$elling Your Home
in the Washington, D.C. Metro Area
International Standard Book Number 0-9635337-9-7
Published by The Realty Research Group, LLC
Copyright © David Rathgeber - All Rights Reserved
You are hereby authorized to read this copy on your computer screen. You are NOT authorized to make any additional copy of any nature: paper, electronic storage media, or otherwise without the express written permission of the author. Violators will be vigorously prosecuted.
To request written permission to print one copy of this book for personal use, email firstname.lastname@example.org and permission will be granted liberally upon suitable identification.
Chapter 1 - Initial Considerations
Chapter 2 - Getting Help
Chapter 3 - Selecting an Agent
Chapter 4 - The Value of Your Home
Chapter 5 - Your Marketing Strategy
Chapter 6 - Preparing to Market
Chapter 7 - On the Market
Chapter 8 - The Negotiation Process
Chapter 9 - Negotiating Tactics
Chapter 10 - On to Closing
Chapter 11 - Putting it all Together
A - Selling Price / Asking Price
B - Tax Assessments
C - Self-Sold Listings
D - Checking Your MLS Data
E - Homes on the Market
F - Homes Sold
G - The Market Index
H - Home Preparation Checklist
J - Seller Beware!
K - Put the News into Perspective
L - 8 Critical Factors in Agent Selection
M - 12 Interviewing Mistakes to Avoid
GLOSSARY[Go to Glosssary]
ABOUT THE AUTHOR
David Rathgeber ranks consistently among the top award-winning agents and is actively engaged in sales and marketing of residential real estate in Virginia. His comments and articles have appeared frequently in major newspapers, and he has written for the national REALTOR Magazine. His books incorporate the wisdom of over twenty-five years of real estate experience along with his diverse technical and international business background. He holds a degree in Mechanical Engineering and a Master of Business Administration.
Note: Contact the author at email@example.com with your questions and comments, or for help buying or selling a home. See his web site for the current local Market Report, other online books, and much more.
"A man's home is his castle," declared Sir Edward Coke, in a manor of speaking. But poor Sir Edward had such an archaic view of who might own a castle that he must have missed half of his potential market. Nevertheless, our modern day castles still provide refuge: From the elements, from the rat race, from taxation, and sometimes from the ravages of inflation (what's inflation?).
The information in this book will save you time, money, headaches, and possibly heartaches. Selling your home is an extremely important undertaking, and in these times, a complex one. You need to know what to expect before you begin. Accomplishing the task in the best fashion can make an enormous difference by enabling you to:
- Save a sum of money over 10% of your home's value.
- Spend a short time on the market versus months or years.
- Avoid major pitfalls such as selling your home to two different parties (no giggles please; it does happen) or getting tied up inextricably with an unqualified or unwilling buyer.
- Plan your move when it is most convenient for you.
This book contains inside information to help you cut through the task with insight and direction. Although analytical, it is not a book of theory, but it contains verifiable facts and practical ideas that work in today's market.
The information presented applies specifically to the Washington, D.C. metropolitan area, which includes Suburban Maryland and Northern Virginia, all areas that share the important factors that control market characteristics. The statistical data presented have been sampled and verified through the Multiple Listing Service (MLS) database that serves the region.
This up-to-date edition will be invaluable for anyone selling a home in the Washington, D.C. metropolitan area today. It is intended to complement the experience and technical knowledge of licensed professionals. Its main purpose is to provide vital facts and ideas that are not available in any other publication. It will reinforce important concepts and will debunk more than a few of the currently popular myths, formerly known as "old wives' tales" (is that the correct homonym?), which are running around loose in the local real estate market.
Other useful information of a more general nature is available from the following sources:
- Newspapers, libraries, and bookstores
- Internet resources (brightmlshomes / realtor.com / amazon.com / davidr.net / irs.gov / and many more)
- Government agencies such as the Government Printing Office and the Internal Revenue Service
- Active and well-informed real estate agents
- Free publications from local real estate firms
- Local Associations of Realtors
- Real estate attorneys.
But stop for a minute and ask yourself if selling your home is the right thing to do. Most of us who have bought and sold a few personal residences over the years can imagine how much better off we would be financially if we had kept each home instead of selling it when we moved. So, maybe this is the time to start a real estate collection, save the trouble and expense of selling, and become an investor.
Some who have sold homes in the past have had to take money to the closing. Even some who bought homes many years ago might have this problem if they refinanced their property for a large amount of money and spent the proceeds. If you share this position and have a choice, you might elect to stay put until the equity in your home is a number greater than zero.
Another option to avoid selling and moving is to expand your current homestead to accommodate present needs or desires. If expanding is for you, heed the following:
- Always seek professional advice, right from the concept and design stage.
- Be sure that the construction is of the highest standard and that the materials used complement the existing home, inside as well as outside.
- Obtain a professional opinion regarding whether your home's new higher value will be recoverable when it is sold.
- Beware of over-improvement of your home compared with other properties in the immediate area.
- Recognize that the cost of adding space can be $150 to $200 per square foot and that appraisers and the real estate market generally value marginal square feet at $30 to $50. This means that your next buyer might give you only $16,000 for an addition that cost $80,000.
Of course, there are legitimate reasons why you might elect to forge ahead on the selling trail:
- Need for a larger home, a larger mortgage, or a larger income tax deduction
- Desire for a smaller home, or a smaller mortgage
- Unwillingness to become a landlord and property manager
- Need for your present home's equity in order to purchase your next home
- Desire to raise capital for a business venture or an investment
- A job transfer out of the area
- Sudden loss of income
Perhaps you have a reason of your own, but now is the time to sort it out. To sell or not to sell, is that the question?
For tax information, in addition to local accountants, some free Internal Revenue Service (IRS) literature might help:
- Publication 523 - Selling Your Home
- Publication 527 - Residential Rental Property
- Publication 530 - Tax Information for First-Time Homeowners.
These publications and many more, as well as tax forms, are available on the Internet at irs.gov.
Now that you are firmly committed to selling your home, it will be of great value to determine where you will live after the sale. Yes, most of us know the answer, but a few home sellers have no clue!
If your move is voluntary and local, consider whether you should find your next home and execute a contract contingent upon the sale of your present home, or sell your home first then find and purchase your next home. Depending upon your circumstances, either of these could be your best option, but selling first is clearly the best choice for most sellers in today's market. If you wish to move directly from your present home to your new home, then either the sale of your present home or the purchase of your new home probably will have to be executed quickly. If you are willing to rent temporarily between the sale of your current home and the subsequent purchase of your next home, you will gain flexibility, peace of mind, and a negotiating advantage at the expense of an additional move.
No doubt you have an idea of how soon your home needs to be sold. This factor will heavily influence many details of the process. So... just in case this needs to be a quick sale, hastened by bad news from your employer or mortgage company... let's get moving (no fun intended).
The local real estate market is very organized and orderly. It is roughly defined by, but not necessarily limited to, those Washington, D.C. metropolitan area homes listed for sale in the MLS computer database. Our area has a high proportion of sophisticated and intelligent buyers and a well-developed set of customs and procedures. The vast majority of home sales are made through real estate brokers who utilize a computerized MLS search facility in conjunction with a lockbox system. These features facilitate locating and showing properties.
Most buyers see many homes, possibly 50 or more, and weigh their decision carefully before making a purchase. After all, home buyers know that this is their last home purchase and that they will live here forever. Also, most are spending what they consider to be a large sum of money. They believe that a home not only should provide shelter but also should be a good investment, a comfortable abode, and a palace made for entertaining.
The impact of the above on the local home seller is that, with all these considerations, a home purchase will not be made impulsively or emotionally. Home sellers who spend time and money searching for that one buyer who will pay 20% more than the fair market value invariably find it to be a frustrating and unproductive exercise in futility. There might be a sucker born every minute, but they are not here in the Washington, D.C. metropolitan area buying homes.
For the reasons cited, the selling prices (or more correctly, contract prices) of most homes do represent their fair market values. The significance is that, because of the continuity and orderliness of the market, future prices can be predicted from recent sales. Exceptions to this rule are rare and usually result from one of the following:
- A home was not exposed to the market properly or for a long enough time before it sold.
- A transaction was not at "arms length," for example, a sale between family members or a transaction with hidden considerations.
- A sale was forced by unusual outside pressure on the seller, for example, loss of income or serious health problems.
It bears repeating that the above exceptions are rare and that contract prices of sold homes typically represent their fair market values.
You should not be surprised then that "the market," in its infinite wisdom, has already determined the selling price for your home, give or take a few thousand dollars. (Much more later about market values and how you can obtain your maximum selling price.) The idea of a well-informed, rational, and orderly real estate market is a most important concept that should be kept in mind as you proceed.
The most important decision in the home selling process is who, if anyone, will assist you. The majority of home sellers use a conventional, or full-service real estate broker. This option will be explored in depth later in this chapter.
You have two other choices. First, a few real estate firms specialize in offering less than full service, usually at lower commission rates. If this idea appeals to you, further investigation is in order. But talk first with a full-service broker to define exactly what is offered. Then, knowing the that, you are in a position to make an informed decision regarding which elements of full service you can do without, and what commission savings might be available. Be sure to ask when the commission is paid. Payment at closing, not up front, is customary.
Second, there are the do-it-yourselfers, known as FSBOs (pronounced fizz-bows). The acronym FSBO stands for For Sale By Owner. One local study found that roughly one-third of FSBOs were successful in finding their buyer. Another one-third retained an agent eventually. The remainder never sold. Occasionally, one can see "For Sale By Owner" signs, but selling your home yourself is not recommended in today's market. A few of the reasons are the following:
- Limited exposure to potential buyers (less than 10% of what a broker will generate) which theoretically means ten to fifteen times longer on the market.
- Such limited exposure will very likely lead to a lower selling price.
- Most buyers find it extremely awkward to negotiate or even to talk directly with sellers and therefore avoid FSBO properties.
- Lack of negotiating experience and lack of pertinent information often will result in a lower selling price, or worse yet, a bungled contract and possible lawsuits.
- Many serious buyers will pass by a FSBO home merely because they recognize that it is not in the real estate mainstream, and this makes them wary.
As most local buyers now retain an agent to represent them as their buyer-broker, you will probably be negotiating against an experienced professional. Further, the agent likely will be earning a commission on the sale of your home, whether you pay it or not, due to provisions of a buyer-brokerage agreement.
- Your expected savings in broker's fees will also be greatly reduced if you offer a selling commission to entice real estate agents to bring potential buyers.
- Only real estate agents have access to the up-to-date market information. News reports cannot approach the timeliness or specificity available to agents.
- Further, real estate agents are involved in home sales much more frequently than the average homeowner. This familiarity leads to a degree of expertise that provides an edge on negotiating and successful selling.
Compared with even the best informed homeowner, most agents have a much better idea of what to say, when to say it, and to whom. Expert agents also know what not to say, which can be of vital importance. If your do-it yourself room painting job does not turn out quite right, it is easy to fix. If the bathroom tile job becomes overwhelming, an expert craftsman can be summoned. With home selling you are dealing with large sums of money, a complex process, and legally binding contracts that are frequently impossible to re-work. A do-it-yourself home selling job that seemed as simple as merely finding a buyer can become a nightmare because of unforeseen complications.
So why do a few sellers still take the do-it-yourself route, especially when homes are so difficult to sell? The reason is very simply that it is so easy to calculate the savings of being a FSBO: For example, 6% of $500,000 is $30,000 (and that's a lot of money). But such savings will be cut to $15,000 if a 3% commission is offered to selling agents who bring a buyer. On the other hand, the financial advantages of hiring a capable agent are much harder to quantify and therefore seem less certain; but they do exist. The pitfalls likely to beset a FSBO seller are generally unknown to him. If they do come to mind, they are easily ignored until it is too late.
Does this mean that you will need to deal with a real estate agent? (Try to have the children out of the room when you speak those words!) You will be pleasantly surprised to find that the average real estate agent does not bite. Most can smile and behave pleasantly, if put to the test. A few even have earned the coveted "human being" designation. So forge on fearlessly to learn how to select the best agent for your needs.
But first, a word on real estate firms. Each firm has its own style and makes specific claims of achievement as well as promises of performance. Deciding among firms is done best through discussions with an agent. But the choice of an agent is much more important than the choice of a firm. The agent will play the central role in the marketing effort; the firm will play the supporting role.
Larger firms have the economic power to support more frills, splashy advertising campaigns, special promotions, and agent training programs. But be selfish and do not assume that all of those fancy programs will facilitate your sale. Ask how frequently the agent has benefited from a particular program. Ask for specific personal experience and try to relate the answer to your individual situation.
One interesting exercise is to imagine yourself as a buyer calling a real estate office in response to a sign you saw. Be sure to call at an unusual time: Before 9AM, after 6PM, or on a weekend. See whether you make contact with a person, a machine, or neither. Surprisingly, you will find that some residential real estate firms cannot be contacted on weekends.
Remember that the choice of an agent is much more important than the choice of a firm. Bear in mind that while agents must generally conform to the policies and procedures of the firm with which they are associated, they are actually independent contractors, not employees. Agents "A" and "B," both associated with "XYZ" company, might have ideas and methods of operation as different as night and day, all within the bounds of applicable legal and ethical standards.
You probably have some idea of what you are looking for in an agent. For starters, no one should be considered unless he or she has made a full-time commitment to the real estate business and is available whenever needed; however, resist the urge to call at 3AM with your latest thought. Remember that the successful agent is marketing more than one home at a time and might also be showing properties to prospective purchasers some days. Nevertheless, your calls should be returned within 24 hours at the absolute latest, usually much sooner.
It is most important to find an agent who you feel you can trust and with whom you feel comfortable. Be concerned with your personal feeling of comfort, but recognize that there is no way to measure trustworthiness accurately during the selection process. Many times during the marketing of your home, you will have serious talks with your agent. The process will go smoothly if you have a feeling of trust. Think of your relationship as a business partnership, but remember this: Your agent is the advisor; you are the decision maker.
It is equally as important to find an agent who has experience and technical expertise. Without these qualities, you soon will find that your trust has been misplaced and your comfort level is near zero. Also, seek someone who has the ability to operate effectively at the person-to-person level. Look for people skills, including listening, and the ability to communicate clearly as a marketer, rather than brute force salesmanship.
Before we discuss how to hire an agent who has the necessary qualities, we must find candidates to interview. Rather than calling at random:
- Ask friends who have recently sold their homes for the names of their agents.
- Ask the sales managers of real estate offices for recommendations.
- Attend several open houses and look for potential candidates.
- Contact your friends and acquaintances who sell real estate.
Use such recommendations only to locate agents to interview. Do not assume that friends or the local sales manager can select the best one for you. After understanding the information in the next chapter, you will be able to make a much better selection than anyone else alive. As long as there is at least one excellent agent on the list to interview, the selection procedure will enable you to pinpoint that person methodically without regard for how you obtained their name.
One special word of caution for the outgoing transferee: If your employer insists on selecting the real estate agent to sell your home, find out why. Many employers provide benefits and advice to relocating employees. This can be done in-house, but more often it is done through third-party relocation firms who also might urge you to select your agent from their list. By directing you to a list of "specially selected" real estate agents, you are a captive client without the freedom to choose your own agent. The agents on such a list are asked to forego up to 40% of their commission in order to be selected for the job. The agent you obtain through such a process is not selected with your best interests as the sole criteria. Do you think the most experienced and successful agents are doing this?
Further, the above practice is so widespread, that it is the subject of real estate legislation and court battles in many States. But many employees never know what happened, why it happened, or who received what compensation. Ask your employer about this. Who gets the portion of the commission that the agent gives up? The third-party relocation firm? Your employer? The selling of your home involves some of the biggest financial decisions you will ever make. Should someone else be allowed to choose your advocate, advisor, and negotiator?
SELECTING AN AGENT
IMPORTANT: Finish reading this entire book before using the following plan, in order to maximize its effectiveness.
Rest assured that out of the thousands of real estate agents in the Washington, D.C. metropolitan area, there are several who will suit your needs perfectly. Agent selection is an involved process but the rewards are great. There are significant differences among agents. Remember this: The average local real estate agent is involved in fewer than four transactions annually. Do you think this level of experience produces a high level of expertise?
To find the very best agent, you will need to ask many questions. Some are very specific, and there will be a right answer or a wrong answer. Other questions are asked to provide you with a feel for experience, philosophy, et cetera. Use your judgment regarding the answers to these questions. Remember that you need a feeling of trust and comfort. Of course, some questions are of great importance; some are of lesser import. Do not make a decision based solely upon one or two answers, as this would be a serious mistake.
Do some screening by telephone when you first call to seek help in selling your home. It is best to mention that you will be talking to several agents. In fact, trust and comfort are normally reciprocal. Be frank and accurate in your discussions, and you earn the right to expect the same. If special considerations pertain to your sale or if you have unique circumstances or needs, convey them no later than your first face-to-face meeting. The first set of questions deals with the agent's degree of commitment to real estate.
