The Home Selling Process
Do you really need to sell? Can you remodel and stay or rent out your home? Crunch the numbers and consider your options.
Your Situation[+]Part 1: Evaluate Your Situation
Do you really need to sell? If you love your neighborhood and just need more space, perhaps you can remodel and stay. Or if the market is slow and houses aren't selling, you may be better off waiting or renting your home out.
Whatever your reason, before you even put up the "For Sale" sign, crunch the numbers to see if it makes financial sense to sell your home. These steps will help you figure out whether you should sell or stay.Step 1: Gauge your need to sell.
Most would-be sellers typically don't have to move. Most would-be sellers typically become unsatisfied with their homes, neighborhoods or careers and sell based on desire rather than actual need. Decide if your desire is worth the time, money and energy of selling, moving and buying again.
As a guideline, expect to spend 15 percent or more of your home's value in this process. And depending on how much money you still owe on the mortgage, expect a large chunk of your equity -- the amount of money you've actually invested in the home -- to be eaten up.
Before you take any action, take stock of your situation. Look at the big picture and figure out why you want to sell. Consider your options. Take our "Should You Move?"Step 2: Define your goals for the next 5-10 years.
Consider your family, career and interests, and create your vision of home. You may have done this when you were shopping for your current home, and now it's time to reexamine your priorities. Ask yourself:
* Where do I want to be in my life?
* How does my current home stack up to my needs and goals?
* Will the selling process derail me from my long-term goals or help me achieve them?
For instance, if you're buried in credit card debt and need to gain financial stability, now is probably not the time to sell. The transaction costs of selling and buying another home will only add to your misery. On the other hand, if you have to move cross-country for your career, it may make sense to sell.Step 3: See if you're subject to capital gains tax.
Capital gains tax is the money you owe Uncle Sam if you happen to profit big from the sale of your home. Have you lived in the house you intend to sell at least two of the past five years?
* If yes, then you could be exempt.
* If no, you might incur early mortgage payoff penalties and capital gains tax -- two very hefty bills that may make it financially unwise to sell your home. There are exceptions to the tax rule -- job change, divorce, death of a spouse, etc. -- so check with your accountant.Step 4: Calculate the costs of repairs and home improvements.
If you're trying to get top dollar for your home, you'll need to do some remodeling to get it into selling shape. Prioritize by choosing projects that'll give you the most return on your investment. Estimate the costs of supplies and contractors, see what projects you can afford and adjust how much you expect to get for your home.
* Don't give buyers a reason to haggle on price. Make necessary fixes like fixing leaky faucets and update your home with new light fixtures and hardware.
* Consider getting a professional home inspection to identify potential problems before buyers find them.
* Keep up with the Joneses, but don't outdo them. If the neighborhood norm is hardwood floors and you have carpet, upgrade. Buyers these days expect stainless steel appliances and granite countertops in the kitchen.
* Consider making green upgrades.
* Take advantage of tax perks.
* Finance improvements by borrowing against your home's equity.Step 5: Compare the costs of selling and remodeling.
If you want to sell because you're unsatisfied with the size or lack of features of your home, you may find that remodeling it to fit your needs could cost less than selling the house, moving and buying another one. Perhaps you can build an addition or "greenify" your home to lower energy bills.
If you have to renovate before you sell anyway, it won't hurt to do the extra research to see what it would take to make you stay. It may make more financial sense to customize your current home rather than buy another one.Step 6: Calculate your selling and moving expenses.
In addition to repairs and improvements, expect to pay about 7 percent to 10 percent of the home's sale price in closing costs. These include:
* Real estate agent commissions - This is typically 4 percent to 7 percent of the sale price, but shop around. Commissions are negotiable, and in a slow market, an agent may be willing to accept less of a commission. Or, consider paying a flat fee to add your house to the multiple listing service (MLS) or contracting an agent for specific services.
* Professional home inspection - It's not required but getting one will reveal any problems with your home before a buyer finds them. Read about the benefits.
* Transfer taxes - Some cities charge a transfer tax, which is based on the property's sale price.
* Prorated property taxes - Depending on the date of your closing, you may owe property taxes. Check your state laws. If you've prepaid your property taxes for the year, you may get a credit. You may also get a refund on prepaid escrow costs like your annual home insurance premium.
