntary transactions between buyers and sellers.
Today, a big chunk of the housing market consists of forced sales of homes that are “upside-down” or “under water” — where the amount owed to a lender is greater than the market value of the property — and sales by institutional lenders that have repossessed property from owners who could no longer afford their mortgages.
The following information is intended to guide owners through a typical home sale, recognizing that despite the changes, the great majority of home sellers are still participating in the traditional market.
Deciding to Sell
The first thing to consider before offering your home for sale is to be clear about why you want to sell:
- Do you need to relocate because of a job or family issue?
- Is it time to move up to a larger residence or down to a smaller one?
- Are you hoping to turn your home equity into ready cash?
- Do you want to live closer to friends or family, or perhaps move to another part of the country?
Your reason(s) will affect many of the choices you must make in the course of the sale.
For example, if you must sell your home quickly because your company has moved you to another city or because other debts are going unpaid and you need money now, you may wind up accepting an offer that is not in your best economic interest.
Conversely, if you are just thinking about downsizing because your children are in college or elsewhere, you have the luxury of time. You can afford to wait until market conditions are more favorable and/or you find a buyer who will meet or exceed your asking price.
Sell by Yourself — or Get Help?
Once you decide to sell your home you have two basic choices – whether to sell the house by yourself or to find a real estate agent to market the house for you.
Most sellers choose to work with a real estate professional who knows the local market and has a record of successful sales. In 2011, 87 percent of traditional home sellers had help from a real estate agent and about 25 percent of those sellers used the same agent they previously had worked with to buy or sell a property.
In 2011, only 10 percent of home transactions were for-sale-by-owner.
The primary reason owners sell homes on their own is that they do not want to pay an agent’s commission – generally between 5 percent and 7 percent of a home’s selling price. It seems to make sense, given that 40 percent of sale-by-owner transactions in 2011 involved buyers already known to the seller prior to the sale.
The main reasons most sellers choose not to handle their own sales are:
- Lack of necessary expertise.
- Lack of time to see the process through.
- Fear of getting into trouble by doing something wrong.
- Unwillingness to negotiate with potential buyers.
In an agent-assisted sale, your real estate professional will typically place a “For Sale” sign in front of your house, place an ad in your local newspaper(s) and list your property on your area’s Multiple Listing Service. The MLS is a database that allows your agent share information on your home with other agents who may have potential buyers for you.
Most LMS systems restrict membership and access to brokers who are licensed in your state, or who are members of a local or national Realtors’ association. Still, access has expanded somewhat in recent years through various websites that offer portions of an MLS to the general public.
An owner handling his own sale generally cannot list a home directly with a MLS. This is a major disadvantage when selling the property yourself. However, there are online services dedicated to owner/sellers that can help you effectively advertise your home.
Such services allow you to upload pictures and details of your house and neighborhood, as well as publicize a way for prospective buyers to reach you. As in an agent-assisted sale, you will want to place a sign in your yard and buy small ads in the local newspaper. You probably also should consider advertising via flyers and posters.
Setting Your Asking Price
Regardless of how you sell, you will want to know how much your home is worth. This does not mean how much you would like to get for it, but how much the current market value is.
You can get this information by accessing a Comparable Market Analysis that will give you a list of similar home sales in your vicinity over the past six months. Pricing your home to sell within a reasonable range, based on recent examples, is essential.
You don’t want to inflate your selling price beyond what the market will bear, but you also don’t want to lose money by undervaluing your property. If you have concerns in either regard, you can hire a professional property appraiser to evaluate your home.
If you do work with a real estate agent, you will be required to sign a listing agreement with your agent’s broker. (A broker is the legally responsible party in a real-estate transaction, while an agent acts more as a salesperson. Your agent may have a broker’s license or simply may work for a broker.)
This agreement is not a contract to sell your house. Instead, it is a service contract, in which your broker promises to do his or her best to find buyers for your home at the price and terms stipulated in the listing agreement. In return, you promise that you will pay a commission to your broker upon the successful sale of your home, regardless of whether he or she produces the ultimate buyer.
For example, you have a “For Sale” sign in your front yard and someone driving by sees the house, stops to look at the place and later buys it. Or perhaps another agent has seen your listing on the MLS and arranges a tour for her client who, in due course, becomes the buyer. In either case, you still owe your broker a commission.
