Introduction
Selling a home is a major decision that involves both emotional and financial considerations. Whether you are moving to accommodate a growing family, downsizing for retirement, or relocating for work, being prepared can make the process smoother and more successful. From choosing the right time to sell and preparing your home for showings to deciding whether to use a broker or sell it yourself, there are several important steps to take. Understanding your options, setting the right price, and knowing how to navigate the sale process can help you get the best results and avoid costly mistakes.
Getting ready
Choose the right time to sell
In some cases, you won’t be able to choose when to sell your home. If you have a choice, you’ll want to sell when buyers are plentiful, and available homes are scarce. You’re likely to sell your home faster and get a better price in such a “seller’s market.” Even the time of year can make a difference. Home sales perk up in the bloom of spring and fall off in the dead of winter, so selling in the winter months when there is little competition may prove lucrative.
Get your home in tip-top condition
Getting your home in top condition should be one of the first things you do when you decide to sell it. Try to see your home through the eyes of a stranger. A picture-perfect home impresses prospective buyers, brokers, appraisers, and inspectors.
- Give your home a thorough cleaning. You might even hire a professional cleaning service to do the job.
- Take care of any maintenance projects you’ve been putting off.
- Cut the grass and weed the flower beds. Your lawn and garden should also make a good impression.
- Remove clutter. Your home will appear more orderly and spacious.
- Avoid major decorating projects unless they’re necessary to make your home look good. Your taste in paint or wallpaper may not be the same as that of a potential buyer.
- Don’t undertake major home improvements if they’re done only to make your home more attractive to potential buyers. Most remodeling projects cost more to complete than they add to the selling price.
Using a broker or going it alone
When you plan to sell your home, you’ll have to decide whether to sell it yourself or hire a real estate broker. Each option has advantages and disadvantages.
Selling it yourself
If you sell your home yourself, you’re in control of the whole process. You can:
- Determine the price to ask for your home, balancing its unique characteristics against the price range of comparable homes in your area
- Design and implement your own marketing plan to attract prospective buyers
- Present your property to its best advantage by conducting your own open houses and private showings
- Evaluate a prospective buyer’s ability to afford the property and negotiate that sale directly with the buyer
- Save a substantial amount of money you’d otherwise pay as a broker’s fee and commission
The biggest drawback to going the “for sale by owner” (FSBO, pronounced “fizzbo”) route is that you’ll have to do all of the work yourself. If you price your home too low, you might miss out on some potential profit. Price it too high, and your home will languish unsold on the market. Getting the word out to prospective buyers and showing your home might take a lot of your time and energy. You may find evaluating a buyer and conducting any face-to-face negotiations stressful–and if a sale isn’t finalized, you’ll have to do it all over again.
Another approach is to use a fee-for-service broker. This concept is relatively new and growing in popularity. In a fee-for-service broker arrangement, the broker performs only the services that you agree to pay for (e.g., establishing a price, marketing, showing the property). In this type of arrangement, you can save money by doing some of the work yourself while still having the guidance of an experienced broker.
Using a real estate broker
Most people choose to enlist the help of a real estate broker when selling their home. This can be a wise choice, especially if you don’t have the time or expertise to correctly price your home, market it, and bring in potential buyers.
A real estate broker can:
- Help you determine your home’s appropriate sale price and suggest the best way to package, present, and market the property
- Advertise your home’s sale and place your home in the local Multiple Listing Service (MLS), which is seen and used by real estate agents and buyer’s brokers throughout your area
- Host your open house
- Relieve you of the pressure of face-to-face negotiations with a buyer by handling the presentation of purchase offers and counteroffers
- Follow an offer to purchase through to a successful closing
Of course, you’ll pay for this expertise. If you do use a broker, you’ll negotiate a real estate brokerage contract, which establishes the terms under which the broker can market and sell your home. There are three basic types of real estate brokerage contracts.
- Open listing brokerage contract: You retain the right to sell the property yourself, but you also give information about your home to a number of brokers who may show the property to prospective buyers.
- Exclusive agency brokerage contract: You reserve the right to sell your home yourself, but you give one broker (or brokerage office) the exclusive right to advertise the sale, hold open houses, and place your property on the local MLS.
- Exclusive right to sell brokerage contract: You give up the right to sell the property yourself. Instead, you give that right exclusively to one broker (or office) that assumes all of the responsibility and expense of marketing your home.
In most cases, you pay a commission to a broker only if the broker brings a buyer who ultimately purchases your home. However, a broker’s chance of earning a commission is diminished under both open listing brokerage and exclusive agency brokerage contracts. (In the first arrangement, another broker may make the sale; in either arrangement, you might sell the property yourself.) For this reason, brokers prefer exclusive right to sell contracts, and may offer you a sliding scale brokerage fee clause as an incentive to sign one. Such a contract is generally the best type to agree to. By optimizing the broker’s chance to earn a commission, you give the broker a reason to treat your home as a top priority, increasing the likelihood your home will sell quickly, easily, and for the best price.