Factor in other selling-related costs:
* Staging and marketing expenses - You'll need supplies to prep the house, such as new paint, furniture, light fixtures, window treatments, rugs and other accents.
* Mortgage payoff penalties - If you're subject to a penalty, negotiate with your lender to reduce it.
* Capital gains tax - See if you're exempt and use this calculator to estimate what you owe.
* Moving expenses - This can range from a few hundred dollars for a local move to thousands of dollars for a cross-country relocation.
To determine the potential proceeds from your house sale:
* Roughly estimate how much you expect to get for your home, based on comparable home sales and listings in your area. Use FrontDoor's comparables tool to easily see what listings recently sold in your area and for how much.
* Subtract your selling and moving expenses. If you're lucky or live in a solid housing market, you'll see a good percentage of appreciation and potential profit.Step 7: Calculate your buying expenses.
Selling is really three parts: selling, buying and moving. If you want to "trade up" to a better home, job, neighborhood, school district or city, make sure you thoroughly research your destination. This will require several trips to see homes and get to know the area - another expense.
Know what to expect with home prices, cost of living, schools, crime rates and amenities. For example, moving from Cleveland to Los Angeles for a promotion may seem enticing, but you may become more financially challenged when living in your new city. Make sure you can handle any changes in overall costs of living.Step 8: Know the mortgage options for your next home purchase.
The last thing you need is to be "homeless" or waste cash on rent because you sold your home too soon. If possible, hold off until you're sure you can find a new place to live.
* If you're looking for more space or amenities, crunch the numbers to see if you can afford a larger mortgage. Use our "Can I Afford It? Calculator”
* Check your credit report and credit score. Talk to your current lender and others to find out what kind of mortgage terms and rates you can get. Make sure you can secure a mortgage that works with your financial goals.Step 9: Research the local housing market.
Now that you've gauged your motivation, look at current market conditions. Are people buying in your neighborhood? Do research on the Internet and consult with local real estate experts. If home prices have dropped significantly or foreclosures and short sales have flooded your market, you may want to wait it out. Otherwise, you're likely to be bombarded with low-ball offers.
Evaluate the popularity of your neighborhood. If demand for housing in your area is high because of factors like a great school district or walkability, you may want to capitalize on that and sell at a premium.Step 10: Consider renting out your house.
If you haven't lived in your home for two of the last five years, or you have the capital to finance another move without selling your home, or if the market is slow in your area, you might want to consider renting out your home.
When budgeting for a renter, be sure to include the following costs:
* Mortgage payment
* Property tax
* Homeowner insurance
* Homeowner association dues (if applicable)
* Property management company (if applicable)
* House maintenance
Work with a real estate agent, go FSBO or sell at auction. Research the comps. Calculate home value and set a realistic price.
Selling Strategy[+]Part 2: Plan Your Selling Strategy
After you've crunched the numbers and decided now is the right time to sell, come up with a strategy to achieve the financial and personal goals you spelled out in Part 1. Pricing your home correctly is the most important step in this process and will affect your ability to sell quickly and smoothly.
Do your research and be realistic. Know your competition (previously owned homes, new construction, foreclosures) and find ways to make your home stand out. Market your home strategically and effectively and consider offering incentives. Most cities are buyer's markets right now, so your strategy will mean the difference between stale and sold.Step 1: Set priorities and a timeline.
The approach you choose depends on your motivation, i.e., how fast you need to get rid of the home and how much money you want to get from the sale. Keep in mind that the longer your house is for sale, the more you'll have to spend.
* If time is of the essence, a low price is the easiest way to sell fast. You might even end up with the price you want if a bidding war ensues. Also consider selling by auction
* If profit is your main concern, you can be more creative.
* If you're a distressed seller and facing foreclosure, read our Foreclosure Guide. Follow this strategy to sell your home quickly.Step 2: Time your sale to maximize your selling price.
Real estate activity has two distinct peaks during the year -- one just before spring and another in the fall. The influx of potential buyers during these periods can help improve your chances of finding a buyer and selling at top dollar.
* The first peak season typically begins in February or March and runs through Memorial Day, with house hunters looking to buy homes and move in by the summer. Parents of school-age children need to make cutoffs for enrollment and work to ensure a smooth transition for their children.