How many hours do you spend on real estate each week? While anything over 20 hours a week can be considered full-time, an answer above 40 hours in an average week should be your minimum requirement and will not eliminate any serious contenders. Agents do not punch a time clock, so direct verification is impossible, but by the time all of your questions have been answered, you will have verified the reply.
If necessary, how can I contact you immediately? Agent-to-agent and buyer-to-agent communications can become a critical issue without warning. You will be very glad you asked the question now. Your agent should have a smart phone and the techno-savvy to handle email and text anywhere. Do not compromise here. Today's technology is just not that expensive. The under-equipped agent has not caught up with today, or just does not want to be bothered.
What days do you consider your weekend? The best answer is: "None." The point is that Saturday and Sunday are busy times for serious agents. You do not want to try to call your agent home from the beach. Everyone needs a day or two off occasionally, but any rigid schedule, even "every Wednesday and Thursday" is incompatible with the nature of the business. While you're at it, ask whether the agent has any vacation plans. If so, ask how coverage will be provided.
The above are initial screening questions. Use them in a telephone interview to save yourself time meeting with an obviously unsuitable contender. Also ask about the real estate commission rate if this is of great importance to you. During your phone calls, begin to develop an opinion of the agent's personality and marketing ability.
Now you are ready for the personal interviews. Most sellers should meet with at least three candidates. During this phase, the agents will try to impress you with their suitability. Many will welcome the opportunity to address your perceptive questions. You will be moving constantly toward your important choice.
If you meet agents in your home, many will expect a tour. Some will seize the opportunity to bubble over with exuberance about your home. Try hard not to be captivated by flattery. This is not the purpose of the meeting. In fact, you can save time and skip the home tour when interviewing agents. A tour removes the focus of the interview from where it should be: On the agent. Your home is not at issue. Any home can be sold. Save the tour for later, after you have selected an agent. Then you will get the best advice, undiluted by extraneous baloney.
The following set of questions deals with the candidate's personal record and experience. Make it clear that you are not asking about the history of the agent's office or of the real estate firm in general. These are not the most critical questions you will have, and most agents will expect them.
How many homes do you have listed currently? Less than two or three can indicate inexperience or lack of a full time commitment. If the answer is greater than 10 or 12, obtain assurance that there is enough time for you. Some agents employ a full-time staff. If administered properly, this can work satisfactorily, but find out who you will be dealing with on a day-to-day basis and for critical negotiations.
How many of your listings sold in the past year? In general, more is better, but an answer greater than five is probably sufficient to indicate a bare minimum level of experience. It reinforces a full-time commitment claim and should reasonably support the answer to the previous question. Most agents also work with buyers, which provides complementary experience.
What was the average time on the market? First ask the agent about the industry average time on the market locally. Then ask the agent about the average time on the market for his or her own listings. Be wary of an answer that is too different from the average. But remember that while time on the market can give a very general indication of the agent's effectiveness, time on the market is controlled much more directly by the seller.
By now you should be on a roll. The next set of questions is very important in determining whether the candidate has the market knowledge required for the job at hand. It is customary to ask each agent to provide a market analysis that predicts the contract price for your home. Break with tradition. At this stage, focus on how the analysis will be done. Select an agent who uses the best method (see Chapter 4) and you will avoid having to listen to several ill-conceived and misleading presentations. Also, you will avoid the temptation to simply hire the agent who predicts the highest price. This is one of the most common mistakes made by home sellers. It will always cause problems and cost you money.
If you absolutely must hear several agents' ideas of market value, be clever enough to give no hint of what you believe your home is worth. This will obviate the possibility of any candidate telling you exactly what he or she knows you want to hear. But now, pose more questions about the proper method for determining your home's value.
How will you determine the expected contract price for my home? Professional appraisers customarily select three (or more) similar or comparable, nearby, recently sold properties and make dollar adjustments to the contract price of each one in order to arrive at three (or more) estimates of your property's value. These figures are then combined, though not necessarily averaged, into a single estimated market value. Your agent should use some form of this generally accepted method in calculating the estimated value of your home. Again, see Chapter 4.
What is your accuracy record in determining expected contract prices? Some agents will not know. Some might guess. The one who checks his or her own record is the one who cares. See if the agent has a written record of his or her performance and pay little attention to the actual number quoted.
Where should the initial asking price be set for my home? This question measures basic understanding of the current market. The correct answer depends upon the local average selling-price to asking-price ratio (see APPENDIX A) and upon the general rate of increase or decrease in area home prices. Be sure that your agent has up-to-date and specific information on these statistics. When these factors are known, you will be able to determine what to add to your expected contract price in order to arrive at your asking price. The amount added is sometimes called "fat for negotiation," and is often around 5%.
How is my tax assessment related to my expected contract price? Many people today are convinced that market values can be predicted somehow from government tax assessments, not to be confused with professional appraisals. Indeed, the stated goal of most local tax assessors is to assess properties in relation to (that is, at some percentage of) market value. Of course, an average relationship between tax assessments and contract prices of recently sold homes can be calculated easily. But the idea that a government employee sitting in a windowless office with some records and a computer can predict the market value of a specific home is ludicrous. If this were true, the entire professional appraisal industry would be out of business. If you must, call your local tax assessment office and ask what contract price you should expect. Better still, see APPENDIX B for typical data and a detailed explanation. An agent who puts stock in tax assessments will be dangerous to your marketing program: You will very likely be setting too high an initial price or will be accepting too low an offer. Either will be disastrous. The wrong answer to this question is enough to disqualify a candidate.
Now your prospective agent should be more than ready to tell you about the custom marketing plan that has been designed especially for you. If you review three marketing plans, you probably will find much similarity. So save a lot of time and politely forgo this step. In so doing, you will avoid the most common mistake made by home sellers: Selecting an agent because of the marketing plan. Agents do many things to help sell a home and to impress the seller that an exceptional marketing effort is being witnessed. Yes, more exposure is generally better, but one also needs to consider effectiveness. It is often difficult for home sellers (and, unfortunately, for some agents) to separate what is really important from what really sounds as if it is important.
Most sellers choose an agent primarily because of the marketing plan. Many agents perpetuate the notion that this is a good idea because they sincerely believe it to be true. However, as an important criterion for selecting an agent, the marketing plan does not even rank among the top three. As you will see from the next set of questions, your listing agent probably will never show your home to the eventual buyer and the most fabulous marketing plan will be for naught. Choosing someone primarily on the basis of "rah, rah, rah; sis, boom, bah" will not lead to the successful sale of your home.
What usually sells your listings? The MLS? Signs? Ads? The industry average is overwhelmingly clear: Over nine out of ten home buyers come from the computerized MLS through another agent, not from the direct sales efforts of your agent. Signs and open houses account for the few remaining sales. Is the candidate in touch with the market? In our market, it is the MLS that sells. This fact explodes the myth that personal contacts and word-of-mouth selling have measurable effects. See APPENDIX C and ask your agent to verify this important statistic for you.
In what percentage of your listings were you the selling agent? Be wary of an answer that is higher than one out of ten. It can suggest inaccuracy, or worse yet, a history of "pocket listings," homes that are not entered promptly into the MLS. This practice is much more common in a hot sellers' market, and puts the agent's interests ahead of the seller's interests. This is unethical and, depending on the jurisdiction and details, could be illegal.
How many times do you expect to show my home personally each week? Again, is the candidate in tune? Most agents will welcome the chance to confess at this early stage that, with the exception of open houses and very occasional calls from signs, they personally will not show your home very often. Who needs unrealistic expectations anyway?
How many showings will we need to find our buyer? This question is another check on experience and provides valuable information so that you know what to expect. The number varies widely but a reasonable response is between 20 and 50 showings, depending somewhat on the property and the strength of the market. The experienced agent will know this number. It is an essential piece of information for an agent to possess whether he or she is working with sellers or buyers.
How many showings should we expect each week? The answer is unknown, but if your price is in tune with the market, there should be at least four showings to qualified buyers each week in order to sell in 4 to 12 weeks. For expensive homes, showings are less frequent and longer marketing times must be anticipated.
Who pays the cost of advertising? Usually you pay nothing until the commission is charged at closing. What a steal! It might be interesting to ask what the agent pays for personally and what the firm handles. Note that the effectiveness of advertising is very limited. (On the average, it takes well over 300 newspaper advertisements to sell a home that way.) But to the extent that it can help your effort and certainly will not hurt, you might see more of it depending on who pays: The firm; your agent; or you. However, do not make advertising a major issue. It's just not that critical.
The most valuable exposure is through the computerized MLS database. It is 50 times more important than whatever is in second place. Serious home buyers do not want to waste time. They know how to find a home: Get an agent to search the MLS. It's a lot quicker than attending open houses or chasing real estate signs. That is why well over 90% of all homes are sold this way. No, your listing agent will not actually find your buyer directly. This means that the information entered into the MLS computer is critical to your success! Your listing agent is your connection to the buyer. In selecting an agent to market your home, experience is the key. Read on to learn where to look and what to look for in selecting an agent to put your home's best foot forward. Your agent's computer literacy is one of the most important factors.
Real estate agents, like the general population, include a diverse mix of personalities and capabilities. Some adjust to change; some fight it. Some are born computer nerds, and some will never know the difference between a bit and a byte, or between baud and bawdy. And some will never even care. A few well placed questions will sort out your special computer nerd-agent.
What sells homes? If the answer is, "The MLS," then you are off to a good start. You have an agent who understands market basics. Conversely, an agent who thinks that his or her "dynamite marketing plan" is going to do the trick is way off base and might look at the MLS data-entry job as something to finish as soon as possible and with as little thought as possible.
What kind of computer equipment do you have at home? See if your candidate is up-to-date. Also talk a little computer-eze to get a feel for the candidate's comfort level. If you want to get fancy, ask about how the asterisk (*) or the percent sign (%) are used in the MLS. The answer: Either of these is used as the "wild card" in an MLS search. There are terrific agents out there. Don't you want to find one to sell your home?
An excellent way to determine whether your agent has what it takes, is to review several of his or her recent listings out of the MLS. Ask prospective agents to bring three or four of them to your interview, along with a copy of the MLS "profile sheet" which shows all the information that can be entered. Do not try to review the listings during the interview. Look them over carefully later, referring to APPENDIX D, which was written from the viewpoint of a seller examining the MLS information entered for his or her own home.
To emphasize the importance of your agent's computer literacy, there are a few more critical decisions involved in filling certain fields, so that other agents searching the MLS will find your home for sale. These items will be hard for you to check, but see APPENDIX D. Remember that your agent has to think like a computer in order to enter your home in a manner that will maximize the number of times it issues forth in other agents searches. And when your page does pop out of the computer, the information there needs to say, "come visit me." Like life, there is no substitute for experience and good judgment. Choose your agent carefully!
The next set of questions is of greatest importance and, unfortunately, will take many by surprise. These questions deal with the agent's personal negotiating record and will give an indication of negotiating skill. Do not omit these questions. A favorable response is mandatory. The answers have a direct bearing on your bottom line.
What is the selling-price to asking-price ratio for your listings? In other words, when an offer arrives, how close to full price are you able to negotiate for your sellers? The answer is too important to rely on an estimate or recollection. Be sure to see a written tabulation of MLS data from the agent's recent sales. Since many agents will not have this information readily available, ask that it be sent along or dropped off at your home as soon as possible. A survey of six top selling agents from several different firms revealed personal averages between 85% and 96%. To determine the importance of this single question for yourself, just calculate 11% of your home's value. This is the difference on your bottom line between selecting a 96% agent and an 85% agent. And you can surely do worse if you leave the matter in the hands of fate by failing to obtain a definitive answer to this question.
What is the industry's average selling-price to asking-price ratio? Every knowledgeable agent needs to have some idea of this ratio whether working with buyers or sellers. Compare this answer with your candidate's answer to the question above. Is your prospective agent's personal record better than the average? The average also has great value when setting the asking price, after you have an idea of the fair market value of your home. The correct answer is often between 95% and 99%. APPENDIX A describes how to determine the latest figure.
By now your candidate is in awe. Are you an agent? How did you ever learn so much about real estate? DON'T TELL. The fun is just starting. You are about to find out, firsthand, how good a negotiator you have. Ask what commission the agent charges. Remember that commission rates are not set in any manner by any body, or by anybody. They are set by negotiation between you and the broker, which strictly speaking, is the real estate firm. You may assume that the agent has some latitude to speak for the firm regarding commission, so go ahead and ask. Plan to have two or three reasons why you should pay a lower commission than that requested. Be prepared to press your point a bit.
Eliminate any agent who is willing to give up a significant part of the commission. Why should you pass up such a saving? Some reasons follow:
- For an agent to request a commission and then be negotiated out of it indicates a lack of negotiating skill. You need an agent who is an even better negotiator than you are.
- When you are successful at cutting the price, you will wonder later whether the agent is cutting the service. Do not sow the seeds of mistrust!
- Most of all, if an agent is so careless with his or her own commission, you will not want to trust his or her counsel for your money at the contract negotiating table.
- Score extra points for the agent who explains that the commission structure is set to be uniformly fair to each client: past, present, and future.
The following are optional questions of lesser importance.
What is special or unique about your firm that will directly enhance my marketing program? Many "special" programs are offered, such as the "One Year Warranty," the "one stop shop," or the guaranteed sale (or we'll buy it) program. Generally such programs are not unique to any one firm.
Do you specialize in my type of property? If your candidate makes such a claim, find out how such specialization benefits you. Remember that your listing agent will rarely show your home in person and therefore will rarely get to impress a potential buyer with his or her expertise. Also, what kinds of business does the agent refuse in order to specialize? With modern technology and a little ambition, it is very easy to cover the entire residential spectrum. Ask yourself why an agent chooses to be self-limiting by specializing.
Will you market my home alone or with a team? Suit yourself; it can work either way. Are you being given a choice? Ask who will be your main contact.
If you use the following questions, have the agent's business card handy for reference.
Where is your office located? Generally, try to list with an office within one-half hour's drive. However, do not make this a controlling factor. You will probably never visit your agent's office. Further, office walk-in buyers for any home are non-existent. If you are unduly worried about proximity, many agents will market your home jointly with another agent who is right around the corner from your home.
Are you licensed as an agent or as a broker? A broker's license requires more education, testing, and experience.
Did you win any sales awards last year? Most firms as well as the Realtors' associations give awards. An award can generally help substantiate an agent's experience claim.
Have you earned any professional designations? These are usually based on classroom education. While professional designations are valuable, remember that they are not a substitute for experience.
The following are a few questions that are better left unasked.
Do you currently have a buyer for my home? This question invites trouble. First, the theoretical likelihood of this happening is probably about one sale in 25 million. In practice it probably occurs more often, maybe one sale in two thousand. (Not great odds.) Second, if you still think you are hiring an agent to find your buyer, read this chapter three more times or throw this book away! If the agent does have your buyer in waiting, be assured that he or she will be on your doorstep as soon as your home is listed, no matter who you list it with. If you are really enticed, tell the agent that he or she will not be your listing agent but that you will execute a three-day listing with him or her for named buyers at a reduced commission. But keep your eyes open for trouble, delays, or both.
Can you supply names of references? This is probably not worth the effort. You already know far more than anyone else does about your candidates. Why let someone else make your important decision? Conversely, maybe you should know whether your agent is so unwise as to supply names of dissatisfied clients.
Answers to the questions in this key chapter will ensure that your agent has, without doubt, the experience, market knowledge, and personality to serve you well. In addition, you will be assured of your agent's communicating and negotiating skills, which are absolutely crucial to your success, especially in this era of buyer brokerage.
Do not forget that your feeling of trust, your agent's computer literacy, and your agent's negotiating expertise are the most important factors in selecting an agent. Your agent's superior record is proof of market knowledge and experience. No doubt this has been an exhausting procedure but rewards will accrue in personal satisfaction, time, and money. Once you have chosen your agent, the rest is easy.
THE VALUE OF YOUR HOME
As you now know, market forces have already determined the value of your home. "The market" somehow knows how to value your home's location, number of bedrooms, and even its uniqueness. Indeed, every home is unique and yours is no different. Just think about it for a moment! If you expect to find that one buyer who will appreciate everything you have done to your home and pay a handsome premium over market value for it, you are searching for a fool who is your clone.
Most buyers search for a home over a wide area and see many homes before they purchase. Therefore, there really is no unique market or even niche for your area, your subdivision, or your home. By realizing this, you acknowledge that you will have to compete with other sellers for a buyer. And in a competitive environment, it is imperative to know the market.
It is important to have an accurate idea of your home's fair market value. You might use it to briefly reexamine your decision to sell. Should you rent the home? Stay in it? Sell it? If you decide to proceed with selling, an accurate estimate of its value gives you a preview of what is at the end of the home selling journey. With this information you can plan your marketing strategy more effectively and possibly even enjoy the trip. Your carefully selected agent can usually predict your home's market value within a few percent.
But how does "the market" determine your home's value? How can we find out what the market already knows? What are the critical factors? And, as will be discussed in the following chapters, how can we exercise maximum control over the outcome? To be sure, the market neither knows nor cares:
- What you paid for your home
- How much money you have spent on improvements
- How much money you need from this home sale in order to buy your next home
- The amount of profit you feel you are due from your home sale.
