Sell your house wisely
Placing a “for sale” sign in your front yard is only the beginning of the home sale process, a journey that probably began weeks or even months earlier. Determining an asking price, listing the home, and showing potential buyers around are key steps in the process. But the most important step should come before any of these: clarifying the goals you hope to achieve by selling the home.
Before you proceed, answer the following questions to help you determine if now really the best time to sell or if you’d benefit more by waiting to list the home:
- Why do you want to sell your home?
• What are you looking for in a new home that your existing home does not have? - Do you have any time constraints regarding how quickly you need to sell?
• Is there any preparation or repair work needed to sell your home and if so, how much?
• Do you have enough equity in the home you’re selling to cover a down payment on a new house and/or achieve other financial goals?
• Is clearing a profit on the sale of your home essential? If so, how much of a profit?
To answer the financial questions, take the following three steps to help you make a fully informed decision.
Step I: Gauge your current finances
If you’ve prepared well, paid off all your debt (with the exception of your mortgage) and have an emergency fund to cover at least six months of living expenses. You’re off to a good start. However, when your home sells, you’ll need to cover several upfront costs.
The first order of business is to crunch some numbers to get an approximate idea of how much money you will have to work with before you’re ready to purchase your next home. To accomplish this, calculate the equity in your current home—here’s how:
Take the current value of your home, subtract the amount you owe the mortgage lender and the remaining sum is your equity.
If you aren’t certain about your home’s value, there are a few ways to get it. One is to hire a professional appraiser to examine data on recent comparable home sales in your area, factor in your home’s size, age, condition, location, and other features to provide an impartial estimate. Or you can ask a real estate agent for a comparative market analysis (CMA), which is a detailed report on recently sold homes in your neighborhood. The information in a CMA will help guide you to a competitive asking price. If you’re willing to put in a little time and do the research yourself, you can conduct your own comparative market analysis.
Once you’ve established an estimate, review your current mortgage and any additional mortgage documents for the amount you owe, including a second mortgage or line of credit you might have as well.
Next, subtract what you owe from what your house is worth to establish a rough idea of its equity. For example: a home worth about $265,000 with $135,000 owed to the mortgage lender has $130,000 of equity ($265,000-$135,000 = $130,000).
The next step is figuring the home’s net equity—your total equity minus the expenses you expect to pay during the sale process, including:
- Repairs or improvements to the home
• Listing fees or agent commissions
• Appraisal fee
• Title insurance and other expenses
Take a hard look at your home’s condition. Gauge how much your expenses will be before listing. Identify the repairs or upgrades your home will need to help it sell more quickly before you put it on the market.
Once you’ve crunched the numbers, use a spreadsheet to add them up and see where you stand. If you enlist an agent to sell the home, a spreadsheet for a $265,000 home may look something like this:
Total equity ($130,000) minus the following:
Home repairs/improvements: $5,000
Traditional Agent Commission: $15,900
Appraisal: $300
Title Insurance: $1,200
Attorneys Fee: $500
Moving: $1,500
Other fees (inspection, etc.): $500
Your net equity = $105,100
Establishing your home’s net equity is key to making a selling decision, as it will help determine whether you’re in a good position to move forward and what the best method for selling your home will be.
Step 2: Consider your options
Should you sell your current home or buy a new home first?
There’s no right or wrong answer for whether you should buy or sell first. For some people, the decision comes down to preference. Some people will do whatever it takes to avoid the stress of carrying two mortgages at once, a likely outcome for those who buy a home before selling their current home. Others fear being without a place to move into if they sell their current home before buying their next place.
Examining your current housing market can help you make the best decision for your situation. In a buyer’s market, you’ll have a better chance of making an offer on a home contingent on the sale of your current home. That means you can secure a purchase and have the home waiting for you while you complete the process of selling your current home. In a seller’s market, homeowners are far less likely to accept a contingency that forces them to wait for a buyer to sell their home.
What is the best month to sell a house?
Most homeowners wait until summer to sell. Since 2011 June, July and August account for the most home sales. However, being ahead of the crowd tends to get the best results. The most profitable month for selling a home is shown to be May, with homes selling at 5.9 percent above estimated market value.
But that doesn’t mean you need to wait a year if you start to think about selling in June or July. There are pros and cons to selling in every season, and each market is different. If you can choose any season, however, you decide to plan for a spring sale.
Step 3: Price it right from the start
While you may have a solid estimate of your home’s value, setting an asking price takes some research and requires other considerations to arrive at a precise, competitive asking price.
Researching homes that are comparable to yours in your local market is key.
What makes a property comparable?
Both appraisers and real estate agents will base their price opinions on comparable sales, ideally those that occurred within the last three to six months in your neighborhood. When looking for comparable sales to use as a yardstick for pricing your home, consider each home’s condition, age, square footage, location and the number of bedrooms and baths. The sale date is also important since it will reflect the most recent changes in your market.
Typically, the most important home feature to concentrate on is the number of bedrooms and baths, which usually play a bigger role in valuation than square footage. For example, a two-bedroom home in a neighborhood of predominately three-bedroom homes – no matter how ample the square footage – will almost always sell for less. The same is true for a home with one bath since a majority of buyers look for at least two baths. Along the same lines, if most homes in the neighborhood have a certain feature such as air conditioning or a garage, the absence of that feature will reduce the price.
Once you identify several recent home sales as potential comparables, take the time to go view them by driving past and see how they appear from the outside. You want to make sure a home’s lot size and curb appeal are similar to make sure it’s a true comparable.
Pricing your home
You’ve already taken the first step toward understanding what your home is worth. Next, seek out additional reliable sources of home pricing trends that you can use to develop your own market analysis. For instance, the Federal Housing Finance Agency has two tools that draw from home sale data pulled from federally insured loan programs.
The FHFA’s House Price Index tracks home prices in all 50 states, the District of Columbia, and most Metropolitan Statistical Areas (MSA). If your metropolitan area is included, FHFA’s index is a great gauge of your local market.
FHFA’s House Price Calculator allows you to plug in the price you paid when you purchased your home, so you can get an estimate on the likely market value of that house today. Other good sources of information include local property taxes sites which contain the most recent sale prices of homes like yours in your neighborhood.
You can also scope out information on properties via public records online or scour lists of recently sold properties on a weekly or monthly basis in local newspapers. Add homes that make sense to your database and you will be able to further zone in on your asking price.
Lastly, it’s a good idea to visit comparable homes for sale during open houses. Checking out your competition will help you determine the right asking price, and it might give you an idea of how you can improve your home so you can get an edge.
Resist the temptation to overprice
The temptation to overprice your home can be strong. Although it’s rarely (if ever) the case many people believe their home is the exception and will fetch more than similar houses. Buyers today are smart and investment-minded. Chances are anyone who looks at your house has spent time both online and offline searching potential properties. Most buyers and real estate agents will know right away if a property is overpriced.
An over-inflated price means your house will be competing against homes that have more bedrooms and baths, square footage or a better location. Buyers who are in the market to purchase your home will be less likely to see it since most buyers are searching for lower price points. This is the main reason homes sit on the market for months, with the price usually dropping eventually to where it should have been the day it was first listed.
Sell your house wisely