* The second peak season starts after Labor Day and goes through November. Buyers are looking for motivated sellers, such as those who missed the spring season or are juggling two mortgages.
If possible, avoid selling during the winter months. Most people are focused on the holidays or Christmas shopping, not on buying or selling a home.Step 3: Weigh the pros and cons of selling the home yourself.
Agent commissions are negotiable, but typically range from about 4 percent to 7 percent of your sale price. Sellers who want to save money on the commission will sell the home themselves, or go FSBO. But don't expect to save the entire amount. You'll need to spend money on marketing and preparing the house yourself.
You may be able to go FSBO if:
* You already have a serious buyer
* You know the house and neighborhood better than local agents
* Your local market is so strong the home can sell itself
* You found a buyer who doesn't have a buyer's agent (so you don't have to pay his/her commission)
* You have the time to prepare, show and market the home yourself
* You're a great negotiator and up for the challenge
The potential disadvantages of going FSBO include:
* Pricing your property incorrectly
* Not knowing how to prepare and stage your home for sale
* Inability to market the home effectively
* Inexperience negotiating with buyers
* Unfamiliarity with the closing process
* Potential for legal problems
What great agents have that you may not:
* Access to an insider perspective on market information not immediately available to the public, such as the current selling prices of comparable homes in the area (referred to as "comps")
* Years of experience and extensive contacts and networks
* Read more pros and cons of hiring an agent.
If you decide to go it alone, hire a real estate attorney to review your real estate documents for peace of mind.Step 4: Choose a real estate agent and list your home on the MLS.
Choosing the right agent can make or break your sale. First, familiarize yourself with the real estate industry's structure.
* Most sellers work with real estate brokers -- real estate agents who are licensed to advertise property on the multiple listing service (MLS), a database that only real estate professionals can access. A seller's agent is called the listing agent.
* The listing agent you choose will determine how fast you sell and the price you get. He/she will represent you and look out for your best interests. Your MLS listing will have photos and details about your home, such as the address, age, square footage, number of bedrooms and baths, taxes, school districts and more. Tech-savvy companies will also feature neighborhood data, videos and virtual tours.
* Buyers' agents troll the MLS for listings that match their clients' criteria and work with listing agents to set up home tours and negotiate the transaction. An agent who brings in a buyer typically splits the commission with the listing agent in the event of a sale.
* A Realtor is a broker or agent who is a member of the National Association of Realtors and therefore adheres to certain ethics and guidelines.
When shopping for an agent, look for one that:
* Understands your needs
* Is the go-to agent in your neighborhood
* Has experience selling homes in your area and price range
* Has a high success rate
* Is well-connected (with buyers' agents, mortgage specialists, appraisers, home inspectors, insurance agents, etc.)
Ask family and friends for referrals or find an agent through the National Association of Realtors. Find out these things when interviewing agents:
* Number of years in real estate
* Familiarity with your neighborhood, home type and price range
* Average list-price-to-sales-price ratio
* Number of home sales last year
* Average selling price of homes sold last year
* Length of time between listing and sale
* Number of sellers working with
* Number of buyers working with
* Client referencesStep 5: Negotiate the terms of your listing agreement.
Once you've chosen a listing agent, you'll be asked to sign a legal contract with the licensed real estate broker. The listing contract outlines the broker's commitment to find a ready, willing and able buyer that satisfies your price and terms and the seller's promise to pay a commission to the broker.
Terms of the contract are negotiable, including the broker's compensation. The agent is typically paid with a commission based on a percentage of the sale price (about 4 percent to 7 percent). But you can also choose to pay a set fee for a successful sale or pay on an hourly basis.
Decide on the type of listing you want:
* Exclusive agency listing is an agreement in which the seller authorizes only one broker to find a buyer. If the seller finds a buyer, the broker does not get paid.
* Exclusive right-to-sell listing is an agreement in which the broker represents the seller and gets paid no matter who finds a buyer. This is the most common listing contract and is geared to offer the most incentives for the agent and benefits for the seller.
* Open listing is a nonexclusive agreement in which the seller pays the first broker who finds a ready, willing and able buyer. The seller is not represented by a broker and can give an open listing to as many agents as he/she wants. But because it doesn't offer any incentive or guaranteed compensation for the agent, minimal effort is put into advertising and marketing your home.