Before we consider the market for your home, we must examine the overall supply of homes on the market and the demand for them in order to place your sale in perspective. APPENDIX E shows the supply of homes available on the resale market.
Note the seasonal variation. The number of homes on the market peaks around midyear. This illustrates a common misconception about the market cycle, and a common mistake that you will be able to avoid if you have some timing flexibility. Try this: Ask anyone when it is best to put your home on the market. They will recite that many buyers have children and wish to move in the summer when school is out. Then they will tell you to put your home on the market in May or June. It makes perfect sense, but it will be a big mistake to follow that advice. Another example of "what everybody knows" being just plain wrong!
The mystery unfolds with a look at APPENDIX F. Notice that the number of homes sold (contracts entered) usually peaks in April or May. This is not unusual. "Spring" buying activity starts in January. If you have a choice, your home should be put on the market before mid-February. If you wait until May or June, there will be fewer buyers chasing after more homes. This will mean a longer marketing time and possibly a lower price for you.
APPENDIX G shows the combined effect of supply and demand. Months supply of homes on the market can be easily calculated: Divide the number of homes on the market in any month, by the number of homes sold in the same month. Conceptually, it indicates when the current inventory of resale homes would be exhausted if buyers kept buying at the current rate and no additional homes came onto the market. (Of course, this never happens.) A months supply figure of less than 3.0 favors sellers while a number greater than 5.0 indicates that buyers have the advantage. This concept provides a means of gaining a general assessment of the strength of the market. A review of APPENDIX G reinforces the advisability of getting your home on the market early in the year when months supply is lowest and the market is most likely to favor sellers.
The following factors significantly influence the strength of the resale home market:
- Most important, mortgage interest rates
- Local economic conditions, which depend somewhat on national and international conditions
- Government action, for example freeing IRA (Individual Retirement Account) funds for use in real estate purchases or a tax credit for first-time home buyers, benefits the market
- On the other hand, idle government talk of such action tends to stifle buying activity as buyers who stand to benefit postpone buying and wait for the action
- As always, the market is influenced by buyer and seller psychology; their perceptions of the factors above and other current conditions, as well as their expectations for the future
- New home building activity
- Major changes in zoning policy
- Long-term changes in demographics and personal incomes.
Although the average home seller has very little control over these factors, they should be monitored because of their effects. Keeping abreast of important changes will allow you to gain a competitive edge if you can modify your marketing effort before other sellers do.
The preceding considerations are important because they affect the market in general and will certainly have a direct bearing on your home sale. But you still need an accurate idea of your expected contract price or market value. Your agent can help with this. While some agents might present you with a wad of printouts and offer a ration of verbiage about your expected price, others could take a more direct approach and ask you what you would like. Still others will check with the local tax assessor's office, deferring to them the decision on your home's value.
None of these methods will be satisfactory to you or your agent, who will be happy to prepare an "appraisal style" market value analysis similar to that described in Chapter 4. It is the method that is important, not the look of the report. At this point we should reinforce the distinction among the following:
- Your tax assessment is set by a local government official and is the basis for your real estate tax bill and nothing more.
- An appraisal is an estimate of your property's market value prepared by a professional, state-licensed appraiser. It is several pages long, is prepared in conformance with a set of accepted guidelines, and is required by mortgage lenders before making a loan. A fee is charged for this service.
- A market value analysis is prepared by a real estate agent. When done properly it follows the form of the appraisal method called "determination of value by comparables" or "the sales comparison approach" but does not necessarily conform to a detailed set of guidelines.
There is wide latitude for the use of judgment in an agent's market value analysis: Good judgment will produce a superior result. A description of a typical market value analysis follows so that you will have a better idea of the procedure. This will facilitate your review of the analysis that your agent prepares in order to predict your home's market value or expected contract price.
The critical first step in the process is finding three (or more) similar sold properties. "Similar" does not mean exactly the same. A proper choice requires judgment and experience but the ideal homes are within a mile or two, have sold within the past year, and are the same style, colonial, for example. The choice is sometimes obvious, sometimes nearly impossible. Properties currently under contract, sold but not yet settled, can be used but your agent must obtain the contract price from the listing agent.
The procedure uses sold properties to predict market value. Asking prices of homes on the market cannot be used for this purpose: They will predict only a price at which your home will not sell because these properties have not sold yet themselves. But if the asking prices of some similar nearby homes are so low that you might not be able to achieve the predicted contract price, then the analysis should be repeated using those homes. Information from unsold properties should be used only to answer the question: How much do you need to lower your expected contract price (which was predicted from the sold properties) as a result of the low asking prices of the nearby homes? Do not fall into the trap of spending time and effort predicting a price that is too high, and which will only keep your home on the market unsold. It is easy to find a price that is too high without all that complicated analysis stuff. But resolve to do it right. By comparing your home with sold properties you will be setting the stage for your home to be sold.
The contract prices of comparable properties that sold more than a few months ago could be adjusted for time, that is, for appreciation or depreciation. But this adjustment will not be required in a market where prices move very slowly as the months pass. Next, significant differences between your property and each comparable property must be identified and dollar adjustments made. Dollars will be added to the contract price of a comparable home for features your home has but the comparable home does not have. Think of this procedure as "buying a deck for the comparable" to make it equal to the deck that your home already has. Dollars will be subtracted from a comparable home's contract price for features it has but your property does not have. Think of this procedure as "taking the value away from the comparable home" for its two car garage that your home lacks.
The list of features that make a difference is almost endless, but items with a value less than about $500 can usually be ignored. No adjustment, positive or negative, is required for any feature that both your home and the comparable property have. Values assigned to features are a matter of judgment. They should measure what today's buyer will pay for that feature in a similar home. Values are not the original cost of the feature, nor its replacement cost today. The classic example is a $50,000 in-ground swimming pool, which often is found to be worth only $10,000 or $20,000 to a typical buyer.
When the contract prices of the three comparable properties have been properly adjusted with appropriate positive and negative values, you will have three individual estimates of your home's market value. These three numbers should be in a reasonably tight range. Using experience and judgment, your agent can suggest a single expected contract price for your home. This figure need not be an arithmetic average nor the median value.
This market value analysis method, when performed properly, will accurately predict the price you should expect on your final contract. It is not necessarily your asking price. The relationship between the two will be discussed in Chapter 5. It is worth noting that your first offer might be quite a bit less than your predicted final contract price. This is why emphasis was placed on your agent's negotiating skill and experience in the preceding chapter.
As noted, the method of analysis described above is called the sales comparison approach. For the sake of completeness, there are two additional methods for determining market value:
- The replacement cost approach
- The income approach.
In our current market, neither of these methods is used widely as a primary method to value residential resale real estate.
Feel free to ask your agent questions about the market value analysis, remembering that you hired experience and judgment on which you can rely. If you have serious questions about the predicted contract price or market value, or if your home is particularly difficult to analyze, consider paying for a professional appraisal to help establish a figure. Perhaps your agent will reimburse you for the cost at settlement. Keep in mind that neither analyzing market value nor appraising are exact sciences. They do, however, represent the best information available.
At this point, it is a good idea to investigate supply and demand in your immediate area or subdivision. Ask your agent to show you an MLS printout for all of homes for sale in your area, from which you can see the number of similar homes currently on the market and the number recently sold. Do the rough calculation of a months supply figure as described in APPENDIX G. This comparison will give you an idea of whether your sale will be easy or difficult. A months supply greater than 12 generally means big trouble. Review the asking prices of similar properties now on the market. Where will your home have to be priced in order to sell? Again, prices of homes now on the market can be used only to determine an upper limit for your asking price. For example, if the analysis based on sold properties predicts a market value of $500,000 and three neighbors are currently marketing their similar homes for $455,000, your price will have to be competitive in order to sell. Do not infer anything other than a downward adjustment in your estimated contract price from other homes' asking prices.
Again, if you have a choice, put your home on the market in February so that you will be negotiating with buyers when the months supply of properties is lowest.
YOUR MARKETING STRATEGY
Your marketing strategy is an overall plan, in other words, the big picture. What are you trying to accomplish? By what time? How can it be done? There is nothing wrong with high aspirations or the "power of positive thinking." But if your goals are not realistic and you think that you or your agent can control the market, eventually you will realize the folly. Realizing it now is best.
There are three basic strategies to consider, one of which will suit you. They are:
- The classic approach
- The (maybe) top dollar approach
- The quick sale approach.
Through the entire home selling procedure remember this: You are the seller. You decide what your price will be at any given time, and whether you will accept any particular offer. Also, you will reap the benefits from your good decisions or bear the consequences of your less-than-good decisions.
The classic approach to a marketing strategy is the mainstream approach rather than one of the extremes that will be discussed later. It is the correct strategy for more than 90% of home sellers and is probably the right one for you. In the classic approach, you will enter the market at exactly the right price and sell in two to ten weeks. If you sell in less than a week, your asking price might have been a bit low. Do not worry too much about this happening to you. It's rare. If you are still on the market in ten weeks, your price has proven to be higher than the market will bear. Up to 60% of home sellers err on this side and cost themselves time and money. Your agent can point out a number of local properties that have been on the market too long.
To accomplish the classic approach, you will start with the expected contract price from your home value analysis as described in the preceding chapter. To that, you will add a small amount for negotiation, usually about 5% of your home's market value. That is much less than many would guess. But why guess? The average home's selling price to asking-price ratio is often around 95%. In other words, all you have to give at the negotiating table is 5%, much less if you have done a good job of selecting an agent with a superior negotiating record. It might be a good idea to ask your agent to refer to APPENDIX A and run an updated selling-price to asking-price ratio calculation. A tailored calculation can reflect your price range or geographic area. However, the MLS data must be taken at random and must include at least 200 recent sales in order to ensure the statistical significance, or reliability of the information generated.
It all but the slowest markets an asking price 5% above the predicted contract price is a good starting point. In a slow market this will provide the required fat for negotiation. It hot market the 5% uplift will help "lead the market" and provide some assurance that you are not pricing your home to low, as home prices rise.
Why does this work? The classic approach holds that at any time your home enters the market, there are a certain number of ready buyers, let's assume 25, milling around in search of a home similar to yours. They have seen everything currently on the market. Within a few weeks these 25 buyers will notice your new entry on the market, visit it, and form an opinion of it. If everything is right, including the price, your home will sell to one of these buyers.
If not, you will never see them again, perhaps because they purchased something else or felt they had no need to see your home again later, even at a lower price. After this "initial wave" only buyers newly entering the market will visit you. This number is rather low and will produce, for example, only one or two visits weekly. But if someone in the initial wave did not buy your home, the newly entering buyers probably will not buy it either and your home's asking price will need to be reduced.
The classic approach is usually the best approach, but even with the best plan, occasionally your home will not sell in ten weeks. Results do vary. The numbers above serve to illustrate the theory. In the real world, the decline in buyers' visits is not precipitous: Do not look for exactly six visits per week for four weeks, followed by an immediate drop to one or two visits per week. And remember that it takes at least two weeks to establish a trend.
The classic approach will give you a reasonable chance of obtaining multiple concurrent offers. If you are fortunate enough to generate the concurrent interest of more than one buyer, you will be in the strongest position to get your full asking price or more, with other terms to your complete satisfaction.
The (maybe) top dollar approach to a marketing strategy is right for very few sellers and will be discussed mainly to define it so that it can be avoided. It attempts to maximize price at the expense of time.
To accomplish this approach, you again start with the expected contract price and then add 10% or 15% to determine the first asking price. Set your last asking price at about 10% lower than the expected contract price. Next, divide the difference between the higher and lower prices into steps equal to about 5% of the expected contract price. Finally, schedule these price steps evenly throughout the marketing period available, or the maximum acceptable time for your home to be on the market. The following is an example for a home with an expected contract price of $400,000 and six months available for marketing it:
- March 1, $450,000 (initial asking price)
- April 1, reduce the price to $425,000
- May 1, reduce the price to $400,000
- June 1, reduce the price to $380,000
- July 1, reduce the price to $360,000.
Your prices and times will no doubt be different.
The top dollar approach seems logical enough and certainly will sell your home if the plan is followed. If you consider this approach, keep a few things in mind. The cost of keeping most homes can approach 1% of the market value per month, or $4,000 monthly in the example above. If your home will be vacant, you could lose $20,000 in five months.
In times of rising market prices, this approach has slightly greater appeal. If the price happens to be a bit high, market appreciation overtakes the error and the home sells in a few extra months. In a stable market it is questionable whether this approach will mean extra dollars. In a market of falling prices, it can be a disaster: If your reductions do not overtake the falling market, you will sell much later at a much lower price as you "follow the market down" never at quite a low enough price to sell until desperation shocks you into reality.
The quick sale approach also is not suitable for many sellers. It minimizes the time on the market at the probable cost of several thousand dollars. But if you need to sell quickly, you will be the first to see that this approach is for you. Your home will enter the market at an asking price about 3% to 5% lower than the expected contract price and it should sell quickly.
Be prepared to be very firm at the negotiating table. If a counteroffer is necessary, supply the selling agent who brings the offer with data to support your price: Your market value analysis, an appraisal, or comparable sales. Point out that this information is to be shared with the prospective buyer to support the reasonableness of your counteroffer. Above all, be calm, reasonable, and firm. Do not appear anxious. If your buyer gets the idea you are in trouble, you indeed will be in trouble. If the negotiations are conducted properly, the buyer will agree reluctantly from the data presented, as well as from his or her own knowledge of the alternative properties available, that your home at your price is the best option.
The quick sale approach maximizes your chance for multiple concurrent offers. If negotiations take a couple of days, your chances improve. If your listing agent can develop a second offer, you could end up with your full price or more without having to make any concessions, such as paying points for the buyer's new loan or giving any other "seller credits."
If you are in a tight spot (for example, in default) with your mortgage holders, advise them of your plan to sell. Some mortgage companies can be of significant help. They do not want to add your home to their inventory of homes for sale.
You now have three well-defined marketing strategies from which to make a selection. A few additional considerations will be very helpful. But first, it bears repeating that if a home's price is too high for the current market, there will be few visitors to it and no offers. Selling agents usually do not show homes that are much above a buyer's price limit. They know that this would encourage the buyer to infer that deep discounts off the listing prices are widely available. As this is not the case, the agent does not want to create "the impossible dream," which almost certainly would result in insurmountable contract negotiation problems later and a disgruntled buyer.
Even if your overpriced home is shown occasionally, it will receive no offers. Any buyer who sees 20 homes in a certain price range will be able to easily reject, as a comparatively poor value, any home that is priced 10% or more over its fair market value. Because many other homes are priced right, your home also needs to be priced correctly in order to compete. Worse yet, an overpriced home will be shown to the wrong group of buyers; those who can afford more. These buyers will buy a home of greater value in which to live, rather than accept your somewhat lesser home merely because it might be obtained at a great discount.
Sellers whose prices have too much "room for negotiating" invariably end up with no offers to negotiate. The higher the price, the longer the time on the market. Further, overpriced homes often must be reduced before they sell, so time and money are lost for no gain at all. To repeat, overpriced homes are not shown to the right group of buyers. They languish on the market because they are competing with the wrong set of homes: Those of greater value.
Reference to APPENDIX A will yield a compelling thought: If the average home's selling price is, for example, 95% of its asking price, then the average home does not receive a viable offer until its asking price is within about 5% of its actual market value. This fact reinforces the critical importance of having only a small margin of "fat" in the asking price for leeway in negotiation.
No matter what strategy you employ or at what stage you find yourself, if a price reduction is needed, it usually should be between 5% and 10%. A reduction smaller than 5% is just not significant to the market. It is a waste of time and effort to even imagine that it will make a difference. On the other hand, reductions greater than 10% generally should be avoided. There is a risk that an entire range of buyers could be bypassed completely, never learning of your good value. In such a case, your home could be sold for less than is reasonably attainable.
A little known advantage will be gained by pricing your home exactly on a round number. You are not selling clothing, gasoline, groceries, or used cars. Remember that the home selling market is uniquely driven by online computer searches. By pricing on a round number you will get more visitors and sell faster. An example will help:
- Agent A has buyers looking in the $550,000 to $600,000 range.
- Agent B has buyers looking in the $575,000 to $625,000 range.
- Agent C has buyers looking in the $600,000 to $650,000 range.
If your home is priced on the round number $600,000, it will be considered for showing by all three agents above when they do an MLS computer search for available properties. If your home is priced at $599,999, only Agents A and B will find your home in their computer output. Agent C will be oblivious to the fact that your home is for sale.
Almost all agents, as well individual buyers, search in round numbers. In fact, many of the myriad third-party sites (e.g. Zillow, Trulia, etc, etc) provide online price pick-lists that do not allow anything other than round numbers.
Of course not every home can be priced on an even $100,000 interval, but use increments of $10,000 or prices ending in $25,000 or $75,000. This pricing tactic will gain you a competitive edge over most sellers. "Over how many other sellers," you ask? Check some random prices of homes for sale to see how many sellers understand real estate market pricing as well as you now do.