The sale process
Whether you sell your home yourself or use a broker to sell it for you, the process will be essentially the same.
You (or your broker) will market your home to attract prospective buyers. The marketing campaign may include media advertisements, For Sale signs, spreading the word by word of mouth, and (if you engage a broker) posting an MLS notice of the sale. You’ll also show your home, both at open houses and in private showings. Everyone who crosses your threshold should receive a flyer containing a picture of your home and relevant information about it.
An interested buyer will make a purchase offer in writing; this offer is usually accompanied by a down payment (often called earnest money). You may not accept the offer; if this is the case, you might make a counteroffer in writing. Once you and the buyer agree, you’ll both sign the accepted purchase offer (or, in some states, a purchase and sale agreement (P&S) that supercedes the purchase offer). This will contain all of the conditions for the sale and will be a binding contract, so review it carefully; unless both parties give their consent, it’s difficult to change it later.
After both parties sign a purchase offer or a P&S, the buyer arranges for your home to be professionally inspected. Generally, a P&S is written to be contingent upon a satisfactory home inspection. If the inspection turns up any minor problems, you may either offer to make the necessary repairs or discount the sale price to cover the cost to the buyer of making them. Major problems (e.g., structural flaws) can become grounds for voiding the P&S.
Once this process has been completed (and assuming your buyer secures financing), a closing date is set.
It all comes down to this
Prepare for closing
Unlike the buyer, the seller has very little to do at the closing. Your main responsibilities lie in making sure any agreed upon repairs have been made and that the buyer is getting clear title to the home. Be sure all of the paperwork is in order. Keep yourself up-to-date, and make sure that the buyer is not having trouble obtaining financing. If you choose to hire an attorney, make sure he or she is available to attend the closing.
If you find a new home before your current home is sold
When you’re simultaneously selling and buying, you may find the perfect new home before you’ve found a buyer for the one you’re leaving behind. When this happens, you might try to include a closing-on-sale contingency clause in your contract to buy the new home. This clause allows you to delay the closing on your new home for a certain period of time while you try to find a buyer for your current home. If you can’t find a buyer within this time frame, the P&S is canceled (unless you and the seller extend the agreement), and any deposits are returned to you.
If you can’t get a closing-on-sale contingency clause included in your contract to buy the new home, you may be able to get a bridge loan. This is a short-term financing vehicle used to purchase a new home before you’re able to close on the sale of your present home. Usually, both your current home and the new home are used as collateral for the bridge loan, which is paid off when your current home is sold.
If you sell your current home before you find a new home
In this case, you should try to have a delay-of-closing contingency clause in your contract to sell your present home. This clause delays the closing on your current home for a specified period of time, allowing you a chance to find a new home before you have to vacate your current home. If you cannot find a new home within the allotted time period, the P&S is canceled, unless you and the buyer extend the agreement. Although you’ll have to negotiate to have this clause included in the P&S, a buyer who is seriously interested in your home may agree to this condition.
Maybe you should stay put
Selling your home may not be your only option. If you love your home but are considering selling it because you need more room, you are in financial trouble, or you simply have to move, you may want to consider other solutions.
- Make home improvements: If your lot size will accommodate your dreams and the local zoning regulations won’t prevent them from becoming a reality, making improvements to your current home might give you the extra bedroom you need or the redwood deck you’ve always wanted.
- Take a home equity loan: If you’re thinking about selling your home to raise a substantial amount of money for a specific purpose, consider taking a home equity loan instead to raise the cash you need.
- Refinance your home mortgage: If you simply can’t afford your monthly mortgage payment any longer, you may be able to reduce it by refinancing your mortgage. A lower interest rate or a longer term (or both) can substantially reduce your monthly bill.
- Convert your home to rental property: If you just can’t stay in your current home, keeping it and renting it out can have many advantages, especially if property in your area is appreciating in value. However, you should understand the various tax consequences of renting out your home before you make a decision.
- Take a reverse mortgage: If you’re retired and your home mortgage is paid off, a reverse mortgage can increase your cash flow. You’ll receive a line of credit and/or periodic payments from a financial institution; the principal and the interest charged on it are offset against the equity in your home, and are generally repaid when your home is sold by you (or your estate).
Conclusion
Selling your home may seem overwhelming at first, but with careful planning, the right support, and a clear understanding of your goals, it can be a rewarding experience. Whether you move forward with a sale or explore alternatives like refinancing, renting, or remodeling, be sure to weigh the pros and cons based on your unique situation. If you decide to sell, take time to prepare your property, price it strategically, and choose a selling method that fits your needs. With the right approach, you can sell your home confidently and move forward with peace of mind.
Scarlet Oak Financial Services can be reached at 800.871.1219 or contact us here. Click here to sign up for our newsletter with the latest economic news.
Source:
Broadridge Investor Communication Solutions, Inc. prepared this material for use by Scarlet Oak Financial Services.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Scarlet Oak Financial Services provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