Exclusive contracts should include:
* Definite termination date - Most contracts outline a 90-day listing period, which gives the broker sufficient time to market and sell the house. After the 90 days, you can renew the listing or list with another broker.
* Broker protection clause - Brokers ask for a buffer period, typically 30 to 90 days after the listing contract expires, which prohibits a seller from directly selling to a buyer. The length of time is negotiable.Step 6: Get a professional home inspection.
Most buyers will want to verify the home's condition and require professional inspections as part of their purchase contract. In these cases, the sale will be contingent upon getting satisfactory inspections. So if there's anything wrong with your house, everyone will eventually find out about it. It's up to you whether you find out now or wait until a buyer finds out.
Consider getting your own professional inspection before putting your home on the market. That way, you can correct any problems you find. Or you can reduce your asking price to reflect the cost of repairs, or give buyers a credit in escrow so they can do the repairs themselves. Be aware that many states require sellers to disclose any known property defects to prospective buyers.Step 7: Determine your home's fair market value (FMV).
Fair market value (FMV) is the price a buyer is willing to pay and a seller is willing to accept. It's the amount your house is worth in the market today, regardless of how much you paid for it.
To calculate your FMV, research the "comps" -- comparable homes in your area with similar square footage, construction, age and condition that sold recently or are currently on the market.
* Ask your agent to prepare a Comparative Market Analysis (CMA) report. A CMA is a compilation of statistics that include "Recent Sales" information on homes sold within the past six months and "Currently for Sale" information on any "active listings" similar to yours.
* Don't rely solely on the CMA. The comps could be incomplete, old or otherwise not true comps for your home. Do a drive-by of recently sold homes. Tour homes that are currently on the market. Make value adjustments for location (i.e. views, near a park, in cul-de-sac, a corner lot), floor plans, home improvements, amenities, etc.
* Using comps, figure out the average cost per square foot for your area, and make sure your home is in line with it.
* Add up the square footage of three to five homes and divide by the number of homes to get the average square footage.
* Add up the sold price of each home and divide by the number of homes to get the average price.
* Divide the average price by the average square footage to get the average price per square foot.
* Multiply that by the square footage of your home to get the price.
Evaluate market trends, including:
* Whether it's a buyer's or seller's market
* Level of competition among buyers in the area
* Status of interest rates and the overall lending climate
* Average number of days homes are sitting on the market
* Whether homes are selling for above or below the asking priceStep 8: Price the house
Now for the hard part: pricing your house to sell. This means pricing it according to the current housing market, not what you think it's worth. Be realistic. Unless you live in a neighborhood where demand is always high, you're less likely to profit from your home the way many sellers and investors did during the housing boom a few years ago.
Pricing a home is part art and part science. You're essentially making an educated guess on your home's value by comparing similar properties, adjusting for the differences, tracking market trends and taking stock of current inventory. If you overprice your home, you risk having your home linger on the market and creating a stigma among buyers.
Use your FMV to determine your asking price. Also, consider these pricing strategies:
* Using comps, price your home above the "Sold" prices and lower than the prices on active listings.
* Price low, sell high -- A bidding war could fetch you a higher price.
* Value Range Marketing -- Attract more buyers by offering a price range.
Today, many areas are buyers' markets so make sure you price it right from the start.
Also, be aware of any foreclosures in your market. This could affect your pricing and selling strategy.Step 9: Consider selling your home at auction.
Real estate auctions have been around for years, but they've increased in popularity as a viable selling method in today's tough market. About $60 billion worth of real estate property was sold at auction in 2007. That amount is expected to increase as the number of foreclosures rises and more motivated sellers turn to auctions to sell their homes quickly or recoup some value when facing foreclosure.Step 10: Know the rules when selling an investment property.
If you're selling a second home or investment property as opposed to your primary residence, hire a real estate agent that specializes in representing rental properties in your area.
* Positive cash flow (income minus expenses) is the most important factor in determining a rental property's value, so maximize your property's income and minimize its expenses. Fill vacancies. Consider making upgrades to increase rental income. Research the local rental market to see if you're underpricing units. Make energy-efficient improvements.
* Research local zoning laws and promote any opportunities that would improve your property's use and value.
* Evaluate the tax ramifications. To avoid paying hefty capital gains taxes after selling, defer them by rolling over your profits into another investment property through a 1031 exchange. Consult a real estate attorney or tax advisor to walk you through the process.