PREPARING TO MARKET
Preparing to market your home will take time and thought. This chapter is not an exhaustive treatment of the subject. The ideas presented are those that are most important, frequently overlooked, or unique. Properly preparing your home will save weeks or even months on the market and likely will add thousands of dollars to your bottom line. On the other hand, a home that does not show well will not obtain anything close to the contract price predicted in Chapter 4. Read on carefully, a home that shows poorly will cost its seller at least 10% to 15% of the home's fair market value as well as require an extended marketing time, and cause needless aggravation.
First impressions are the strongest. In marketing your home, as in life, you never get a second chance to make a good first impression. So when your prospective buyer pulls up to the curb, make it count. When visitors arrive, they will use all of their senses, with the possible exception of taste, to gain an impression of your home. The following will form their impression:
- Obvious factors and qualities such as the carpet color or the number of bathrooms
- Recognizable and definable, but not obvious, factors such as proximity to a Metro station or the existence of a community pool and tennis courts
- Indefinable, subtle, and often unspoken feelings.
Your objective is to slip into the shoes of the home buyer, a total stranger, and identify the essential elements, whether positive or negative, dealing with each, bringing the positive ones into sharp focus and eliminating or minimizing the negative ones. It will be difficult for you to identify subtly embarrassing or possibly offensive elements of your home. The importance of eliminating these factors is easy to understand: Unspoken objections, which can represent powerful negatives, can never be known, addressed, or resolved by the agent showing your home. You must identify and eliminate such problems if at all possible.
If your agent points out a potential problem, it does not mean that he or she will have trouble marketing your home. In fact, you need an agent who is observant as well as candid. Recognition of a problem is the first step toward its resolution. Better to resolve your problem now than to let it become an issue with a buyer.
One important caveat: Significant defects need to be corrected or disclosed in writing for your protection. Your agent can explain this further if necessary and will keep you in conformance with the applicable disclosure laws.
Rely heavily on your agent's expertise in preparing your home for sale. There are also video cassette tapes available to give you ideas. New homes are often your competition, whether nearby or miles away. New home marketers start with an empty home and decorate to sell using professional consultants. Visit a few new homes and get a general idea of what works, then emulate them as best you can. Be assured that emulation, if done privately, is not illegal in any local jurisdiction.
Spending large amounts of money to ready your home for sale should be postponed or avoided if possible. It is rarely cost effective and should be done only as a last resort. If there is any question of major spending, it will be useful to get some free estimates. These not only will define the expense and provide a basis for your decision, but also can be used to answer possible questions from prospective buyers.
Minor repairs should always be done. Fixing that dripping faucet, the hole in the wall, and the loose front doorknob are minor expenses that will return many times their cost, not to mention those closet doors that are off their tracks or dragging on the carpet. When buyers observe minor maintenance items that have not been done, they wonder what other problems might be lurking. Also, standard resale contracts require that major systems, appliances, et cetera, to be in normal working order on the date that possession is delivered. Why wait?
The presentation of your home that you are striving for can be summarized in the following manner:
- Light and bright
- Uncluttered and neat
- Neutral in color and pattern
- Impersonal and inoffensive
Of course, an entire book could be written on preparing a home for the market, its importance, and what happened for those sellers who did it right... and to those sellers who did not. But for now, we will just hit the highlights. Bear in mind that home buyers will be especially impressed with your home if it is neutral, neat, and clean. A home preparation checklist is provided in APPENDIX H.
To achieve "light and bright," go through your home carefully and replace the light bulb in each lamp or lighting fixture with the maximum wattage bulb allowable. Permanently installed fixtures should have labels showing the maximum watts. No penny pinching either; if a lamp will take a three-way bulb, go first class. Wash the lenses of all lamps and lighting fixtures. Remove shades, blinds, drapes, and curtains if possible, but be careful not to create a barren look or expose ugly windows or unpleasant views. Sheer curtains that you feel are needed should be taken down, cleaned, and re-hung. Have all windows washed inside and out, including the space between the windows and storm windows, which sometimes resembles an insect cemetery.
The ideal home for showing has a minimum of furniture. Identify any items that you will not move to your next home and sell, donate, give, or throw these things away now. Remove furniture from hallways and narrow foyers. Move any furniture that impedes entry or clear sight into any room. Pack all valuables, collections, and family photographs and store them safely for the move. Remove everything from kitchen counters, bathroom vanities, and your desk top. Replace only those items that you are sure to need in the coming week. Pack the rest. Be honest, you will never use all of those 137 different lipstick colors next week. Give some attention to storage spaces, attics, and garages as well, and remove everything from the stairs: A broken arm, leg, or neck is not the way you want a prospective buyer to remember your home. Keep your home neat at all times. Even train the teenagers to be neat; eventually they will thank you for it, if they grow up.
Neutralize colors and patterns as best you can without spending a fortune. Can you remove wallpaper and paint the walls? If you choose to paint, remove all of the electrical switch plates and socket covers before painting and replace them with new ones as soon as the paint is dry.
The more impersonal your home, the less chance it will offend your buyer. Anything that says sex, religion, politics, rock'n'roll, et cetera, should be packed to move. Dirty clothes, especially socks and under garments, should be consigned to a hamper promptly. Often buyers will not openly express their personal feelings about what they find offensive. Sometimes their feelings are not even put into words. But they rarely want to think of a home that they found distasteful, let alone see it again.
Clean everywhere, but pay special attention to kitchens and bathrooms. Tile grouting and tub caulking must be cleaned and bleached white. If stains persist, consider replacing the offending material. Any soiled carpets must be cleaned if not replaced. Get professional help if necessary. If there is any question about your carpet, get an estimate for replacing it with modest quality, light, neutral carpet, the same in all rooms.
Try to find paint to touch up the appliances and the corners of walls where the paint has been chipped off. Look around carefully, most of us as homeowners "tune out" chipped paint and cannot see it. Identifying the chips will take all the concentration you have. If your home has a forced air heating system, clean the vents giving special attention to cold air returns. While you're at it, replace the furnace air filter. "The furnace what," you ask? Now that you have found the furnace, why not clean its outside? Doubtless, the water heater is lurking nearby and probably could use a cleaning as well.
Be alert to odors. The only time you will be able to evaluate odors is during the first few seconds after you return home. Track down any odors to their source and eliminate them. The cat's litter box really needs changing more frequently than every month. Because your fireplace can produce unwanted odors, especially on rainy days, clean out the ashes and set new logs for your next fire. Use some type of "odor eaters" or air fresheners, but avoid strong scents.
Set the dining room table for dinner including plates, silverware, water or wine glasses, coffee cups, place mats, and napkins for four. It is advisable to arrange for pets to be confined or out of the home whenever it might be shown.
Finally, don't overlook the outside. Everything should be neat and trimmed. Your lawn should look picture perfect, and any required painting should be done. This is the ideal time to remove the spare plumbing fixtures and the old car (the one up on cinder blocks) that you have been saving in the front yard. If your home does not look inviting from the curb, many buyers will drive by and never come in. Elementary? Intuitively obvious? But thousands have lost millions through their own disregard and negligence. Do not join them.
You will find a telephone answering machine to be of great value. Check it for messages each time you return home, especially if you are one who would find it somewhat awkward to meet your prospective purchaser while taking your bubble bath.
It is best not to have any inspections conducted. Let the purchaser decide what inspections are important, which professionals should perform them, and pay these bills.
You will need to assemble various bits of information to help your agent present your property at its best. Some of the information is routine. Is your mortgage assumable by your purchaser? Most loans are not attractive when they are assumable and are not assumable when they are attractive. To protect yourself, any buyers who wish to assume your loan should be required to qualify for it on their own financial merits. During the process you must be sure that you are released from future liability to repay the loan. With VA (Veterans Administration) loans, you also need to consider the effect on your entitlement, whether you will be able to obtain another loan. Letting your buyer assume your loan is generally not recommended, and offers very few advantages, especially when interest rates are low.
Are you willing and able to provide owner financing? Be cautious in this area. Are you skilled at assessing your buyer's financial condition and ability to repay? Are you prepared to foreclose if your buyer defaults? Why does the buyer need owner financing, which involves higher monthly payments because the interest rate is higher and the term is shorter? Will a mortgage lender provide the required funds? If the answer is "NO," then don't put your money on the line either.
In the absence of any written provisions to the contrary, anything that is attached or fastened to the property conveys (that is, stays) with the property. Identify personal property that will be sold with the home such as that oversized, wall-mounted telephone that covers the spot where the wallpaper is missing. In our area, it is customary to sell the refrigerator along with the home. Also identify what real property will be taken. If you are not leaving Granny's crystal and gold chandelier, replace it now and avoid the silly "Does Not Convey" signs, which raise more questions than they answer. Besides, some buyers specialize in negotiating such heirloom items into the contract. It is better if they are never seen.
From which direction will most of your buyers be coming? Select a suitable major intersection and prepare directions from there to your home via the easiest or, alternatively, the most scenic route. If possible, avoid having your buyers pass the local landfill, junkyard, or neighbors whose properties bear any resemblance thereto. A table of the minutes or miles to the following points will also help:
- The nearest supermarket
- The nearest large shopping mall
- The nearest Metro station and bus stop
- Recreation centers, lakes, parks, golf courses, tennis courts
- All major airports
- Major highways
- Downtown D.C.
Do not doze off yet! The best is yet to come. Chances are that your agent has never lived in your home. Therefore, you are the one best able to identify its unique features that need amplification. Consider why you bought your home originally. Whatever sold you might be exactly what your buyer is looking for, so point it out. Was it curb appeal? Room sizes? Privacy? A view? Community amenities? Was it something really superb, that you have become so accustomed to, that you now take it for granted? Give the idea some thought and you will be duly rewarded.
An excellent vehicle by which to convey some important thoughts is a personal letter from you to your prospective buyer. The more personal, the better. It can be handwritten or typed, and it should be signed with your first name. Include it with the information handout available to visitors in your home.
Information on monthly homeowners association dues or condominium fees will be required. A tabulation of last year's utility bills will help to answer the inevitable question. Do buyers really think that a few dollars a month, plus or minus, on utility bills will make or break a home purchase? Or do they think that bills from one homeowner can be relevant, despite the wide variation in personal heating and cooling preferences? Nevertheless, you will be ready for the question.
If you have a major highway, a railroad, or high voltage power lines in your yard, give some thought to how these negatives can be minimized. If you have lived with such things, they probably did not bother you. Figure out why. (Hopefully, you are not too unusual.) You likely will have to convince your buyers that these features will not be a problem to them either.
You might order any required condominium or property owners association disclosures so that they are available when your home goes on the market. Delivery of these can take up to two weeks. Keep them handy to pass on promptly to your purchaser. But if your time on the market is long, these disclosures could become out of date and some additional expense will be incurred to obtain an updated issue. Ask your agent to advise the best course of action in view current laws and the buyer's right to rescind the contract.
Before your home goes on the market, your records should include copies of the following:
- Agency relationship disclosure form
- Property condition disclosure or disclaimer statements
- Lead paint disclosure forms, if required
- Other disclosure statements
- The listing agreement
- An estimate of your net proceeds from the sale (this shows your "bottom line" after the expenses of sale and any mortgages have been paid).
Samples of the standard contract and addenda forms that will be used by your purchaser should be reviewed so that any questions can be resolved at this time. Your agent can provide copies of these forms. If you need a real estate attorney's review and approval, obtain it now, but most sellers find this is not necessary. When a contract is presented, time will be of the essence and you will be able to respond in a timely manner.[Return to Top]
ON THE MARKET
At last! Your home is on the market. The trumpets sound, it's center stage. Your agent has thoughtfully provided one of those little machines that dispenses sequential numbers on bits of paper such as you've seen at the deli counter in the supermarket. Those who wish to make offers on your home will queue up, take a number, and be dealt with on a first-come, first-served basis.
What? There is no line at the door? The number "1" droops woefully out of the little machine? And it is already your second day on the market. Is it back to the initial planning stage? Relax, and welcome to the real world of selling your home. The experience will consist of nothing but peaks and valleys. If you have done your homework, it is unlikely that you are in trouble. But it will take two or three weeks to tell for sure, assuming you are not lucky enough to be caught in a hot sellers' market. Meanwhile, there is a lot of work to be done. It is your agent's responsibility to keep you advised of what could happen as well as what should happen. No one likes surprises.
A lockbox provides the best accessibility to a home for sale. All homes, except the multi-million dollar homes of the rich and famous, should have one. Many agents will not show your home if it is one of the very few without a lockbox. And it is easy for a selling agent, during an MLS computer search, to select only those homes with a lockbox, thereby avoiding the hassle of either running around to collect your key, or hoping that your listing agent will arrive on time and then wait patiently two hours for the showing because the buyer dawdled over lunch.
No one can ensure that there will never be a security problem due to the use of a lockbox, but there are very few problems indeed. Current lockboxes make a record of each agent who enters. And an agent's unique lockbox keypad will work only in conjunction with that agent's unique personal identification number, thus obviating problems with lost or stolen lockbox keypads.
Unless otherwise agreed in writing, your home must be entered into the MLS computerized database within 48 hours of the signing of the standard listing agreement. If this is not done, either your agent is too busy to handle your home or is trying to sell it personally rather than through the MLS and other agents. In this event your agent has neither fulfilled his or her obligations to you nor to the thousands of other agents. Therefore, you should:
- Terminate the listing agreement immediately
- Go directly to Chapter 3: Selecting An Agent
- Do not pass "GO"
- Do not collect $200,000.
But your agent has already collected pertinent information on your home, and has obtained photographs of it. Carefully check the accuracy of the MLS printout and any information handout or sales brochure placed in your home. The vital importance of this is that the great majority of buyers first visit a home as a result of what they or their agent read in the MLS printout. In addition to accuracy, your home should be presented as positively as possible. While your agent will note all of the important features and emphasize highlights, unimportant information should be omitted so as not to dilute the overall impact. In the MLS data entry for a home, some of the details are required and therefore must be entered. Much of the rest is a matter of judgment. Your agent's familiarity in working with buyers, and knowledge of the MLS search options will be invaluable. You might ask to review the "Profile Sheet," which provides agents a format and checklist for entering data into the MLS.
Again, it is critical that you review your MLS printout carefully. Your buyer most likely will come from this very source. The printout involves so much information that even the most careful agent can produce an error. Any one bit of information in error could be insignificant, or it could be a controlling factor in finding your buyer. Review the printout with reference to APPENDIX D.
If permitted, a sign has strategically been planted on your front lawn for maximum visibility. Your information handout should be located on a table in the foyer or elsewhere near the front door. Agents should always call to advise you when they plan to visit, and should present their business cards upon arrival. If you are not at home, they should leave their card as evidence of their visit. Note that your listing agent is usually not present for these showings.
It is not necessary for you to leave your home before a showing and hover in hiding until the agent and buyer depart. When an agent tells you they will arrive at 2PM, that is an estimate. Your home is usually one of several to be shown and the buyer has much more control than the agent does over the progress of the tour. If several homes are bypassed without viewing in the morning, the agent and buyer could arrive at noon. If the buyer is a research librarian, it could be tomorrow. So tidy up a bit, go on about your business, and relax. If you were going out anyway, you might get ready to go but delay your departure to coincide with the visitors' arrival. However, if you try to vacate your home for every showing, you will go crazy.
Occasionally an agent might call and then fail to keep the appointment. Time might have run out, or the buyer might have asked to bypass your home. Nevertheless, an agent who makes an appointment will show your home if possible. Some agents will be able to advise you of a change in plans. If you find no-shows becoming a pattern, make it a point to ask the name and phone number when an agent calls for an appointment. With this information your listing agent can follow up to determine the problem. Sometimes there is an underlying problem: Your "curb appeal" could be deficient. The solution could be as simple as trimming the bushes or painting the trim. At times the problem is not fixable (for example, having another home or a major highway in your yard) and therefore it must be handled by a price reduction. But such obvious factors should have been accounted for in your market value analysis.
Always maintain the temperature of your home at a comfortable level, whether you are there or not. If you are at home for a showing, open the shades and blinds, turn on all lights, and turn off your dishwasher before your guests arrive. Meet the agent and prospective buyer at the door with a smile, introduce yourself as the owner of the property, invite them to look around, offer to answer any questions they might have at the conclusion of their visit... then hide. Never offer an apology for any aspect of your home; it would only highlight deficiencies.
And now a word about beans: Don't spill them. Do not discuss compromising information with anyone other than your listing agent. If a buyer has questions about your home, answer directly and accurately. But questions about the price (other than the asking price), closing date, terms, or other details of the transaction must be referred to your listing agent. Plan in advance, with the help of your agent, exactly how you will handle the inevitable question: Why are you moving? A polite but vague response probably will be innocuous. Never mention that you are moving because of a job transfer, divorce, foreclosure, et cetera. You must never convey to a buyer that you are in a hurry to sell. To do so invites the use of "pressure tactics."
