The home selling process is like your first day of school as a kid if you’ve never been through it before. The lack of firsthand knowledge can be almost terrifying if one worries about it too much – so don’t. While experience is definitely the best teacher in this kind of topic, it’s also important to remember that sales frequently veer off of generic standards due to negotiation. So there will always be a little bit of ambiguity. Long story short, being flexible is the best way to go into the process.
Do the Homework
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The first step in the process starts well before any serious selling work happens. This involves doing one’s homework about what the local real estate market means for a particular sale. Post a property at too a high of a price and it won’t sell. Post to low and profit can be left on the table to the buyer’s benefit. Market research is critical, and it’s not the sort of thing to just leave to a real estate agent to take care of.
There can also be a disconnect between national averages and generic reports about neighborhoods versus reality. Keep in mind, many research sites for real estate values get their information from property record files kept by cities. This information is then aggregated to produce quick averages. They don’t necessary represent a seller’s particular situation, just the general trend of selling in the last months in that neighborhood or city. So one has to read between the lines a bit in the research available for free.
When independent research is summarized, combine it with what a real estate agent can produce from industry resources. There may be some big differences, so a seller will want to discuss why and take those factors into consideration. Ultimately the seller decides the price point desired, not the agent.
Methods for Price-Setting
The most common method used for starting a price set point is the use of comparables. Otherwise known as “comps,” these the figures represent actual sales of homes in the same area as the one where a seller wants to sell his own house. The closer the comp matches the home to sell, the better it will be in matching market reaction to a new listing, i.e. home for sale. Comps come from a number of source and don’t have to be only closed sales. They can be other listings, newspaper ads for properties for sale, open house informationals and similar. Most industry watchers use the Multiple Listing Service or MLS for a quick view of the available local market, but it is not the only resources for data.
Reviewing closed sales on similar homes often gives a more realistic picture for pricing. These are the results of negotiation and actual willingness of the market to pay a specific price point. Keep in mind the figures can still be influenced by how a sale occurs, such as cash up front or financing. However, real closings are probably more accurate, dollar for dollar, than “maybe” comps. The proof can be seen in how much variation there is between a neighborhood’s listing price average and its closing sale price average. One will find it can be a big change between figures in some cases.
Pick a Good Selling Team
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With a price point figured out, it’s time to get the team together. Selling a home is not a one-person deal. Granted, the industry norm is for the general customer to turn everything over to a sales agent and see what happens. However, behind the scenes, the sales agent is utilizing resources and staff back at the agency office to work details.
In an ideal situation, a seller should be working with the following:
- An experienced sales agent (not just the first one available, he or she should know the neighborhood and market)
- A real estate attorney
- A broker (typically provided by the real estate agency the agent works for)
- A tax agent in complicated deals like a 1031 exchange
Now, these folks don’t work for free. The sales agent works for a commission of five to six percent of a closing sale price, which is then split with the broker and any other agents who help sell the property. The attorney works by the hour, typically $200 to $300 an hour. No surprise, many folks trim the attorney and settle for the commission price since its now directly out of pocket up front. This is probably not a good idea in complicated sale. In any case, one should not just pick up help out of the phone book. Referrals often produce far better help.
Clean Up the House
While the team begins the work on finding a buyer in the market and preparing the sale documents, the owner should be focusing on cleaning up the house and getting it ready for sale. This isn’t just a process of windexing and mopping. Each room should be reduced to the best essentials and extra belongings should be packed in the garage or put in storage. Some agents recommend spending a few thousand and buying new furniture at Costco or similar just for staging. Then the furniture can either be added in the sale or sold separately, being generally recovered in the house profit from the sale. Carpets that a really bad should just be ripped out and replaced, carpeting being one of the least expensive flooring to replace. Repainting is a good idea too and can be done for low cost with plain white. Landscaping is a key factor and should be cleaned up. New bark, sod, and fresh plants work wonders very quickly and for very little cost.
Take Care of the Paperwork
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Every sale is going to have a set amount of paperwork required by the government. Most of the time the sales agent and broker will take care of these, but the seller should be aware and follow up to make sure everything gets covered. These include disclosure notices, contract draft, and property reports as well as pest inspections.
Selling
After all the advertising, open homes and visits, private showings and offers, the time will come to close the sale. After picking an acceptable offer the agent will act as the intermediary on your behalf, answering all the buyer questions and managing the paperwork with the broker’s review. The highest bid isn’t always the best pick; ideally a good buyer is one with a solid financing package certified by a bank or paying in cash. Many a sale has fallen through with a buyer who couldn’t secure a loan but was offering a really good price. A seller can also counteroffer, maybe bumping the price up a few thousand more with a buyer who really wants the home. Most of the terms are negotiable. Once agreed in concept, the sale agreement documents all the terms and finalizes the sale responsibilities. The deal is then closed through an escrow process with an escrow officer to ensure it runs smoothly and everyone gets their part of the deal as expected, including payment and clean title. This is the time to prepare the house for vacating and moving out as well.
Don’t Forget the Taxes
The fun isn’t over yet. After the sale and all is done, the profit made on the sale has to be checked for capital gains taxes due. Each individual who has been in a home at least two years out of five owned is eligible for a $250,000 exemption from taxes. Married couples have $500,000. And some cases that don’t meet two years of living in the property can still get a partial exemption. The remainder then gets taxed on income taxes as the end of the year.