Prepare and stage your home so buyers can imagine themselves living there. Promote and market your listing and hold open houses.
Stage Your Home[+]Part 3: Stage and Show the Home
You have a plan. Now it's time to execute. Prepare your home by cleaning and staging it so buyers can imagine themselves living there. In today's market, open houses and baking cookies are not enough to get buyers interested. Skip the gimmicks and tricks and focus on marketing your home effectively. Technology and the Internet have empowered buyers, so make them work for you too.Step 1: Start with the outside.
Your lawn and the home's exterior is your first chance to reel in buyers. If they see an overgrown yard or unattractive chainlink fence, they'll move on to the next house. That's why it's critical to have "curb appeal": the external attractiveness of a home from the street. Make a great first impression with these tips:
* Give your home a fresh coat of paint.
* Replace old siding and roof shingles.
* Remove dated elements like awnings and old light fixtures.
* Sweep the entryway, porch and sidewalks daily. Add an attractive welcome mat.
* Mow and trim the lawn. Add colorful flowers. Invest in shrubbery.
* Clear the clutter and clean out the gutters and downspouts.
* Clean the windows from the inside and outside.
* If you can, invest in professional landscaping.
* Keep lawn gnomes and decorations to a minimum.
Position your "For Sale" sign prominently in the front yard so buyers can see it easily when driving by. You may want to put a plastic tube next to the sign to hold flyers. Your sign and flyers should include a phone number and your agent's name if you have one.Step 2: Prep and stage your home.
Staging is the act of decluttering, depersonalizing and decorating a home before it's put on the market. By making your house look like a "model home," you allow prospective buyers to visualize themselves living there. Make changes that highlight your home's positives and downplay its flaws.
* Start by cleaning and scrubbing down every inch of the home.
* Clear out the clutter and personal mementos.
* Rearrange furniture or bring in new pieces and artwork.
* When painting, focus on neutral tones.
* Choose window treatments that let in natural light.
* Make arrangements for your pets to stay somewhere else during showings.Step 3: Promote your home's strengths and potential.
In today's saturated market, you're competing not only with your neighbors, but with foreclosures and builders' new construction as well. How do you make your home stand out and capture buyers with short attention spans? Try these tips:
* Prepare a data sheet or property statement that describes all the features of your home, including room measurements, amenities and all appliances that will stay. Post it online and give one to each person who tours your property.
* Find out what buyers are looking for and put them in your home.
Play up your home's unique features, whether it's your luxurious spa bathroom or breathtaking city views from the living room.
* Promote your home as pet-friendly.
* Proclaim the benefits of a small house.
* Make green by going green.
* Wow buyers with technology, though it can be more expensive.Step 4: Use photos and video to showcase your home.
More than 80 percent of buyers start their home search on the Web. Get their attention with high-quality photos that highlight your home's best features. Hire a professional real estate photographer or learn how to take great pictures yourself.
Give online buyers a virtual tour of your home.Step 5: Take advantage of the Web and technology when advertising.
In addition to traditional methods -- "For Sale" signs, classified sections of local newspapers, real estate publications, the MLS -- make the Web and technology your best friends.
* Put ads on free Web sites like craigslist.com or create your own Web site to promote your home. Post your best photos and video tours.
* E-mail a notice or flyer about your home to real estate agents, friends, family, coworkers, everyone. The key is to get the word out.Step 6: Show your home and find ways to increase your showings.
Today's buyers browse listings on the Internet and schedule appointments to tour the homes they like. So make sure every ad for your home has a phone number -- your agent's or yours. The more you show your home, the more likely you are to find a buyer. Try these tips to increase foot traffic:
* Use a lockbox: a box on your door that holds a house key and requires a code to open. If you're not home, agents can enter the code and show your home.
* Offer a competitive buyer's agent commission. If your listing contract outlines a 50/50 split of the commission, give the buyer's agent more.
* Offer free gas cards or giveaways or hold a grand prize drawing for buyers who tour the home.Step 7: Make open houses count.
It's rare for a public open house to translate into a "Sold" sign, but it does generate buzz about your home in the neighborhood and among agents. So while holding an open house every weekend is not an effective use of your time and energy, try these tactics:
* Open your home to buyers when it first hits the market and then periodically during your marketing period. Offer finger foods and refreshments. People will stay longer.