Be careful not to discuss irrelevant topics such as sports, religion, politics, or the possible sale of the grandfather's clock or other furniture. There is no way to know which of these topics might cost you a contract. So be polite, brief, and stay focused on the goal. Of course, you will keep any remaining pets, as well as pet remains, out of the way whenever your home is to be shown.
Never, ever tag along during a showing. The buyer will feel inhibited and will not make the comments that the agent needs to hear. Positive comments help the agent recognize and pursue serious buying interest. Negative comments need to be addressed promptly and resolved on the spot. If these comments go unspoken, the agent will miss the best opportunity to sell your home. Besides, you truly can not help: Most agents readily will find the pantry as well as the linen closet. Many agents will even be able to figure out, on their own, which is which.
If you happen to be at home and notice that a prospective buyer shows unusual interest, asks several questions, or spends a long time, give your listing agent a call as soon as the visitors depart. These can be buying signs and prompt follow-up is required. In addition, if you see that a buyer has returned for a second visit, or if you find two business cards from the same agent, advise your listing agent at once: Your home is probably on the buyer's "short list." You already should know how to contact your agent within minutes if necessary.
Occasionally an agent working in your area will appear without an appointment. Invariably, this happens because an alert buyer has "discovered" that your home is for sale by seeing the sign. It could be exactly what the buyer has told the agent they do not want or it might be way out of their intended price range. Nevertheless, try your best to accommodate them. What have you got to lose? If an agent does appear without an appointment, ask to see a business card and a lockbox keypad as identification.
For personal safety reasons, refuse entry to any individual who appears without an agent. There are no exceptions to this rule. Write down his or her name and phone number, and provide your listing agent's business card explaining that your agent will call to schedule an appointment.
Your agent might arrange a "brokers' open house" on an appropriate Tuesday so that local agents can see your home. The number of visitors can vary from a few to over one hundred. The attendance is not totally within control, but then again, it is not critical anyway: These events rarely produce a buyer. Agents' comments on your price are generally worthless compared with the rigorous home value analysis that your agent has done already. But if several agents make a certain suggestion to improve your home's presentation, take heed.
An open house might be held periodically. Here again, results vary unpredictably, but an average of six groups of visitors for an open house is respectable. Plan to be out of the home for all open house events. You do need to realize that an open house will not be an effective means of locating a buyer. It usually takes well over 100 open houses to sell a home that way. That's an open house every weekend for two years! Not great odds. Serious, focused buyers are conducting efficient home searches on the web; and through an agent who can provide full MLS information on homes that meet their needs, and can show homes at times other than 1PM to 4PM on Sunday. But an open house will not detract from your effort to find a buyer. There is, however, some potential exposure to unsavory elements of the population who might seek to pilfer valuables or prescription drugs during an open house. You need to consider this risk, which normally is very small.
During the marketing period your agent might discuss various ideas aimed at increasing your home's exposure. These range from newspaper and magazine advertisements, to TV spots and direct mail campaigns. If you have your mind set on something, ask for it, but an endless string of any type of promotion probably will not produce your buyer.
It is important to know which types of exposure are effective in producing showings that lead to offers and which are not, so that efforts can be directed toward the effective types. A quick reference to APPENDIX C will recall that on the average more than nine out of ten buyers (over 90%) purchase a home as a result of information provided by the MLS. That is why you and your agent have spent so much time assembling and checking the MLS information and directions. Signs and open houses account for many of the remaining sales. Newspaper and magazine advertisements, TV spots, direct mail campaigns, personal contacts, et cetera, altogether account for an insignificant portion of all home sales.
The reason for this is that most buyers recognize the overwhelming efficiency of searching for their home through a computerized database compared with going to an endless number of open houses, driving down an endless number of streets looking for "For Sale" signs, or reading an endless number of real estate advertisements. Also, most ready buyers are too impatient to wait for the year when some strange real estate agent will walk up and announce that their dream house has just been located. "Word-of-mouth advertising" is not a factor in Washington, D.C. metropolitan area home selling.
So, you ask, why do agents and real estate firms spend time and money doing what does not work? The reasons vary, but some ideas follow:
- They mistakenly think it works.
- Everyone else is doing it.
- It makes their seller happy.
- It promotes the agent personally as well as the real estate firm's image.
- It brings responses from buyers who probably will buy a home other than the one advertised.
By some estimates, the likelihood of a buyer buying the exact home that he or she sees advertised is less than 1 in 300. Be assured that your listing agent will sell your home from an advertisement if possible, but most respondents will opt for some other home. It is interesting to note that an advertisement for any home, even roughly similar to yours, has at least a small chance of generating your buyer. This could happen whether the advertisement was run by your agent's company or by a competing firm.
Your agent might collect the business cards of agents who have shown your home and obtain their comments. Do not put too much stock in any one comment, but if a negative comment keeps recurring, take remedial action. Pricing comments from these agents, who probably have seen 20 or 30 competitive homes, should be noted. But the primary indicator of your price's suitability to the market is measured by the traffic generated; that is, by the number of times that your home has been shown.
If your home is shown at least four or five times a week, you are probably on the road to having a contract within a reasonable time. An average of about 25 showings will be needed to find your buyer, but individual results vary widely. If activity is slow you must:
- Determine how to improve the marketing effort, or...
- Determine how to improve the property or its presentation, or...
- Recognize that an extended period will be required to find a buyer, or...
- Adjust the asking price. Note well that a price reduction of less than 5% will not be considered significant by the market. On the other hand, price reductions greater than 10% should be avoided.
Resist the temptation to take the easy way out by doing nothing except rekindling your hopes. Your inaction will almost certainly lead to another month of market inaction for your home. Remember, to today's home buyer, the three most important factors are price, price, and price, in that order.
At least once a month, and especially when you are considering a price change, your agent will run updates on competitive homes for your specific market area. Important factors are homes new to the market, homes sold recently, and price adjustments made by competitive homes.
If the time on the market drags on, anxiety and even despair are possible, not only for the listing agent but for the seller as well. "I'll rent until the market improves." But how long will this take? To postpone the problem does not resolve it. Does this seller want to postpone a feeling of freedom, and enjoyment of life?
Then the seller might begin to fantasize. Did this seller always have a latent desire to become a landlord? A property manager? A real estate investor? Thank goodness he or she is finally realizing it now. There are other real estate bargains out there! Why not rent out this home until it appreciates handsomely and buy another similar property now as an investment to rent out and hold for the same (inevitable?) appreciation. This will double the eventual gain. "Where do I sign," the home seller (now turned home buyer) asks?
In the real world, confronted with real choices, the distraught seller recognizes that the purchase of an additional home is not quite so attractive. In the logical process, the seller's own home also is seen as a dubious investment. It takes time to be an investor, a landlord, and a property manager. It can take thousands of dollars to put a home back into salable condition after it has been occupied by a set of less-than-satisfactory tenants. Imagine trying to sell a tenant-occupied home. Some tenants are very conscientious indeed, but the simple fact is that tenants have no interest in helping their landlord to sell. If the landlord-tenant relationship has been bumpy, a property sale will provide the tenants a last chance to create one final bump for the landlord's pocketbook. Perhaps it does make sense to get in tune with the market and sell now.
But back to the mainstream. During the marketing period, remember that all of the effort will pay off. But when you are halfway through the marketing period, you will see no milestone by which to measure your progress. You will not have 50% of a contract. Your offer will usually come out of the blue when you least expect it. So do not give up hope.
It is unlikely that you will need to change your listing agent during the marketing period if you made a careful selection initially. You might review the agent selection procedure if necessary. Focus on the quality of information and advice you have received from your agent as well as the timeliness and responsiveness. Lack of an offer alone is not a good reason to switch agents. If your listing agreement is expiring, re-list for another reasonable period. Do not give your agent a vote of "no confidence" by re-listing for only a few weeks. On the other hand, if you do feel so unsure, perhaps it is time for a change.
Finally, remember to check your messages often and to minimize your time in the bubble bath: No one likes surprise visitors. If you plan to be away for more than a day, be sure to let your agent know where you can be contacted. THIS CAN BE IMPORTANT. Many buyers, especially job transferees on a house hunting trip, will not wait and hope that you might return tomorrow. If necessary, you can review, negotiate, accept and execute an offer from anywhere.
THE NEGOTIATION PROCESS
Negotiating your contract will be the most challenging and exciting part of your home selling experience. It also will be satisfying to see the effort that you have spent assembling the team, mapping the strategy, and executing the plan come to fruition. The most important part of your agent's job is managing the negotiations to a successful conclusion. You might visualize the process as traveling down a road. A proposal or offer to buy your home marks the beginning. You have no direct control over the timing or content of this offer. It merely represents the buyer's wildest wish. At the end of the road is a contract to sell your home. It must be mutually acceptable to both buyer and seller, a meeting of the minds. If it is to be legally enforceable, which is highly desirable, it must be written. You do have a good deal of control over the final content of the contract, and you will exercise this control with the help of your agent during the negotiation phase. But the road can be filled with bumps and potholes (surprises), can wind up hill and down dale (confusion), surely will contain many forks (decision points), and could run close to steep cliffs.
You might recognize at this point that it would be rather cumbersome if we had to negotiate a written contract each time we wanted to buy a loaf of bread. So, what's the difference? One difference is that homes are unique in comparison with loaves of bread, and neither the seller nor the purchaser has nearly as much experience with the transaction (assuming that you either eat bread or own a bakery). A home's price is less certain, hence the need for negotiation. In addition, home purchases are more complex and involve more details, hence the need for writing. But it is also important to consider the length of time between the agreement, and the consummation of the agreement, called closing or settlement. If your buyer came in and you agreed on a price and other pertinent details and went immediately to closing, with all of the necessary information and funds being available, then written contracts might be avoided. Negotiation and written contracts, of course, will continue to be an essential part of the home selling process.
The phone rings. It's your listing agent with an offer. Your mind starts churning out alternating dreams and nightmares. You have waited so long for this event. What if it is totally unacceptable, the talks end in a stalemate, and the buyer runs off to buy someone else's home? Perhaps the offer is sent from heaven, full price and otherwise acceptable in every detail. If this happens, then the time you spend reading this chapter can be considered recreational, and you can thank your lucky stars. In most cases, however, buyer and seller reach a meeting of the minds after some back and forth discussions, namely, negotiations.
During the negotiations, always keep in mind that you are determining how much of the money you will end up with. You are paying for professional advice. You will make critical decisions and you will live with the outcome. This is where your talented and experienced agent pays off handsomely, being at your side and on your side. Your rigorous investigations in Chapter 3 and your choice of an agent will not be confirmed fully until this point. Those who have not followed the selection procedure carefully should watch for danger signals and prepare a plan to minimize their losses during the negotiating process. More on this in the following chapter.
Details of each transaction are very different. Some negotiations are quite simple, some impossible. To treat real estate negotiating exhaustively would fill several volumes. This chapter and the next will discuss the most important considerations. During the negotiation stage, your agent's experience and expertise will prove invaluable.
The term "negotiating" has a nasty ring to some people. The offer is an insult! The buyer obviously wants to steal your home while you are not prepared to take a penny less than the asking price. And, by the way, you will not help with the buyer's closing costs! Feelings seem to be overpowering thoughts. A totally adversarial yelling and screaming match is imminent. Even the agents are getting emotional. Although the above scenario is possible, it rarely happens. Skilled agents focus on the facts and concentrate on resolving differences. Buyers and sellers usually will settle for what they believe to be fair and reasonable.
Negotiation is the process of give and take during which a fair and reasonable set of terms and conditions is defined into an agreement or contract. Your objective is to convince the buyer that your position is fair and reasonable. It will be a major advantage if your position is close enough to fair and reasonable in order for it to seem so. Stretch the credibility of your position too far and the negotiations will fracture.
The secret of successfully negotiating the negotiating process is control. To control the negotiation, control yourself. Never let the tone reach a state of emotional strain. To do so will always cost you time and money. Your agent will be a big help. If emotions start to creep in, consider slowing the process by tabling all issues, perhaps to seek additional information, for a few minutes, hours, or even days. Usually, delays in negotiations are best avoided, but make an exception in this case.
Develop an idea of timing or the rate of progress. Always move ahead in discussions whenever possible in order to avoid losing momentum. Negotiations generally proceed quickly in a sellers' market, and at a slower pace in a buyers' market. Be alert for that rare occasion when it is preferable to delay your response, assuming that time is on your side. Be prepared to give. It is expected in all but the hottest of sellers' markets. But give little and give slowly. Try to give on terms that are of lesser importance to you. When you give, you will be able to get something in return, if only one step closer to a contract. At each stage, consider carefully whether to compromise or to say "NO." Develop a workable plan to reach an attainable goal and stick with it. So much for the generalities... onward to gain insight into the process.
Making an offer and negotiating an agreement on a home in the Washington, D.C. metropolitan area has developed over many years into a well-defined and orderly ritual. The main object has been to develop a process, including the forms and the procedures, to resolve and record pertinent details and to avoid problems, while treating all parties fairly. Part of the process is rooted in law, part in custom. Your agent has advised you what is customary, and you should conform unless it is impossible.
Your agent will be your communications link and will provide a buffer between you and the buyer. While your agent is your representative, it is also helpful to recall the broad definition of the word broker: One who brings the principal parties in a transaction together conceptually so that they can forge a mutually satisfactory agreement. Never forget that it is your responsibility to define and communicate clearly what terms and conditions are satisfactory. No one else can handle this role.
Offers to purchase real estate should always be written. Standard contract forms are used in almost all local resale home transactions. Insist on their use by your buyer and resist changes in the wording by anyone. If someone maintains that wording changes are needed or if you have unresolved questions, consult a local attorney whose main business is real estate.
Invariably, your response to a verbal offer will be: Put it in writing and it will be considered. Those who make verbal offers have so little interest in your home that they are unwilling to invest an hour in the paperwork.
Your offer will usually arrive via email. (Note that in the past the other agent would bring the offer and present it. But with the advent of buyer-brokerage and email in the mid-1990's this type of presentation has become extinct.) Your agent will address what the offer is worth to you after the expenses of the sale and any mortgages are paid. In other words, your agent will define your bottom line or net proceeds from the sale.
Carefully consider the entire offer, asking questions and taking notes. Main items of concern are:
- Are the price and terms acceptable?
- Where is the money for the buyer's down payment coming from? Is it readily available? Is a "gift letter" required?
- Can the buyer afford the proposed monthly mortgage payment?
- What are the potential problems between signing of the contract and closing?
- Is the contract contingent upon the sale of the buyer's current home? That is, does the buyer need the equity from an unsold home in order to have sufficient funds to buy your home?
Many of your financial questions will be answered if the buyer has already been approved for a mortgage loan and presents a letter to that effect. Otherwise, be sure to request a pre-qualification letter from a mortgage lender indicating the buyer's financial ability to purchase your home. The letter should make reference to a recent credit report and acknowledge any currently-owned real estate.
In most cases you should be hesitant to accept a "contingent contract," an offer that is contingent upon sale of the buyer's home that is not yet under contract. In a buyers' market it is likely that a customary 45 or 60 day contingency period will expire before your buyer's home is sold, especially if homes are selling slowly. Your home will be 95% off the market during this time because its MLS status is changed such that showings will drop off precipitously. Remember that the great majority of potential buyers come as a result of the MLS.
The "kick-out clause" in a contingent contract, which allows you to sell to another buyer, will be of little consolation if there are no other offers. If you do consider a contingent contract, your listing agent should verify independently that your buyer's home is priced to sell quickly. This might require a personal visit. In any event, most sellers require the price on a contingent contract to be higher than they might accept otherwise. So why break with tradition? In a sellers' market, an ample number of unencumbered buyers obviates any need to consider contingent contracts.
Your complete set of response options to any offer are the following:
- Accept the offer exactly as it is written
- Reject the offer
- Propose a counteroffer.
Your home has been on the market for some time. An offer was nearly inevitable. You should have developed some idea of what is acceptable to you. If you sleep on it, the offer could become a nightmare and be gone in the morning. Respond NOW. But before you do, consider carefully the details as well as all of the alternative courses of action.
If you accept the offer, sign, initial, and thank all parties.
If you reject the offer, write, "REJECTED" across the face of the contract form, and initial the notation. Do not sign. Give no information other than that the offer did not form a basis for discussion. This sends the strongest negative message back to the buyer. It is rarely the best course of action, because it can end the negotiations. Nevertheless, make it clear that you would consider another offer. Sometimes it takes jacks or better to open the bidding.
If you counteroffer, you are implicitly rejecting the buyer's offer. Your counteroffer becomes the only offer on the table. Note that when you counteroffer you return control to the buyer. It is then his or her decision whether to accept, reject, or counteroffer, and when. Since you are giving up control, counteroffer only if the changes you make are truly of major significance to you.
Your counteroffer will be made in writing, usually by making changes directly on the original offer, initialing them and leaving space for the buyer's initials, which will signify approval. The modified document will be presented to the buyer for consideration. Ask the agents to avoid negotiating by phone unless the change involves only one item and is relatively insignificant. Also avoid rewriting the contract. Yes, it will probably become cluttered, but you need be concerned only with clarity and legibility. Rewriting the contract for the sake of neatness can cost you dearly. So don't ask.
