When it comes to selling a house there are costs and headaches associated with it that are obscure to a lot of people if you are new to this process or haven’t sold a property in a long time. The elephant in the room is HOW do I do it?!? There are three common ways to sell a house that we will address in this blog post.
The first and most obvious option is listing your home with a realtor on the Multiple Listing Service, or MLS. Most realtors nowadays also use other online mediums like Zillow or Hotpads, and will stick a sign in the front yard that projects to anyone passing by that your home is for sale. You may have your realtor host open houses in addition to this, which could assist in driving traffic.
Selling Your Home with a Realtor.
This is the most obvious and widely utilized method to sell a home. The ease and convenience of this method is why most people go this route. Let’s dive in to some costs involved in doing so.
First and foremost are realtor fees. Usually they are the single highest cost associated with a home sale. As a seller you will pay approximately 6% for commissions. Traditionally the buyers agent and sellers agent each gets 3%. It is common practice that the seller pays these commissions solely. NOT the buyer. Some logic to this is that the buyer is the one coming to the table with money. You as the homeowner generally have equity in the home, whereas the buyer is often times juggling things just to come up with the down payment. Regardless of why, the industry has trended this way. Seems like the path of least resistance for realtors to charge the seller, not the buyer.
Look at it this way, you are paying 6% to your agent, who is willing to pay half of his commission to any other agent that comes to the table with a buyer. If it sounds like it’s a broken system perhaps it is, but that’s traditionally how it’s done. Also, when you go to buy a replacement home you usually don’t have to pay commissions because the seller will pay these commissions. It can be a wash when looked at this way, but that is based on speculation and relies on you buying an equally priced house for it to be a wash. If you are selling a rental and don’t plan on buying another you have to eat these fees.
Some realtors also charge flat fees for commissions vs. a percentage of the sales price. Selling a million dollar home and selling a $100,000 home cost the same using this method, but it is not as common.
Realtors do a good job at marketing and selling homes when looking at it from a statistical perspective. The typical FSBO home sold for $190,000 compared to $249,000 for agent-assisted home sales in 2018 according to the NAR or the National Association of Realtors. Take it with a grain of salt. Correlation doesn’t always reflect causation. Realtors get more because a lot more homes are sold with realtors due to the convenience mentioned above.
Fun fact: NAR is one of the biggest lobbying groups in the United States and are actually fighting the deregulation of the financial service industry. You know, those stricter regulations we went over in the mortgage blog post. These regulations were put in place in the first place to prevent another 2008 crisis and NAR wants them to remain more deregulated. What’s their real agenda? You decide.
Regarding whether or not agents are worth the 6% they charge; many can be and maybe even most are worth it. A majority of agents have the capability to drive traffic via their marketing strategies, they can negotiate a higher purchase price, and they ultimately make the process easier for you as a real estate professional being there with you every step of the way.
Obviously plenty of agents aren’t worth the money either. Many argue a 6% commission on a sale that is in the six figure range is way too much for a few days worth of marketing and negotiations especially for someone that only needs a high school degree and has to pass the realtor exam in their state. It’s easy to become a real estate agent. It’s not rocket surgery.
Inversely as always, keep in mind there are many extremely knowledgeable realtors who hold several degrees and have dedicated their lives to real estate and have become experts in their specialized field. Like anything though, depends on your comfort level with the individual realtor you choose.
FSBO : Selling Your Home on Your Own.
If you want to bypass using a realtor there is always the For Sale By Owner or FSBO option, but generally FSBO homes go for a lot less than homes listed by a realtor and are a rarity as discussed. FSBOs accounted for 8% of home sales in 2016. See the NAR (National Association of Realtors) statistics showing that here. Again, know where NAR comes from and the interests they protect. It isn’t the consumer’s interest. NAR exists for the benefit of realtors.
Let’s go over the FSBO process along with the common issues that might arrive and potential benefits of it.
It’s a traditional concept. You own something and wish to sell it so you look for buyers in various ways. Nowadays online marketplaces like Craigslist and Ebay are a common way to sell lower cost items. For houses, which is an exceptionally expensive asset, this process could be daunting for an inexperienced person. How are you going to market it? There are mounds of paperwork. You have to let random people into your home when they express interest in purchasing it, but are they just window shopping? How qualified are they?
To market the property you must think like a salesmen. You have to know the market. What are homes going for? What’s a fair price for my home given the condition? Realtors are good at doing this, but with the online housing marketplace that is accessible to everyone (Zillow/Hotpads/Realtor.com etc) you can get a pretty good idea of what your house is worth by doing a simple online search.
Following the marketing you hopefully create interest in the form of leads or potential people to come look at the house. Figuring out who is serious and who isn’t is a job all on it’s own. A pre-qualification letter from a bank is a good place to start, but it’s almost worthless because the bank can at anytime arbitrarily say no to a home loan and they usually do it at the very last minute. It’s almost impossible to know who’s actually qualified to buy your house.