* Encourage buyers to leave their contact information, preferably in a guest book near the food.
* Hold an exclusive brokers' open house to introduce your home to the local real estate agents. If each agent is working with at least four buyers and you invite 50, you've essentially shown your home to 200 potential buyers. Include food and refreshments.
* Ask for buyer feedback. Give buyers a preprinted questionnaire and pen when they arrive and ask them to leave it face down on the coffee table before they leave. They can include their contact information or be anonymous.
* Put a twist on the traditional open house by hosting a party with catered food, giveaways and entertainment. Learn how to host an extreme open house.Step 8: Offer incentives that save buyers money.
In addition to price and features, buyers are always looking for a good deal. If you won't budge on the price, sweeten the deal by offering financial incentives that lessen the amount of money buyers have to fork up.
* Pay for part or all of the buyer's closing costs
* Pay for some or all of the repairs found during the property inspections
* Pay points to lower the buyer's interest rate
* Prepay taxes or insurance for a yearStep 9: Explore alternative financing options.
With the current mortgage mess, the lending industry has tightened requirements for approving home loans, making it more difficult for buyers to borrow money. If you find a serious buyer who is having trouble qualifying for a mortgage, consider these financing alternatives:
* Finance some or all of a buyer's mortgage. You could sell your home faster and at a higher price if you offer "seller financing." You could also earn a higher rate of interest on your money and benefit from tax savings. Make sure you do a thorough credit and background check and verify employment and income. Require a down payment of at least 20 percent of the loan. You don't want to have to foreclose on the home if the buyer defaults on payments.
* Ask your lender if you can offer buyers a mortgage assumption, meaning the buyer will take over your mortgage payments.
* Work out a lease-to-own deal, in which the buyer is your tenant for a set period (usually one to three years), with some of the rent being applied toward a down payment.Step 10: Manage your expectations.
Emotions are inherently part of the selling process, so don't fight them -- understand and manage them.
* Rely on the facts. Use the comps to determine the fair market value of your home. Yes, home prices were through the roof just a few years ago, but those days are gone. If your market has fallen, don't try to get the same price you would have gotten in 2003. If the market says your home is not worth what it was three years ago, then accept it.
* Maintain your cool. If you get a ridiculously low offer, or lowball, don't rip it to shreds right away. Figure out what the buyer really wants and make a counteroffer.
* Don't be greedy. Rejecting all offers and holding out for that one dream buyer who will pay full price for your home is foolish. If your home has been sitting on the market for more than three months, reevaluate your strategy and price your home to sell.
* Keep your sale in perspective. No matter how bad things get, remember that this is not a life or death situation. If a deal falls through, let it go. There are plenty of buyers in the sea.
* Choose a patient and understanding real estate agent who is willing to work with you, especially if you're going through a tough transition like a death in the family or a divorce.
Review buyers' offers and negotiate a deal. Prepare for the appraisal and inspections. Sign the paperwork and move on to your next home!
Close the Deal[+]Part 4: Close the Deal
You've done all you can to prepare and show your home. Now you can sit back and watch the offers roll in, right? Not. Offers come in all forms -- from the dreaded lowball to the contingency crazy. The key is to not take the offers personally. They are not reflections of you or your home; they are business propositions.
Review every offer carefully, evaluate the buyer and negotiate terms so you can come to a deal. But a signed contract doesn't mean it's over. You have to pass the appraisal and inspections and negotiate more if needed. Once everyone is satisfied that their terms have been met, you can all sign the paperwork and celebrate.Step 1: Prepare seller disclosure statements.
Federal, state and local laws require sellers to disclose to prospective buyers any information that materially affects the property's value or desirability. This includes:
* Physical condition -- overall structural integrity of the home, including roof, foundation, electrical system, plumbing, sewer, insulation, etc.
* Health, safety and environmental hazards -- compliance with disclosure laws pertaining to asbestos, lead-based paints, radon, effects from natural disasters like floods, tornadoes and earthquakes, etc.
* Legal condition -- status of pending lawsuits, compliance with local building and zoning codes.Step 2: Review offers with a detached eye.