There is a fate worse than rejecting an offer because the buyer is not financially qualified: That is, getting locked in with a buyer who is unable to close and having your home off the market, all the while begging the buyer to release you from the contract so that you can get on with your home sale and your life. So, review your buyer's financial qualifications carefully.
You should be very happy if you receive multiple concurrent offers. Recognize that you are in an excellent negotiating position and act accordingly. You should consider all of the offers and resolve any questions before responding. Your agent will help to organize the information, compare the proposals, and evaluate your options. If you accept one of the offers it need not be the one with the highest offer price, the one with the greatest "bottom line," nor the one from the best qualified buyer.
Your agent also will avoid skillfully the embarrassment of having your house sold to more than one party. This sounds ridiculous, but it does happen. Be alert for this possibility if negotiations span more than a few days. Make sure that any counteroffer you make comes back accepted, counteroffered, or rejected with the buyer's initials, not the agent's!
But not so fast! Just as you are ready to put your final initials on a binding contract, consider this: Some sellers express remorse following conclusion of a negotiation. This is not only unfortunate, but also totally unnecessary. So, when negotiations are nearing an agreement, hopefully at the last stage, play this imagination game. Consider carefully the terms and conditions to which you are about to agree. Remember that a contract is binding and that its details can be changed only with the agreement of all parties. Then imagine that the proposal on the table has been finalized, that you have had a good night's rest and that it is now tomorrow morning. Do you have reservations about the agreement? Could you have done better? Tomorrow morning will be too late to make significant changes. Are you sure that you want this proposal to become a binding contract now? Of course, you can "sleep on it." But there will be no additional information available in the morning, and a delay can only serve as an opportunity for the buyer to reconsider too. If the proposal is acceptable, sign it now and be happy.
When you reach an agreement, your negotiations are finished. Go ahead, celebrate. You have a contract. (While this is an important milestone for sellers, experienced agents have learned to postpone their celebration until after the closing.) Keep in mind that contract provisions can be altered with the agreement of all parties. So, if you need a minor change later, feel free to ask.
In all stages of the negotiation, maintain a reasonable or at least a defensible position. Always project your sincerity and avoid emotion. These overall guidelines will lead to your most favorable contract.
By the time you finish this chapter, you will think you've got it all. Although some invaluable topics will have been covered, it is impossible to anticipate the exact combination of information and decisions that you will have to address in your negotiation. Therefore, reading a book is no substitute for years of experience. Use your agent.
Before hearing an offer you will need to know whether the selling agent is representing your interests or is a "buyer-broker," taking the side of the buyer. The popularity of buyer-brokerage in the Washington, D.C. metropolitan area has grown since its introduction in 1991. Buyer-brokers now account for nearly all home sales in our area. The buyer-broker's demeanor, and tone might be indistinguishable from those of a seller's agent. On the other hand the buyer-broker has the charter to be downright adversarial if the need arises. Nevertheless, there are ways to handle any eventuality and still emerge with a satisfactory contract. But the advent of buyer-brokerage makes your listing agent's superior negotiating skill and experience, critical commodities to have on your side. Chances are good that you will be shielded from any direct abrasiveness since selling agents now present their buyer's offer in person only rarely.
Upon hearing the offer, you and your agent should consider what type of buyer you are dealing with. A few examples:
- A first-time buyer is apt to be cautious, if not downright scared, liable to withdraw the offer without warning, never to return.
- An incoming transferee on a five day house hunting trip will buy for sure and usually has no home to sell.
- Don't delay and do not let him or her get away.
- A serious local buyer might have a home to sell. Is it on the market? Is it reasonably priced? Has he or she seen many homes or made other offers? What happened? Is there any urgency?
- A bargain hunter or "bottom fisher" is willing to live in a cave as long as the price is discounted by 30%. Your offer is likely to be but one of many similar offers he or she has made. This type of buyer is more prevalent in a buyers' market.
Each type of buyer needs special handling. Has the buyer seen enough homes to be satisfied that yours is the one? How long has he or she been looking for a home? What features did he or she especially like? Were these features present in any other home?
You will know that you are in big trouble if a host of new considerations crops up during your consideration of an offer. A few of the many examples, all designed to implore you to accept the offer, are:
- The market has suddenly worsened.
- The buyer can afford no more.
- Interest rates are about to rise.
- A similar home just sold for 25% less.
- Your home will not appraise for the contract price.
- The buyer allegedly likes another home, a close second, and that offer is already written and waiting.
- Some New York-based investment folks (WSJ? CNBC?) are predicting gloom and doom.
- The price offered is even greater than your real estate tax assessment.
You might hear most of these things as well as others. But this is not the time to make your important decision based on brand new, alarming, unverified, or irrelevant information. Note that a Consumer Reports study found that when home sellers become dissatisfied with their agent, it is frequently because of problems that arise during the negotiations. In any event, do not yield to any pressure to accept an offer that is unsatisfactory to you.
Some initial offers are ridiculous, designed to determine how desperate you are or to shock you into lowering your expectations. This is no time to be insulted and scuttle the proceedings. An emotional response is your biggest enemy. It will always turn down-to-earth issues and quantitative differences into an ill-defined mishmash that will be impossible to deal with. Although this offer might make you mad enough to expectorate, try to remember that it is the very best offer you have today. Deal with it. Use your judgment. If an offer is too low, you must either reject it or counteroffer. Review the information at your disposal, make your decision, and give your rationale.
The initial offer defines the minimum outcome of negotiations, your asking price defines the maximum. The final outcome will usually be somewhere between the two. Your objective is to convince the buyer to see things your way and to agree on a price very near what you are asking.
Remind yourself that your position is justifiable. You are on firm ground. You have an unbeatable team, you have done your homework, and you have much more ammunition (information) than the buyer has. Approach the problem carefully and logically. What information formed the basis of the buyer's offer? Do you need to rebut the tax assessment myth? What information is the buyer lacking? How can you impart the understanding required to bring the buyer's view into line with yours? Can you offer information on comparable sales, a recent appraisal, or perhaps your original market value analysis?
Be ever-mindful of whether market conditions favor buyers or sellers, and remember that delays in negotiating usually favor the seller. Work with your listing agent and through the selling agent, who will be your messenger. Convince the selling agent and you will be at least halfway there. By the way, the selling agent wants this to work because if it does not, he or she will be back on the road showing properties instead of setting up your home inspection, and trying to figure out which bank account can take the commission deposit without exceeding the FDIC insurance limit.
It will come as no surprise that price is usually the most difficult factor to negotiate. The price is usually composed of two parts, the down payment plus the mortgage. If possible, examine the buyer's financial data. Can the down payment be increased through the sale of liquid investments, borrowing from retirement funds, a new loan on a paid off car, or a gift from relatives? Will the buyer's income support a larger mortgage? Recognize that an extra $10,000 on your selling price could cost the buyer less than $40 per month. Always provide the selling agent with the additional monthly cost number. This is a powerfully convincing tactic. What kind of a mortgage is the buyer seeking? To stretch the maximum mortgage amount, ask that the buyer consider a loan with a longer term, a lower interest rate, or even a lender with higher qualifying ratios. If you receive offers from more than one buyer, obtaining your asking price, or even more, is very likely. But even with multiple offers, it is sometimes necessary to make a counteroffer. In that event, the discussion above will be valuable.
Focus major attention on your bottom line, the net cash you will get at settlement. This is always far more important to you than the contract price. Of course the price has a direct bearing on your bottom line, but do not forget any points and credits that you are being asked to pay and don't ignore your carrying cost if settlement is to occur much later. Time is money.
In general, you should never accept a price lower than 95% of your asking price unless you are in dire straits with your anchor dragging. By settling for too low a price you bypass an entire segment of the home buying market who never saw your home because they never dreamed that you would give it away. So before you do give it away, expose it to the market at a moderately lower price. You might end up with multiple offers and your full price. Remember also that you chose your listing agent to produce a contract at least close to your asking price. This is not an unreasonable objective.
In general is best to avoid time limits, which can weaken your position and add needless aggravation to the negotiation. But nowadays an executable copy of your counteroffer will likely be emailed to the other agent (in person presentations are extinct) and there might be lazy, inconsiderate, or ignorant agents out there who shirk their responsibility to provide closure; that is, a written rejection. Without this, you must write a letter of withdrawal in order to kill your counteroffer. So, add an expiration date even though local contract forms do not provide for one. Your agent can communicate that it is not intended to apply pressure. If your counteroffer does expire, it is easy for the buyer to delete your expiration note, initial the change, and return it for your concurrence.
You might reach a point where someone says, "Let's split the difference." If this is satisfactory, accept it. You have reached an agreement, and now you can celebrate. There is, however, no basic rationale to support this approach and you should feel no obligation to give an automatic "YES." For example, imagine that you are asking $500,000, and an offer is made at $300,000. Would you split the difference and sell for $400,000? Of course not. If splitting the difference is not acceptable, reply that you simply cannot afford to split the difference and therefore you are making a counteroffer.
While you are busy offering and counteroffering, consider this sobering thought. Let's say that you were asking $500,000 and on the second round of negotiations, the buyer offers $491,000. You are considering counteroffering at $495,000. If you do and the buyer accepts, you should be happy. But if the buyer walks off, by failing to sell you have in effect, just purchased your own home for $491,000, with the hope of selling it for $495,000 in the near future. Was this a sound business decision?
Somewhere along the way the idea of face-to-face talks between you and your buyer might surface. It sounds reasonable enough, two adults sitting down and coming to a mutual agreement directly. While this has surely been done, it is advisable only as a last resort. The danger of a fatal injury to the talks is so great that it usually is better just to break off the negotiations leaving a chance that they might reopen later. When there are four parties at the negotiating table instead of two, the possibility of total failure rises exponentially.
One of the most valuable services that your agent provides is insulating you from direct negotiations with the buyer. This is crucial in avoiding snap decisions made before complete and careful consideration of all options and implications. You might have noticed that important negotiations, business or diplomatic, are never conducted directly by savvy principals or the ultimate decision makers. There are good reasons for this, so take the hint.
If you say this is absolutely your last offer, be prepared to mean it. Do not bluff by making a take-it-or-leave-it counteroffer. This can end your discussions in a hurry. If you did not mean it, the buyer will have learned that you do not mean what you say. The credibility you have built will be reduced to rubble. If your buyer gives you a final offer ultimatum and it is satisfactory, take it. Otherwise consider rejecting it without a counteroffer and without comment. In doing so you are telling the buyer that you believe what he or she said. The subtle message is that you mean what you say too. But recognize that most final offers are not really final offers.
Your alternative to making a take-it-or-leave-it final offer is to make your last offer without any mention of its finality. If it is not accepted, re-submit your offer at exactly the same price. Be calm, reasonable, brief, and almost apologetic. You will make your case in a strong but non-threatening manner. This works.
If negotiations do break down at any point, it might not be the real end. But before you walk out, have a plan by which you can walk back in. You will not run back immediately. Let some time elapse. The hardest thing to change is a mind (unless, of course it's your own). It always takes time. How much time it takes is a matter of judgment. If you return too soon, you will have gained no mental adjustment from the buyer and you will have lost some of your credibility. If you wait too long your buyer will have lost interest or will have purchased another home. If your buyer was the one who broke off the talks, do not be too proud to initiate resumption of negotiations. The selling agent can be a major help in this event. Ask for his or her advice.
As you proceed, you will find that all of the negotiating information in this book is merely the tip of the iceberg. But do not lose hope. Not all of the nasty things mentioned herein can happen to you. Always keep your primary goal in mind: You want to sell your home. Also remember that the buyer really wants to buy your home. In fact, if you use all of the information at your disposal the prospects of negotiating an excellent agreement are very good.
But not so fast! Just as you are ready to put your final initials on a binding contract, consider this: Some sellers express remorse following conclusion of a negotiation. This is not only unfortunate, but also unnecessary. So, when negotiations are nearing an agreement, hopefully at the last stage, play this imagination game. Carefully consider the terms and conditions to which you are about to agree. Remember that a contract is binding and that its details can be changed only with the agreement of all parties. Then imagine that the proposal on the table has been finalized, that you have had a good night's rest and that it is now tomorrow morning. Do you have reservations about the agreement? Could you have done better? Tomorrow morning will be too late to make changes. Are you sure that you want this proposal to become a binding contract now? Of course, you can "sleep on it." But there will be no additional information available in the morning, and a delay can serve only as an opportunity for the buyer to reconsider too, or for him to find another home. If the proposal is acceptable, sign it now and be happy, both tonight and in the morning.
ON TO CLOSING
From signing of the contract until closing is normally 30 to 60 days. Through most of this period you will have the nagging feeling that there is something you should be doing regarding the transaction. Usually there is not, but it is better to ask than to wonder. Processing of your purchaser's loan usually will take two to four weeks.
One thought that almost certainly will occur to you within a day after contract finalization: Could you have gotten even more for your home? The answer: Maybe you could have gotten an extra thousand dollars or even two; but maybe you could have lost your buyer to another home. You made your best decision at the time and it is done. You deserve to be happy.
A few things will need attention. If you live in a condominium or a home that is covered by a property owners' association, obtain the required disclosures and get them to the purchaser without delay. Prompt delivery of these disclosures is important in order to minimize the time during which the purchaser can withdraw from the contract. Obtaining such disclosures can take up to two weeks.
Most purchasers will request the right to have your home professionally inspected. There is no reason to deny such a customary request. If you are at home during the home inspection, be busy. Do not tag along. This is not a good time for you to try to teach the inspector how to inspect homes or to become personally offended by critical comments. Most of the time the inspector will not find any surprising major deficiencies. The inspection is not intended to address cosmetic items.
At the conclusion of the inspection or shortly thereafter, your listing agent will review the results with you and suggest a response. You should be given a copy of the inspector's report. Feel free to ask questions. Your buyer and the home inspector should have made a clear distinction between deficiencies that need immediate attention, and routine maintenance suggestions or opinions regarding the remaining life of various systems offered merely for the buyer's information. Refer to the provisions of your contract to see what is required customarily of sellers with regard to systems, appliances, et cetera, even in the absence of a home inspection. If you believe that one of the inspector's findings is out of order, support your case with reasons and, if possible, receipts showing when the problem was resolved. For example, evidence of a roof leak can remain long after it has been repaired. On a dry day, the home inspector often cannot tell whether the leak is active or not. Your buyer wants your home and usually will go along with anything that is reasonable. But remember, if you do not agree to resolve all deficiencies, your buyer can withdraw from the contract without warning.
The procedure is similar if your purchaser obtains a radon test result greater than the accepted maximum of 4.0 picoCuries per liter. It is indeed true that the test measures conditions during just a short period. The result might be only 4.1 picoCuries per liter. But how accurate are these tests, and what is a picoCurie anyway? Resist the urge to request a re-test: It's not in the cards. Usually, problems can be remedied for less money than a few re-tests. Besides, once a failing result is on record, almost every purchaser will demand remediation at your expense. As with the home inspection, you should get a copy of the radon test report.
In negotiating home inspection deficiencies or radon remediation, if your agent can make your response verbally within the time limits, you might get a favorable answer without having given a written response and the associated opportunity for your purchaser to formally withdraw from the contract. This is negotiating finesse.
Also, you are required to deliver your property with the well and septic systems in good order, if you have such features. (Did the contract have to deal with both of these items in the same paragraph?) Check to see if specific well or septic system approvals are required and how they can be obtained. Your property will also have to be visibly free of wood destroying insects (such as termites) and the damage therefrom. A clear termite report will be required, usually within 30 days of closing. Sellers of townhomes often find that they are required to replace any defective fire retardant treated (FRT) plywood sheathing found in their roof. Possible deterioration of certain types of plastic water supply lines is an issue in some locations. Other less likely problems include contamination from asbestos; urea-formaldehyde-foam-insulation (UFFI) vapors; and lead in drinking water. Lead-based paint contamination issues will need to be dealt with in accordance with the Federal Law covering homes built before 1978.
Occasionally, minor problems are uncovered during the title search, a painstaking research of government land ownership records, which is conducted to ensure that you have an unencumbered right to convey the property. Most of these items can be resolved easily, so do not be upset. But if that disgruntled contractor who believes that you still owe $100 has filed a lien against your home, it is now judgment day.
Encroachment problems might be uncovered by the survey, but are usually minor. If your property is covered by a homeowners association, it should be in conformance with all regulations, and your dues should be current.
The closing agent might or might not be an attorney. In either case, the closing agent is not representing you even though you are paying part of the bill (nor is the agent representing the buyer). Most buyers and sellers in our area do not retain an attorney to represent their interests at closing. If you do anticipate unresolved problems or feel especially inadequate, discuss possible legal representation with your listing agent or with an attorney whose specialty is real estate.
The closing agent will usually notify your existing lender of your intention to pay off the mortgage and will obtain the required information. It is a good idea to double-check this event with your lender.
If you cannot be present at closing, you will need to designate someone to act for you. Power-of-attorney forms should be available through your closing agent. If you surprise your closing agent with a non-approved power-of-attorney form, you risk having to postpone settlement until a proper document can be secured.