Once you get people in the home, someone decides they want it and makes an offer, then the negotiations start. You can negotiate both the sales price and the terms of the sale. Is it a cash closing (probably not) or will they be using a bank or traditional financing? When can they close? Are they offering you a fair price? Will the house be sold as-is or will you do some improvements or cleaning prior to selling? Once price and terms are agreed upon there is one final step.
Finally, you will need professional help with the closing. Either a real estate attorney or title company can assist in this process. It will take more than just you and the buyer to legally sell the property due to the legal documents involved such as the Deed to the property. Typical closing costs are 2%-5% of the sales price of the home. These costs are often times negotiable as well. They include a plethora of things such as a title insurance policy, recording and attorney fees, transfer taxes, HOA transfer fees, and anything else the title company might throw at you. Individually these costs are beyond the scope of this topic, but just know they will range from 2%-5%.
“Quick Cash Closing” offers
Last but not least, someone may approach you and use terms like “quick cash” or something to this effect. These are usually investors of some sort. I will discuss some things you might consider if you are in a position and desire to sell your home and an opportunity like this is given to you.
These offers typically come from a builder, developer, or property investor, or a wholesaler. See our “Wholesale” blog post on a more comprehensive way to spot a wholesaler and some things to consider when dealing with these folks in particular.
If you are approached by a builder, developer, or contractor who wants to buy your house and fix it themselves (keyword themselves), or buy it for the land, or use it for any other endeavor you might want to consider what there is to offer before throwing out the idea entirely.
With that said, I’ll start with common issues that come from this type of scenario. These folks are trying to buy your house to make money. There’s no denying it. House flipping is often times exhilarating, but no one would do it if you didn’t make money doing it. You will not get top dollar when analyzing this opportunity. They cannot make money from buying your home cash if they pay you an amount that is at or above market value. These folks are considering the entire investment when purchasing. The initial purchase amount is only a part of their equation. This dollar amount is about the only negative, aside from the negatives associated with wholesalers in particular.
The positives include a lot of things that go beyond the dollars involved. For starters these types of buyers usually have a lot more buying power than your typical homeowner or private buyer. They will buy the property with cash or a cash equivalent. Hard money, lines of credit, or various business loans are just a couple examples of cash equivalents and how these people often times purchase a home. The house will not have to go through an appraisal process and from a closing perspective it looks like a cash sale.
Cash sales usually mean a flexible closing. If you want to sell your house timely they can close usually within two weeks with cash. On the opposite side of this spectrum, if you need two months to find another house to live in they can push closing back. They can be and are usually flexible. If they say otherwise then they are more than likely trying to pressure you into a sale.
Investors typically will pay closing costs. If they say they will give you X amount for the home and pay all fees and closing costs then you will actually be walking away with that much cash. They can be a lot more transparent and flexible in this way. They usually will often times facilitate the closing and organize this part of the process so your efforts here will be minimal. They are essentially real estate professionals themselves.
They also usually will buy the property “as-is”. They won’t ask you to do anything prior to moving out. You could even leave your junk everywhere and they wouldn’t mind because they are going to get a dumpster there for the remodel anyway. Your junk will just go in there along with the old material that they will be ripping out.
After you receive the initial offer you will enter negotiations, whether stated or not. There are terms being brought forward and everything is negotiable. Here is where the emotions you have for the house should go away. A house is no longer your home if you are planning to move. It’s an inanimate object at the end of the day. You should hesitate to turn away a potentially good deal for you and your family because you think the house is worth more because your grandmother lived there or you and your kids grew up there. While sentimental and understandable, that is not a realistic source of value that the market will pay you for anyway regardless of the method you go with to sell your house.
If you are truly concerned with how much of a discount you are selling your home for to an investor you can utilize the above mentioned online marketplace tools and simply ask the buyer/investor how they came up with their offer. They usually don’t offer arbitrary amounts. That’s bad business. They know what they need to put into the property to get a certain amount for it on the back end, which tells them the most they can pay you for it. If they don’t tell you their reasoning, I’d be weary as a seller. If they display the proper amount of integrity by disclosing their reasoning for the dollar amount they offered coupled with you doing your own diligence to see what the market supports value-wise you can be better assured in your decision to accept the offer, or not.
We know and understand the difficulty in relocating. With the knowledge provided this process can be better understood and hopefully with a better understanding you feel more comfortable with whatever route you choose.
A realtor is easy and convenient and will result in the most money usually, but there are tons of bad realtors out there and the cost of a realtor is the highest cost associated with a home sale. Vet your realtor well before letting them list your house.
FSBO lets you do the job of the realtor to save 3% on the back end. It is a lot of work and will take up more of your time. Since selling a house isn’t common knowledge you can potentially mess up one of the many steps involved and make the process quite burdensome for yourself.
Finally, you may receive a quick cash offer from an investor or wholesaler. You usually won’t get top dollar, but everything else about the process is as easy as can be for you. If this type of offer is something you are interested in receiving from us please visit our site here and briefly fill out some basic information and we will make you an offer based on what was discussed above.
As always, if you have any questions please feel free to email us or call us with any questions!