The main parts of a purchase offer are:
* Proposed offer price
* A breakdown of what is to be included in the sale (i.e., appliances, furniture, window treatments, fixtures)
* Contingencies or terms that the sale is dependent on, i.e., secured financing, a satisfactory home inspection, the sale of the buyer's current home
* Provisions for disclosures of any defects that would affect the property value
* Seller concessions -- if the seller will be paying part or all of the buyer's closing costs; typically 3 percent or 6 percent of the price
* Earnest money amount -- a deposit toward the down payment, typically 1 percent of the price
* Proposed closing date
* Expiry date -- typically 24-48 hours after the offer is made
Selling your home is inherently an emotional experience. Learn to detach yourself from the sale and look at offers as business proposals, rather than personal attacks on your home. If a buyer tells your agent that your pale pink bathroom looks like it's from 1972 and thus submitted an offer below your asking price, don't take it personally. Consider offering an allowance to update it if the buyer gives you full price.
You can accept an offer, reject it or write a counteroffer. Any change to an offer is considered a counteroffer (See Step 5). A purchase agreement is not binding until you and the buyer accept and sign it.
In a buyer's market, look at each offer as an opportunity to negotiate. If a buyer made an effort to submit an offer, then he/she is interested. Even if you get a ridiculously low offer, or lowball, don't rip it to shreds right away. Figure out what the buyer really wants and make a counteroffer.
If you expect to get multiple offers, set up a formal offer presentation period and process, in which buyers and their agents must submit their offers within a certain time frame. This will give you enough time to advertise and show your home to as many potential buyers as possible. If a bidding war ensues, evaluate each buyer and compare the price, terms and conditions of each offer.Step 3: Focus on serious buyers, not casual buyers.
Look for these traits of serious buyers:
* Creditworthiness -- Look for a preapproval letter from a lender that shows the buyer can secure funding in the amount of your asking price or more. This proves the buyer is ready, willing and able to buy. A large earnest money deposit also shows the buyer is committed to making a deal.
* Motivated -- Find out why the buyer is looking for a new home. Is it because of a job transfer or growing family? Is he/she under a time crunch? Motivated buyers may ask for a speedy closing (30 days or less), suggest an "all-cash" transaction or offer to buy the house "as is." Don't waste your time with a buyer who's just testing the market.
* Genuine -- A sincere buyer has researched the comps to determine your home's fair market value and is not simply trying to get a steal. If the offer is less than your asking price, it should still be within range. Some buyers will even include an explanation of how they came up with their offer price.Step 4: Consider the contingencies.
A contingency is a condition in the offer that if not met allows the buyer to 1) walk away and receive a refund of the earnest money, or 2) renegotiate with the seller until both parties agree on terms. The most common contingencies are:
* Financial -- The buyer must secure a loan for a specified percentage of the negotiated offer price.
* Appraisal -- The appraised value on the house must meet or exceed the negotiated offer price. Lenders require a professional appraisal of the home before approving a buyer's loan.
* Inspection -- The house must pass any professional inspections the buyer requests, including those for the overall condition of the home, the roof, structural engineering, termites and other pests, radon or mold. The professional home inspector works for the buyer, not the seller. During the inspection, he or she will identify issues that may negatively affect the value of the home or could pose potential problems for the buyer. The inspector will prepare a detailed report and offer recommendations on items that require repair.
* Repairs -- The seller must repair any damage or issues discovered in the home inspections up to a specified amount.
* Attorney -- The contract must be approved by a real estate attorney.
* Sale -- The buyer's current home must be sold first.
* Closing Costs -- The seller must pay for all or part of the closing costs. As a first-time buyer, don't be afraid to ask for help. This saves you out-of-pocket expenses.Step 5: Make a counteroffer.
An offer is more than just price. Make sure you review the buyer's requested terms and conditions. A full price may not be worth it if you have to jump through several hoops to get it.
If the buyer's offer is contingent on selling a home, counter with a Removal of Sale Contingency. This means that if you get another offer, you'll give the buyer 72 hours to remove their contingency or you'll kick out their offer. If the buyer removes the contingency, he/she will be required to buy the home under the remaining terms.
Consider these counteroffer tips:
If you won't budge on price, offer financial incentives that don't require cash out of your pocket:
* Pay for part or all of the buyer's closing costs
* Pay for some or all of the repairs found during the property inspections
* Pay points to lower the buyer's interest rate
* Prepay taxes or insurance for a year
* Offer to include furniture, appliances, window treatments or lighting fixtures
If you're worried you won't be able to buy a home after you sell, include a "rent back" clause which lets you rent back your home from the buyers after escrow closes.