The purchaser's lender will send an appraiser to your home to render an opinion of its fair market value. When the appointment is set, ask your listing agent whether there is a potential appraisal problem. If there is, your agent will want to discuss the matter with the appraiser and possibly provide helpful information. This will be effected diplomatically. If the appraisal report indicates that the fair market value is lower than the contract price, do not panic. The appraiser will usually work with you to justify your contract price if it is reasonably possible. Your listing agent's original market value analysis might be of help in this regard.
If the final version of the appraisal sets your home's value below the price on your contract, price negotiations probably will reopen. Do your best, but you are in a weak position because your purchaser knows that if you lose this contract, you likely will have the same appraisal problem next time. On the other hand, remember that the buyer probably does not want to start the home search process anew. Watch out if the story about the purchaser's "second choice home" is true, or if he or she previously has expressed second thoughts about buying your home.
At some point you will have to make a commitment to your movers. If your purchaser has not obtained loan approval by this time, get a progress report at least, and some assurance that a timely approval is likely.
As closing approaches, transfer of the utilities should be coordinated with the purchaser. Electricity, gas, water, sewer, telephone, refuse collection, cable TV, newspaper delivery, et cetera, normally can be handled within a few days. Coordination of the transfer of utilities between seller and purchaser can help avoid unnecessary extra charges. Most important, continuity of the basic utilities will help to ensure a meaningful final inspection: It is hard to check the air conditioner when electric power has been shut off.
The purchaser's final inspection, or walk-through, will be done shortly before closing. It is usually uneventful, but if a problem is detected, the purchaser could ask that part of your proceeds be set aside with the closing agent in an escrow account until the problem can be resolved. Reasonableness should rule. Refer to your contract for details.
A typical closing takes less than an hour. As a rule, questions are directed to the closing agent. The HUD-1 form is universally used to account for the financial details of the transaction. It is frequently the first item to be explained. Look it over carefully for errors or omissions and compare it with the contract provisions. Errors do occur, but your agent will help. Most of the signing is associated with the new loan and is done by the purchaser. All mortgage companies have major investments in paper mills. There is a form for everything, even a form to check whether all of the forms have been completed.
Although you might be receiving tens or even hundreds of thousands of dollars from this transaction, the actual closing ceremony can be boring: The buyer signs most of the documents. To ensure a much more memorable occasion, complain at length about the $5 charge for notary fees.
The closing agent will send funds, more than sufficient to pay off your mortgage, to your lender by the fastest means. You will pay for the express shipment. Near the end of the closing ceremony you will pass any keys, garage door openers, instruction manuals, et cetera, to the purchaser if they have not been left in a designated kitchen drawer.
You might not receive the net proceeds from your sale at closing. While the check might be available the same day, often it is not ready until the next day. Ask about the specifics in your jurisdiction. Do not cancel your homeowners insurance until the deed has been recorded in the land records.
In several weeks, your mortgage lender probably will send you a refund check for the unused portion of the funds sent by the closing agent to pay off your mortgage and the unused balance in your real estate tax and homeowners insurance escrow accounts. Save your copy of the HUD-1 form with your important records. There might be important tax considerations involved in selling your home. If you are the least bit uncertain, a good tax accountant can be worth his or her weight in silver, if not gold.
PUTTING IT ALL TOGETHER
It is hoped that you have reached this point in your reading before significant decisions have been made in your home selling adventure. If you use the information herein, you will have an excellent chance of selling your home in the minimum time, for the maximum price, with minimal stress and strain. Because the home selling process is so unfamiliar yet so important, this final chapter reviews the most important ideas presented.
Chapter 1 deals with the major preliminary considerations associated with the decision to sell your home. A central idea is that the Washington, D.C. metropolitan area market is orderly and rational, driven by the information exchange capabilities of a computerized MLS database. Today's buyers are sophisticated, well-informed, comparative shoppers who do not purchase homes on impulse. Another important fact is that our local real estate market is a continuum, in other words, a continuous whole. Although you might be concerned with only a segment of the market, a specific area or a price range, the market itself is not intrinsically segmented. No matter where you live, there is no unique market for your subdivision, your development, or your home.
Chapter 2 offers the view that selling without the help of a real estate agent is probably not a suitable alternative in today's market. Nevertheless, if you are the adventurous sort who would set out on a trans-Atlantic voyage without a compass or a captain, you might give it a try.
Chapter 3 is a key element. Its specific questions will separate your agent from the rest, and your entire home selling process will be assured of success. By following the selection procedure carefully you will verify that your agent is in tune with critical market information, takes time to care about the quality of service provided, and understands how those considerations relate directly to your goal. You also will avoid one of the classic mistakes made by home sellers: Awarding your listing to an agent because he or she has given you the highest estimate of your home's market value. The agent who projects an unusually high market value is frequently inexperienced or worse.
Other "red flags" are statements such as:
- "I've already got the perfect buyer for your home."
- "Let's try it without the MLS for a few days."
- "What do you think your home is worth?"
- "Most of my listings sell in a few days."
- "I've got a dynamite marketing plan."
- "I sell most of my listings myself."
- "I specialize in your market."
If you hear any of the above, be especially cautious. Also see APPENDIX J for more help in avoiding big trouble!
Emphasis is placed on negotiating expertise with questions that some of your candidate agents might never have been asked before. An agent's planned marketing efforts are relegated to insignificance in comparison to the efforts of the thousands of other real estate agents using the MLS computerized database to find your home for their buyer. It is therefore an unrealistic expectation that your listing agent will ever show your home to its ultimate buyer. Your agent's job is marketing, not selling. See APPENDIX D in order to appreciate the critical importance of your agent's computer literacy.
Chapter 4 furnishes supply and demand information and combines the two into a months supply of homes, which is an indicator of whether buyers or sellers have a greater advantage in the market. It also defines the most accurate method for estimating your home's fair market value, which is essential in pricing your home correctly. In addition, the irrelevance of real estate tax assessments and of your neighbors' asking prices are exposed. The ideal time to put your home on the market is identified analytically, a simple but crucial fact that is understood by few.
Chapter 5 examines three alternative marketing strategies, one of which is right for you. The question of how much "fat" you need in your asking price is answered statistically. The secret of "round number" pricing is revealed and the obvious relationship between a home's asking price and its time on the market is quantified.
Chapter 6 details the most important concepts in getting your home ready for sale, and the major effect this process has on the price you will obtain. Several unique ideas are offered to improve the presentation of your home. Be sure to give your home that special touch: Share your thoughts in a personal letter to your prospective buyers.
Chapter 7 reveals what to expect during the marketing period and offers hints on the best way to handle some potentially awkward situations. Vital statistics on what types of exposure will produce your purchaser, and the critical importance of the information entered into the MLS computer are reviewed. Also, the word of-mouth selling myth is exposed. Traffic, the number of times that your home is shown, is identified as the primary indicator of your price's suitability to the market.
Chapter 8 sets out the basic principles involved in the critical contract negotiation process. The importance of process control is explained. Rampant emotions are identified as the destroyer of productive negotiations. Credibility, firmness, and sincerity will lead to your most favorable result. The pitfalls of selling to an unqualified buyer or to two separate buyers are discussed briefly: You need to sell your home, not end up in court.
Chapter 9 identifies a few of the most important negotiating tactics that you might use as well as some you should avoid. You also are counseled to be alert for tactics that might be used against you. Special handling of the various types of buyers as well as buyer-brokers is discussed. Emphasis is placed on the skillful and deliberate use of the information at your disposal. Information is power. The critical importance of your agent's expertise is an underlying theme.
Chapter 10 provides the information that you need in order to cruise from the signing of the contract to closing with a minimum of problems. Knowing what to expect in advance will smooth any turbulence during this sometimes anxious period.
Be sure not to miss the important information summarized in the Appendixes. You are invited to review the information therein frequently. The glossary defines real estate terms used herein.
Below is the text of David Rathgeber's “9Steps to Success in Selling your Home” which appeared in the 1997 “Home Guide” (published Fridays by The WASHINGTON TIMES).
Almost any home can be sold in a reasonable amount of time. In summary, start by selecting an agent carefully. Then the remaining critical steps in selling your home are the following:
Step 1 - The Analysis: The key is to correctly predict the price your home will bring in light of current market conditions. When you miscalculate the expected value of your home, you are in for trouble from the start. If there is any significant doubt about the market value of your home, consider ordering a professional appraisal. If your home is priced too low, it will sell too quickly and will not have had adequate exposure to the market. A much more typical problem is that a home is priced too high for the market. Often, this is the case with over half of the homes for sale.
Step 2 - The MLS Words and Price: The data entered into the MLS computer will affect the number of times your home's information appears in other agents' computer searches of properties to consider. It also will determine whether your home will be one of those shown to their buyer or one that ends up in the trash can. The data on your home needs to compare well enough with the other homes so that yours is selected for showing. If fewer than three or four agents each week show your home, your problem can be located on the MLS printout. Carefully review the words and the price. You must find your problem here; there are no other choices. "What about exposure," you ask? The MLS is by far the best exposure that money can buy. If you are not cutting the mustard there, a thousand flashy newspaper advertisements or open houses will not help. Hope you didn't fall for that "dynamite marketing plan."
Step 3 - Traffic: A home needs to be shown at least three or four times weekly in order to confirm that it is "in tune" with the market. If too few agents call to show your home, the problem certainly can be identified by reviewing Steps 1 and 2 above. When the agent and the buyer arrive in front of your home, the MLS information has been effective.
a - Arrival: Most agents who call will arrive, sooner or later. If agents make appointments and then cars drive up and drive away without showing your home, there is a problem with its curb appeal. Go out to the curb, look at your home, and do not come in until you have the answer.
b - Entry: The next step occurs when the buyer decides to get out of their agent's car and spend time viewing the inside of your home.
c - Approval: A critical accomplishment at this stage is to gain the buyer's approval. It is frequently impossible to gauge the buyer's true reaction regardless of whether any comments were positive or negative. You will not know whether you have won the buyer's approval at this point. Often even the buyer doesn't know! If you have done your best to prepare your home, that is all you can do.
Step 4 - Remembering: It is important that the buyer is able to remember your home. The handout he or she has picked up in your home will help. It is critical at this stage for the buyer to rank your home among the best of the many homes visited, and to keep it under active consideration.
Step 5 - Return for a Second Visit: If the buyer decides to return for a second visit, it is likely that your home is on his or her "short list." It is most important to alert your agent promptly and to put your home's best foot forward at such a critical time. One out of 15 or 20 buyers returns for a second look. If no one returns, your home has failed the Approval Step or the Remembering Step. In short, it is not competitive with the other homes in your current price range.
Step 6 - The Offer: When you receive a written offer, your home is almost sold: At this point most buyers have decided that your home is the one for them. But be careful: Many will have a second choice home and a good buyer-broker will not forget to mention this. Occasionally a buyer will be less than serious. A low initial offer can be a sign, but not proof, of a less than serious buyer. In any event, rely on your agent's expertise. If there is no agreement, then either the buyer was totally unreasonable, or the negotiation was handled ineptly.
Step 7 - Agreement: Assuming you have a serious buyer and you have avoided an emotional conflagration, you will come to an agreement. What is said during negotiations is often less important than how it is said. What is not said can be critical. If you have utilized your agent's excellent negotiating skills, the terms of the agreement will be very favorable for you. Assuming there is not an alarmist involved (home inspector, agent, buyer, seller) your agreement should progress nicely.
Step 8 - Removal of Contingencies: Although you can hit a bump or two at this stage, they normally are not fatal. Possible problems, which can surface very late in the game, are a low appraisal or lack of loan approval. While these are serious problems indeed, especially in the week or two before settlement, they usually can be resolved with the help of experienced agents.
Step 9 - Final Inspection and Settlement: When you get to the settlement table, the only issue likely remaining is the result of the buyer's final inspection. Any findings are customarily minor, so be reasonable, relax, and keep signing.
If you experience a major problem at any stage, carefully review the process up to that point and you will be able to pinpoint and resolve the problem. Do not just wait a few months hoping against hope that some magical force will take over. Save time and fix the problem without delay. (End of Washington Times Article)
A few examples were given of instances when your agent's personal quest to make a sale might be in conflict with your own financial interests. While you need to be alert to these possibilities, an agent's responsibilities as well as adherence to a code of ethics, demand that your best interests must be served above all, at all times. In addition, the careful selection of your agent will obviate such problems, which are the exception rather than the rule. Further, your successful agent wants very much to please you because success in the real estate business is built only upon a base of satisfied clients. In any event, you will be confidently in control of the home selling process at every stage.
But what about the future? It looks bright as long as at least nine out of ten of your friends keep telling you that they prefer to own their own home. If you are doing a little market research of your own, consider the underlying factors that drive the market. First, demographics, the long term changes in population distribution (such as age groups, geographic location, etc.) are not likely to be important factors because these changes are spread over such a long time. However, government controls and public opinion can have significant effects.
Consider the interrelationship between interest rates; home prices; rents; and personal income, or purchasing power. When one of these factors experiences a significant change, one or more of the other factors will also be affected. Mortgage interest rates can make significant moves in a short time. Personal income depends upon employment as well as upon wage and salary levels and therefore it moves rather slowly. But both personal income and interest rates change rather independently of each other and are influenced by macro-economic trends: The big picture. Home prices and rents are caught in the middle as the dependent variables.
For example, if mortgage interest rates move down this means improved affordability for real estate. Even if personal income remains stable, buyers can buy much more for the same payment that they were undertaking a few years before. This can create upward pressure on home values. But prices sometimes can be held in check by economic worries, periodic interest rate spikes, or a large resale home inventory. See APPENDIX E.
The macro-economic climate is a significant imponderable. Watch the stock market indexes. While they are generally driven by long-term economic conditions and expectations, abrupt movements are almost always the result of emotional "herd instinct" and have no effect on housing markets. Fortunately, residential real estate is insulated from such herd-instinct fluctuations for three important reasons: First, there are many real estate markets (not just a few, like stocks) which are each subject to unique local influences. Second, we could not all sell our homes on the same day (does October 19 ring a bell?) even if we wanted to. Third, our homes are much, much more than investments. They provide a basic need: Shelter. Economic worries can have a negative influence on any local real estate market, but improvements in consumer confidence bring strength.
Keep an eye on changes in interest rates. They can have an important effect on the real estate market, but remember that real estate markets do not move in lock-step with mortgage rates. Further, the housing affordability index is not fixed, but varies greatly with time and location. Note the great differences in home value appreciation in different housing markets across the country despite the fact that mortgage rates are nearly uniform!
Remember to get your real estate advice from real estate folks, not the Wall Street gurus who cannot even tell us about the stock market. And be careful not to make important decisions on a 30 second sound bite. See APPENDIX K and keep the news in perspective. Monitor your local economic conditions and most importantly, housing supply and demand. You now have at your command the practical and proven inside information to sell your home with confidence. Bring on the buyers!
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A - Selling Price / Asking Price
B - Tax Assessments
C - Self-Sold Listings
D - Checking Your MLS Data
E - Homes on the Market
F - Homes Sold
G - The Market Index
H - Home Preparation Checklist
J - Seller Beware!
K - Put the News into Perspective
L - 8 Critical Factors in Agent Selection
M - 10 Interviewing Mistakes to Avoid
SELLING PRICE / ASKING PRICE
The selling-price to asking-price ratio, expressed as a percent, is one of the most important single statistics available about today's market. The greatest usefulness of the ratio is in determining what the asking price should be, once the fair market value is known. In other words, the ratio tells how much "fat" is required in the asking price, on the average. Sellers and buyers alike are usually surprised to find the ratio so high. It is often in the neighborhood of 95% in buyers' markets.
For example, if the ratio were currently 95% then the asking price would be set about 5% over the fair market value. This price should bring an offer that you and your agent can expect to negotiate to be within 1 or 2% of your asking price. When the plan is executed properly, you will do significantly better than the average. Alternatively, with the price too high there will be no offers to negotiate. In sellers' markets, the selling-price to asking-price ratio might be greater than 100%. But in the absence of compelling information to the contrary, you can obtain your asking price by adding 5% to the expected contract price in almost any type of market.
Another way to interpret a 95% selling-price to asking-price ratio is that the average home does not obtain a viable offer until it is priced within 5% of fair market value.
To verify the current selling-price to asking-price ratio, ask your agent to run 200 or more recent sales at random out of the MLS database of sold homes. Data can be limited by class of home (for example, detached) or price range. It is most important to have 200 or more individual sales. Divide the total of all the selling prices by the total of all the asking prices to find the selling-price to asking-price ratio. Ask your agent to perform a search tailored to your needs. Did any individual sellers obtain more than their asking price? Ask your agent how this might happen.
The selling price to asking price ratio represents critical information about your local market; do not rely on a guess or the 95% figure noted above for purposes of the example. It is so easy to obtain an exact, up-to-date reading. Ask your agent now.
