HOME SELLING 101
If you’ve never sold a home before, or it’s been a long time since you went through the process, I want to show you what goes into selling a home and give you advice about how to get the most money possible from your home sale in the shortest amount of time, despite being at risk of foreclosure.
For most Canadian, buying a home is likely to be the single biggest investment we will ever make. The process has its own special language, with words such as “escrow” and “amortization” that we don’t use every day. Most of us don’t buy homes very often, so we never get especially comfortable or familiar with that process. Add to that the emotional investment we make in a new home. We see it as the embodiment of our hopes and dreams — our “castle,” our greatest financial achievement.
Emotions can overtake good judgment. As a seller, you might think, “Surely, my home, where I invested so much money and sweat equity and where I raised my children, is worth more than ‘you people’ [appraisers, prospects, and buyer’s agents] think it is. You aren’t considering that the neighborhood was named ‘Most Livable’ in the local paper!” (But five years ago, and the old neighborhood has since changed.) Emotions almost always lead to problems in a sales price negotiation. Further, real estate transactions involve multiple decision points and often substantial investment of the homeowner’s time, energy, and money. As a seller, you want to find that home shopper who simply can’t resist buying your house at the highest price.
To do that, you must provide potential buyers a striking home sales presentation that outshines other homes on the market. This requires creating a fantastic first impression, giving buyers an immediate feeling that they’re traveling up the front walkway of “their” new home for the first time, and not visiting someone else’s. Selling a house is about falling in love at first sight, from the curb, in those initial (and fleeting) seconds.
As I said before, here’s the big news — everybody doesn’t get the price they could when selling their home. For example, consider two little ranch houses across from a well-kept cemetery in a nice suburban city near Cincinnati, in Southwest Ohio. One of them, 25 Cemetery Road (three bedrooms, one bath, 936 sq. ft., built 1957) was described as: “Neat as a pin and ready to go. Complete remodel kitchen w/SS appliances, breakfast bar, flattop stove, beautiful tile. Complete bath remodel. Hardwood floors, replaced windows. Great fenced yard, covered rear patio.” It was being fought over at $124,000+.
Meanwhile, a comparable single-family home located at 19 Cemetery Road (three bedrooms, one bath, 936 sq. ft., built 1956) sold for $111,800. That’s enough of a difference (almost $15,000!) for the owner of 25 Cemetery Road to pay the cost of his real estate agent’s commission and pocket some profit. Frankly, that commission was money well spent, because it was hiring the real estate agent and following the plan that made all the difference. We’ll talk more about that as we move through this book; however, it was the advising, planning, staging, pre-marketing, marketing, negotiation, and professional know-how that sealed the deal.
THE BASIC HOME SALES PROCESS
We begin our look at selling your house for more with a practical examination of what the home-selling process is and how it works. To get the most money for your house, you’ll have to invest in touch-ups, improvements, staging, keeping the grass cut, and many other items.
SETTING THE LISTING PRICE
Setting a listing price is a strategic exercise that aligns the seller’s goals to the selling approach. If the seller is in a situation such as an impending foreclosure, in which the house must be sold quickly, that calls for a price that will move the home quickly. However, it may forfeit selling for the most money. Where the house is an inherited property and not in the best of condition, but is in a great location, that takes another kind of pricing strategy, and might involve repairs and staging to get the best price.
As you see, there are plenty of factors that go into setting a listing price. Therefore, it’s critical for home sellers to know the considerations that determine a home’s price. There is both an art and a science in setting a listing price. Setting the price at which to sell your home is not a formula, nor simply mathematical. There are many factors that go into the decision — for example, location (even location on the same street), condition, features, and unique amenities. A calculated home value isn’t necessarily what you believe your home is worth. Recognizing this helps avoid overpricing, a major factor that leaves homes languishing on the market or unsold.
MARKET VALUE, APPRAISAL VALUE, AND ASSESSED VALUE
The price at which to list a home is the seller’s decision, although a savvy seller will solicit professional advice or work with a trusted real estate agent to arrive at that decision. Knowing the real estate concepts of “market value,” “appraisal value,” and “assessed value” allows the home seller to more meaningfully engage with a real estate agent in coming to a determination of a home’s listing price.
“Assessed value” is the amount local or state government has designated for specific property and frequently differs from market value or appraisal value. This assessed value is used as the basis of property tax and when a property tax is levied. The assessed value of real property isn’t necessarily equal to the property’s market value. Approximately 60% of U.S. properties are assessed higher than their current value; however, this doesn’t reflect what the homes will sell for.
WHAT IS YOUR HOME WORTH?
The first step in selling your home is knowing the difference between value, worth, and price. Let’s examine the determining factors at work. Understanding those factors allows them to be leveraged. There are several ways a home’s value is derived.
ONLINE HOME VALUATION
A place to begin researching a rough estimate of a home’s market value is online. Several free online tools provide an estimate of your home’s current value based on recent comparable home sales in your area, using a comprehensive database. The downside of these systems is that the assessment is based on available public data, with no guarantee of accuracy, and often use an algorithm that simply averages comparable sales in the geographic area. These are quick and easy, but do not answer questions regarding factors like location and current local trends.