Make a full-price counteroffer, if your comps can back it up.
Make the sale contingent on your buying a home.Step 6: Negotiate terms and sign the contract.
The negotiating process may involve several rounds of counteroffers. Remember that all terms are negotiable, including who pays for the professional inspections, corrective work and closing costs. Once both parties are happy with the terms, you'll sign the contract. Consider hiring a real estate attorney to review it. Fees range from $500 to $1,500.
Don't forget to:
* Agree on a closing date based on when the buyer's funds come through.
* Agree on a move-in date for the buyer that gives you ample time to move out.
* Get a receipt for the buyer's earnest money deposit.
* Decide whether repairs should be done before or after close of escrow.
Even if you've accepted an offer, continue to take back-up offers. You're committed to sell to the first buyer, but if the deal falls through, you'll at least have another buyer in place.
No matter how bad things get, keep your sale in perspective. If a deal falls through, let it go. There are plenty of buyers in the sea.Step 7: Time the sale of your home with the purchase of your next one.
No one wants to be stuck with two mortgages. Depending on your market, you're better off selling your current home before you close on your next home purchase. Try these tips:
* Don't go house hunting until you list your current home for sale.
* Don't make an offer to buy another home until your sale is under contract and well into the escrow process.
* Make your purchase offer contingent to the sale of your current home.Step 8: Open an escrow account.
While you and the buyer are working to meet the conditions of the contract, a neutral third party (an attorney, title company or escrow firm) handles all the funds and documents related to the sale. This is called escrow. The escrow officer:
* Orders a title search, which shows who legally owns the property
* Requests payoff information for your mortgage and other liens on the home
* Prepares and records documents, including the grant deed which transfers ownership of the home from you to the buyer
* Holds and disburses funds, such as paying off your mortgage with the buyer's loan
* Prepares closing statementsStep 9: Ensure contract terms are met and sign closing documents.
If the buyer included an appraisal contingency, a professional appraiser licensed by the state will come to your home and calculate its fair market value. The appraisal is a detailed report that includes information about the property and its location, comparisons with three similar properties, an evaluation of the local market and notes on issues that may negatively affect the property's value.
* Clean and prepare the house the day before the appraiser arrives.
* The buyer pays for the appraisal so you are not entitled to see it.
* The appraiser should be an objective third party who has no financial interest in or connection to the transaction.
* If you receive a low appraisal or the buyer cancels the contract based on the appraisal, consult with your agent or attorney.
If the buyer included an inspection contingency, a professional home inspector will check the condition of your home to make sure it is structurally sound and looks for issues that can potentially become costly disasters.
* A typical inspection covers all major mechanical systems, structural integrity, cosmetic features and other aspects of the house. Buyers may also request separate inspections for mold, radon, asbestos or termites and other pests.
* Clean and prepare the house the day before the inspector arrives.
* Make sure the inspector has access to the attic, basement and any crawl spaces.
* Request a copy of the inspection report if the buyer requests repairs.
* Negotiate terms of repairs found in the inspection.
If all goes well, ask the buyer to release the contingencies. Before the closing date, ask your escrow officer for a copy of the estimated closing statement. Review it to make sure your credits and debits are accurate. Question anything that is unclear or incorrect.
The buyer's final walk-through inspection takes place a day or two before the closing date. All repairs and specific requests should be fulfilled by this date. Clean and prepare the home to ensure it's in the condition the buyer expects.
At closing, the escrow officer will explain the legal documents, ask you and the buyer to sign them, disburse all funds and officially close escrow. Review your final closing statement and keep a copy for when you prepare your income tax return.
Congratulations, you've sold your home!Step 10: Move out and into your new home!
In your contract, you should have specified a date and time when you'll deliver the property keys to the buyer. That may be the day escrow closes, the day after escrow closes or after a seller rent-back, if you end up having to do that.
A rent-back agreement allows you to rent back your home for the amount the buyer must pay for principal and interest on their mortgage and any property taxes and insurance. This amount is prorated on a per-day basis from the close of escrow until you vacate the property.
Don't forget to report the sale of your home on federal and state tax forms.