On the other hand, if your broker cannot produce an offer that meets the agreed-upon price and terms, you do not owe any commission, no matter how hard he or she has tried to make a sale. Also, by signing an exclusive listing agreement with a broker for no longer than three months, you are free to find another agent if you are not happy with the results after that time.
Showing the Property to Buyers
Once you have your selling plan in place and have determined your asking price, it’s time to prepare your house for visits by potential buyers. Obviously, it is important to clean and spruce up your home, both inside and out. But you also must consider whether to make any major repairs or upgrades.
Should you apply a new coat of paint in the master bedroom? How about putting down new carpeting or fixing the faucets in the laundry room? These are not trivial issues. Some of these items may be necessary and some not, but all will cost you something.
Some buyers will accept a certain amount of fix-up if the asking price is adjusted to reflect the home’s condition, while others will walk away if there are any issues, even cosmetic ones. A good real estate agent will help you decide what fixes are necessary and also can suggest the best ways to present your home in ways that emphasize its key selling points, be they a new kitchen or bath, a beautiful fireplace or a lush lawn and garden.
All sellers ultimately have to negotiate with potential buyers. In most instances, there will be offers and counter-offers until both sides agree on a deal. As a seller, you should be prepared to accept less than your asking price if the offer is still in the acceptable range for comparable properties and reflects a realistic assessment of current market conditions.
However, you should never feel undue pressure to accept a truly low offer, unless you are under considerable duress due to time or economic constraints. You also may have to adjust your price downward if a home inspection reveals significant defects in your home’s condition.
Many Types of Financing
You need to understand the various arrangements that exist for financing a home sale:
- All-cash offers – You receive all cash for your house (minus the costs of the sale). The obvious advantages are that you receive the value of your home equity in full, and you are relieved of any mortgage contract you have, since it is paid off with proceeds from the sale.
- Seller financing — There are many variations. For example, you may decide to give the buyer either a first or second mortgage on the property. The buyer also could agree to assume your original mortgage, taking over the payments. You could offer the buyer a “wrap-around” mortgage that complements any mortgage already secured by the property — the buyer pays you monthly while you continue to make payments on the underlying note.
Seller financing may make it easier to sell your home, especially if a potential buyer has difficulty obtaining financing any other way. A major disadvantage is having to qualify buyers yourself to make sure that they are credit-worthy. There’s also the risk that a buyer may eventually default, leaving you liable for any unpaid obligations.
Sellers should reacquaint themselves with the provisions of a purchase contract. If you are working with a real estate agent, he or she will help you review its contents. If you are selling the property on your own, make sure you completely understand all its variations and legal ramifications. One detail that should be spelled out in the contact and approved by the buyer is just when you must leave the premises, particularly if you still need time to find another place to live.
Once you have an agreement to sell, once the buyer has obtained the necessary financing and approvals to buy, and once all of the contract terms are understood and agreed to, you will have the opportunity to participate in the closing process from the opposite perspective of where you sat when you bought your home.
Again, it is necessary to perform your due diligence. Home sales are complex transactions and there is much to understand, including how the escrow and title processes unfold, and what tax consequences will result from your sale. These are just a few of the reasons to take advantage of the expertise of your real-estate professional or a real-estate lawyer.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at email@example.com.
- “Home Buying for Dummies” by Eric Tyson and Ray Brown. Published by Wiley Publishing, Inc., New York, NY. ©2001 Eric Tyson and Ray Brown. ISBN: 0-7645-5331-3.
- “The For Sale by Owner Kit” by Robert Irwin. Published by Dearborn Trade Publishing, Chicago, IL. ©2005 Dearborn Financial Publishing, Inc. ISBN: 0-793-9514-4.
- “How to Sell Your Home Without a Broker” by Bill Carey, Chantal Howell Carey, and Suzanne Kiffmann. Published by John Wiley & Sons, Hoboken, NJ. ©2004 by Bill Carey, Chantal Howell Carey, and Suzanne Kiffmann. ISBN: 0-471-66854-0.
- Veiga, A. "Bank-owned homes and short sales were 23% of all 2011 sales." The Associated Press. (2012, March 1). Retrieved from: http://www.usatoday.com/money/economy/housing/story/2012-03-01/foreclosures-short-sales-2011/53314076/1