Be aware that in practice, the prices arrived at might be highly inaccurate. For example, a home in Ohio was put into one such system, Redfin (https://www.redfin.com/what-is-my-home-worth). The home last sold for $180,000 in 1998 but that amount is no longer accurate; it was appraised for refinancing in 2015 at $275,000.
The purpose of a real estate appraisal is to determine a practical estimate of the property’s value, based on the real estate market in the area. How much would the average buyer spend on this property? The problem is that almost every home differs from every other in some way. Even homes with identical floor plans, built side by side and by the same builder, may differ because of their condition and how they’ve been maintained, the size of the lot, corner location, landscaping, reroofing, carpet and window upgrades — this list is almost endless. These features and overall value may have changed dramatically since the last time the home was appraised, so a new appraisal must be conducted.
An appraisal helps in various decision points. The seller can use the appraisal as a basis for pricing. The buyer can use it on which to base an offer. Lenders use appraisals to know how much money to credit to their borrowers. The most important factors in a house appraisal are:
- dwelling type (e.g., one-story, two-story, split-level, factory-built)
- features (including design); materials used and the type of structure present and how they were built
- improvements made; comparable sales
- location — type of neighborhood, zoning areas, proximity to other establishments
- age of property
Condition, of course, is a crucial factor in valuation. Location is also a factor, but since property can’t change location, it’s often upgrades or improvements to a residential property that enhance its value.
An appraisal professional will examine your home, then prepare an impartial estimate of its current worth. The original selling price is only a starting point, but the appraiser will need to consider the recent sales prices of comparable homes near yours. For this reason, the appraiser needs to be familiar with your local housing market.
CURRENT MARKET APPRAISAL BY A REAL ESTATE PROFESSIONAL
This home valuation is free from real estate professionals and more helpful than automated online offerings. It provides detailed information on each house sold in your area over the last six months, along with the final sale price. It also includes the specifics of all the houses for sale in your area, including the asking price. These homes are your competition. The real estate professional will also answer any questions and help you price your home realistically. Along with an understanding of how the worth of a home is determined, the current market has to be considered.
EXAMPLE OF DIFFERING HOME VALUATIONS
Let’s say a buyer is interested in a home listed at $420,000. The online valuation determines the house is worth $440,000. Based on that estimate, the buyer offers the asking price. When a professional appraisal comes in at $400,000, and the existing tax records assess the home at $300,000, the buyers wonder why the values are so different, and whether they overpaid.
The house was listed at $420,000 because at that price, the home would sell in a reasonable amount of time. Why wouldn’t the appraised value be whatever a buyer was willing to pay? The fact that they paid $420,000 doesn’t mean that is the true value of the home. Certain factors may weigh in (undesirable businesses located near the property, for example). Online valuations can’t take into consideration the condition of the property or the qualities of the neighborhood.
Since an assessed home value is for taxing purposes only, it can be much more or much less than the market value. Ideally, they should be the same, but usually they aren’t. It’s based on a percentage of the appraised value determined by a professional. From legal descriptions to onsite inspections to comparable home-selling prices, the assessor will take all these items into consideration when appraising a home. Location near industry, high traffic, or potential development will also affect the appraisal.
A CRUCIAL PART OF SELLING YOUR HOME FOR MORE IS YOU
We’ve seen that there’s no calculable certainty in setting the value of a home. There can be wide differences between the assessed price, the asking or listing (market price value), and the price at which the home sells (sale price). A market in which homes sell within six months of listing is considered balanced or neutral, meaning enough homeowners are selling and customers are buying that neither has an advantage. A variable, such as a major retailer entering or leaving the area, will tip the scale toward sellers to make a “fast” market or toward buyers to create a “slow” one.
The average time in a fast market might be 30 days, and the average time in a slow market could be a year. Typically, any number below six months is considered a seller’s market. Let’s touch on what you can do to elicit offers at the listing price, or even above, in a competitive market. As mentioned earlier, the partnership between seller and real estate agent will make an enormous difference in results.
The agent can professionally market a house and bring in a qualified prospect, but then the deal is blown because the seller didn’t clear his garage of his beer can collection during a critical showing, or because the snow wasn’t cleared, or because the walls are painted kind of “funky.” There’s only so much even the most talented real estate agent can do. The seller’s time, effort, and investment are the most important parts of the process. The seller’s willingness to adequately prepare the home for presentation by improving, freshening, landscaping, and generally making the home pristine — and to live in that presentation readiness state for the time it takes to sell the property — will greatly affect both the sale period and the price at which the home sells.
Knowing whether you’ll have to resort to a short sale or move forward with a traditional sale is all about time. If you approach a real estate agent early enough in the foreclosure process, you might be able to sell your home at its normal market value, or slightly below. This is also highly dependent upon your market. If you live in an area where homes are bought the minute they hit the market, your chances of selling at a higher price are good. But if you live in an area where homes languish on the market for months and often expire, you will likely have to proceed with a short sale.
POINTS TO REMEMBER:
- When facing foreclosure, you can sell your home without neighbors and potential buyers being aware of your circumstances.
- You’ll want to set your home’s listing price so that it sells quickly, while balancing that need with your desire to make as much as possible from the sale.
- Know the difference between your home’s market value, appraisal value, and assessed value. These can differ significantly and affect the listing price you set.
- Your ability to present your home at its best — and without bringing your emotions into the sale — is an important factor in how well it sells and for how much.