A tax assessment, the value a local government assigns to a home for real estate taxation purposes, has only a very general relationship to that home's market value: It is so general as to be valueless. But some will tell you there is a direct relationship. They have not done an analysis and are relying on a very few bits of data, or are repeating “what everybody knows.” A careful analysis of the statistics proves them wrong, both over a wide area, as well as in an area as limited as a development or subdivision.
Of course, there is some average relationship between tax assessments and market values that can be calculated. But use of this figure to determine the market value of a specific home should be enough to make even the tax assessor giggle. While the objective might be to assess homes at "100% of market value," most of the results are not even within 10%.
Amazingly, elaborate calculation schemes or algorithms (pronounced: Al Gore rhythms) have been devised to predict market values from tax assessments. Although the mathematics are impeccable and some schemes have even gotten favorable press nationally, the fact remains that any calculation using basically flawed data, inevitably produces flawed results. Garbage in; garbage out. End of story. Be alert to anyone who tries to draw a conclusion from just a few cases. This is logically as well as mathematically unsound.
How long it has been since the tax assessor has seen your home? Never? There is no substitute for a properly prepared market value analysis or an appraisal, which are usually within 2 or 3% of market value. Mortgage lenders do not rely on tax assessments, and neither should you. Zillow, and other such schemes that rely heavily on tax assessments, are just as inaccurate. Track down Zillow's own disclaimer: They now report (2017) they are within 10% of actual market value 69% of the time. That means they are more than 10% off almost one-third of the time.
Self-sold listings occur when the listing agent marketing the home, also finds the buyer. In this case, the listing agent is also the selling agent. This frequency, when compared with how often the listing agent is not the selling agent, gives an idea of the effectiveness of the MLS in finding buyers. Agents sell their own listings much less than 5% of the time. The buyer comes from the MLS through another agent in more than nine out of ten sales! The proportion of self-sold listings is not valuable as an agent selection criterion because results for individual agents will very likely not yield major differences when analyzed statistically. As a seller, your prime concern is with obtaining a suitable contract, not with who finds the buyer. Besides, the MLS is always the winner by a wide margin. The overwhelming likelihood that your buyer will be found through the MLS means that:
- The information entered into the MLS database for your home is of critical importance to you and should be reviewed carefully.
- Your agent's computer literacy is crucial. See APPENDIX D for further insight.
- Your listing agent will seldom show your home to a prospective buyer. Therefore, view your agent as a marketer, not a salesperson.
- Your listing agent's person-to-person selling skills and firsthand knowledge of your area will usually be of no importance and therefore should not be a primary agent selection criterion.
The self-sold listings that do occur are usually the result of the sign on your property, open houses which are frequently accompanied by a newspaper ad, or a MLS open house notice.. To verify this statistic, ask your agent to run 200 or more recent sales at random out of the MLS database of sold homes. It is most important to have 200 or more individual sales. Prepare a columnar report showing the listing agent and the selling agent of each property. In more than nine out of ten sales the listing and selling agents will be different.
CHECKING YOUR MLS DATA
When you are selling your home, the most valuable exposure is through the computerized MLS database. It's 50 times as important as whatever is in second place. Serious home buyers do not want to waste time. They know how to find a home: Get an agent to show them homes. It is a lot quicker than attending open houses or chasing real estate signs. That is why well over 90% of all homes are sold this way.
And no, your listing agent will not personally find your buyer. This means that the information entered into the MLS computer is critical to your success! Your listing agent is your connection to the buyer. Your agent's computer literacy is one of the most important factors in putting your home's best foot forward.
Get the MLS information sheet from your agent. Be sure it says "Residential Full - Agent" at the top. Study it carefully, recognizing that some of the data is entered automatically by the system, and some is selected from "pick lists." Other information is entered by "lookup" functions, which are preferred over manual data entry. The directions and comments are entered entirely by your agent.
- Look at the obvious items first. Accuracy of information; correct spelling; use of English instead of "Realtor-eze" (real people read these printouts too). Are the directions correct? Do the "REMARKS" make sense? Do they make buyers want to visit the home?
- Next, look for included information that is not important and serves only to dilute the important items.
- Look for information that raises negative questions: Is "new sump pump" really a feature? Why did the old one wear out? Overuse? Your home has a new water heater? Great, but this raises questions about the furnace? How old is it? And what about the age of the roof? Most resale buyers do not need to be reminded that they are not buying a brand new home. That is what home inspectors and one year warranties are for.
- Is your home priced on a round number, for example, $500,000 not $499,999? A little known advantage will be gained by pricing exactly on round numbers. You're not selling clothing, groceries, gasoline, or a used car. The home selling market is uniquely driven by the MLS computer. By pricing on a round number you will get a few more visitors and sell a bit faster. This pricing tactic will provide you a competitive edge over most sellers. For detailed information on this, click here.
- Review the "Buyer-Agent Comp" entry and ask your agent whether a competitive commission is being offered to entice other agents to show and sell your home.
- Look at the entry in the "ADC Map" field. Did your agent take the time to fill this in, or does it read "XXX?" Get it right and make it easy for agents to find your home with their buyers.
- Check the "Zip Code." When Zip codes change, the choice of old or new Zip code can determine whether agents find your home in their search. In addition, the Zip code determines whether your home gets world-wide Internet exposure. The Zip code field is automatically filled by the computer, but sometimes needs to be changed by your agent.
There are a few more items that will be hard for you to check. Ask your agent to double check them:
- The Realtors' "Area" number. A home that is inadvertently entered in the wrong area will not be available to agents searching that area.
- Also, the MLS system requires that street names be entered without "street" or "road" etcetera, whch are filled in automatically. An error here means that agents searching for a home on your street will not find your home. If street, road, or any other data bit appears twice in your address, you have a problem for sure.
- There are important decisions involved in filling the fields "Advertised Subdiv" and "Style." Discuss how these should be filled in with your agent.
There are many, many more ways to go wrong. But you get the picture, your agent has to think like a computer in order to enter your home in a manner that will maximize the number of times it issues forth in other agents' searches. And when your page does pop out of the computer, the information there needs to say "come visit me." Like life, there is no substitute for experience and good judgment.
HOMES ON THE MARKET
The number of homes on the market, or more specifically, the supply of resale homes, has an important effect on how difficult it is to sell a home. In slower markets, as in much of the 1990's, it was harder to sell with two to three times the competition compared to previous and subsequent hot markets. Conversely, the fewer the number of homes for sale, the easier it is to sell any one of them. The graph below shows the total supply of resale homes in Alexandria, Arlington, and Fairfax County. The annual variation shown is applicable to all of the Washington, D.C. metropolitan area. Note that the supply is greatest around midyear, no doubt because most home sellers erroneously believe that this is the best time to sell a home.
The number of homes sold, or more specifically, the demand for resale homes, is an important factor in how difficult it is to sell a home. The fewer the number of buyers, the harder it is to sell a home. Note that demand, or home buying activity, as shown below, is often greatest in March. Who would have guessed? But don't guess; have your agent track contract activity in the MLS database.
During most of the 1990's the number of home buyers was running between 60% and 80% of what it was in the previous and subsequent hot markets. With fewer buyers and many more homes on the market, no wonder it took much more time, effort, and skill to find a buyer.
Caution: Homes sold information in the media can easily be two to four months out-of-date: The media reports frequently are based on closings, not contracts entered. Even the local media might be reporting closings instead of contracts entered. Be alert to this time lag. For example, the reporting of strong "sales" (closings) for June (usually reported in July or August) is probably based on contracts entered in April. Some agents will be content to quote the published figures. Get the correct and timely data for your market area and use it to your advantage. The rest of the world will catch up some day, but for now, you will be one of a very few with the important information.
THE MARKET INDEX
The supply of homes can be combined with the demand for homes into a number that is an important measure of whether there is a buyers' market or a sellers' market. This market index, the months supply of homes shown below, is calculated by dividing the number of homes on the market by the number of homes sold in the same month. A number greater than 5.0 indicates that buyers have the upper hand. A number lower than 3.0 favors sellers. A number less than 1.5 is indicative of a "hot" market. Be sure to have your agent obtain your local data. You might be the only one with the real facts.
There is one important calculation that is easily done. Ask your agent to search the MLS computer for all properties in your subdivision, condominium complex, or immediate area. Count the number of available homes on the market. Divide this number by the number of homes sold in the last year for the same area. Multiply the result by 12 and you will have a rough approximation of months supply for your market segment. Remember, a months supply figure lower than 3.0 is better for you.
Again, sellers who have a choice will plan their sale so that they are negotiating with their buyers early in the year when months supply is lowest.
HOME PREPARATION CHECKLIST
FIRST IMPRESSIONS ARE THE STRONGEST!
The following summarizes the ideal presentation of your home:
- Light and bright
- Uncluttered and neat
- Neutral in color and pattern
- Impersonal and inoffensive
To be more specific:
- Replace each light bulb with the maximum wattage bulb allowable
- Wash the bulbs and lenses of all lamps and fixtures
- Have all windows washed inside and out
- Wash in between windows and storm windows
- Check all windows to be sure they operate properly
- Open blinds and raise shades to maximize natural light
- Consider removing existing drapes to brighten the home
- Sell, donate, or throw out, items that you will not be moving to your next home
- Remove furniture from hallways and narrow foyers
- Move furniture that impedes entry or clear sight into any room
- Remove everything from kitchen counters, bathroom vanities, and your desk top, then replace only those items that you use regularly
- Remove everything from the stairs
- Clean everywhere but pay special attention to kitchens and bathrooms
- Tile grouting and tub caulking must be cleaned and bleached white
- Soiled carpets must be cleaned if not replaced (remove any dents left by furniture)
- Touch up appliances and the corners of walls where the paint is chipped off
- Clean any heating and cooling vents especially cold air returns
- Shrubs and bushes should be trimmed, and your lawn should be picture perfect
- Remove and dispose of any loose wood, including firewood, that is stored outside your home and be very careful if you are adding any mulch (the termite inspector will be coming)
- Exterior painting should be done if needed
- The front door should be clean, painted if needed, and all hardware should be operating flawlessly
- If the interior has been painted, replace electrical switch and outlet covers with new
- Fix all dripping faucets
- Set the dining room table for dinner
- Write a personal letter to your prospective buyer
Some market conditions can produce strange behavior. Read on, and you will learn to spot those situations when your agent is trying to find the buyer for your home himself or herself by inhibiting other agents from showing your home. Yes, there might be agents who compromise your best interests so that they can receive both the listing part of the commission as well as the selling part of the commission that you pay. They want your entire commission for themselves, and do not want to share it with another agent who might bring a buyer. In short, the harder your listing agent makes it for other agents to show your home, the greater the chance that your agent will not have to share the commission. The term "pocket listing" is used in the trade to describe this kind of behavior. A variation on the general theme is for a close associate of your agent to find the buyer. In some jurisdictions two agents are required due to legal constraints.
But why do you care? Let's start with some basic concepts. To sell your home for the best price in the least time, you need exposure to the market. The most valuable exposure is through the computerized MLS (Multiple Listing Service) database. It's 50 times as important as whatever is in second place. So, your listing agent should not be wasting time trying to find your buyer directly. Your listing agent is your connection to the buyer. Ideally, you should have at least 10 prospective buyers visit your home before you review offers. In a hot market, you will welcome multiple buyers for your home. But the chance of multiple offers is nil when your agent is hiding your home from other agents. And remember, the only way to find the real value of a home is through exposure to the market: Agents and appraisers can only give you an estimate.
The information entered into the MLS computer is critical to your success. Get the MLS information sheet from your agent. Be sure it says RESIDENTIAL FULL LISTING right below the MLS number in the upper left corner. A few of the critical details that can obscure your home from the market are listed below:
- The "Status" field on the left should say "ACTIVE"
- Do the "INTERNET REMARKS" make buyers want to visit the home?
- Do the "AGENT REMARKS" make agents want to show the home? An alarming number of agents display usless or duplicate information in this field. This is not putting your best foot forward. Would an agent do this to minimize other agents' interest and maximize their chance to personally find your buyer and get the full commission?
- If your home has a garage, it should be noted. Many buyers need a garage and agents in a rush forget to note this. This means that your home will not even appear in their results. Ditto for fireplace and more!
- Check the "Zip Code." The proper Zip code can determine whether agents and buyers find your home in their searches. In addition, the Zip code is important to insure that your home gets Internet exposure.
- Are the "DIRECTIONS" correct?
- Do the "Show Instructions" (near the bottom) indicate that your home has a lockbox? Without this, fewer agents will take the extra trouble to show your home.
- Check the accuracy of all other information.
Most errors are merely innocent or ignorant (not excusable) mistakes. But a few agents will intentionally try to minimize your home's exposure. There are many, many ways that incorrect MLS data can easily keep other agents from finding that your home is for sale.
Your home should have a lockbox of the type commonly used in your area. Some listing agents have been using the wrong type of lockbox, which can mean that other agents have difficulty in showing your home.
If the showing instructions for your property ask other agents to call your listing agent first, instead of you, this can mean that agents with prospective buyers are put through a tortuous registration process. Asking other agents to call your agent before showing, instead of you, is not customary in our area and does you harm by discouraging those other agents from showing your home.
Be especially careful if you hear any of the following from your agent:
- "I sell most homes myself"
- "Let's wait a few days before we enter your home into the MLS"
- "Let's wait until my open house before we let others see your home"
- "I've already got your buyer" (before your home is even on the market).
The problems noted above are not likely, but they do occur. The governmental authorities as well as the Realtors Associations provide penalties for agents who fail to keep your best interests foremost, including fines, sanctions, and loss of one's real estate license. But the authorities are not pro-active, many home sellers are oblivious to problems, and the few unscrupulous agents out there operate with impunity. Remember, just because something sounds right does not mean that it is correct. Make sure your agent is on the right track for you.
PUT the NEWS into PERSPECTIVE
Why are the "pundits" telling us all this baloney? What do they think we should do? Sell our homes and live with mommy and daddy? With the kids? In a tent? Stop buying homes? I'd be happy if the Wall Street folks could give me an accurate prediction of the stock market, where they should be the experts! I'll be a bit worried when Realtors on TV start telling me what stocks to buy!
Here are some important questions you should ask yourself about the news:
- What decreased 3%? The number of sales or home prices?
- For what time period? Compared to when? Last month? Last year?
- Did they consider seasonality?
- Is the data recent, or several months old?
- From what perspective? We get different views if we start tracking data in 1990 versus 1998!
- What is included? Resale homes? New homes? Both? Rentals? Yikes!
- Is the data for our area? We do have a regional market, but there is no national real estate market. Although national averages can be calculated they are merely useless bits of information for individual homeowners.
- Do they support their conclusion with meaningful data or do they start with a conclusion and support it with anecdotal evidence? An example or two can illustrate a view, but not prove it.
- Do they understand that the value of a home is defined by a buyer-seller, arms-length transaction or do they seek to project their personal opinion on home values? The real price of a home (or all homes) is never defined by some third-party's opinion, even if they represent themselves as experts.
- Are they confusing the homes we live in with shares of stock?
When you examine the underlying data, you might ask:
- Do they comprehend the concept of statistical significance? This answers the question: Does the number I just calculated actually mean something? This is of great importance when considering average home prices. When the sample size (number of data points) gets too small, results bounce and individual reports are useless unless you are the producer of a TV news program trying to fill time. Further, for buyers and sellers, there are much more important data than home prices.
- Does the algorithm being used make sense? What does it include and exclude? No one actually adds up all the home prices and divides by the number of homes on a national scale. Delve into the method.
- Are they careful to make the distinction between correlation and causation?
- Have they been tracking their data over several decades? While there are some Johnny-come-latelys, the National Association of Realtors, and the government's FHFA (just Google it) seem respectable.
- In the questionable category is the widely reported Standard & Poors - Case-Shiller Report.
Of course, radio and TV news spots, and even newspapers have time and space constraints that make answering all the above questions impossible. So, it's up to us to decipher the truth. Unfortunately, this is well beyond the scope of most listeners and readers, the savvy folks like us being a small minority. Isn't listening to the news just a recreational activity anyway?
Remember that "what everybody knows" is not always right, even when it sounds right. Get your real estate advice from real estate folks, not ignorant Wall Street lemmings. Monitor the local economic conditions including employment, and most importantly, housing supply and demand (yes, the Market Index). And when you are making those really important decisions about your personal housing, good luck!
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8 Critical Factors in Agent Selection
Ranked in order of importance:
- Someone you trust who is a full-time agent. Ideally, someone you know or someone who comes highly recommended by a trusted friend. You won't need to worry about any hidden agenda.
- Experience. Not the number of years but the number of recent transactions. The average real estate agent is involved in fewer than 4 transactions annually. Do you think that 4 transactions produces a high level of expertise? A lot of things can go wrong in a real estate transaction; experience matters.
- Communications; verbal, written, and electronic. Knowing what to say, how to say it, what not to say, and when not to say it.
- Negotiating expertise is absolutely essential to your success. Sellers need someone who will promote multiple offers and maximize their bottom line. Buyers always want a lower price, but winning their first-choice home can be crucial when other buyers suddenly appear.
- Availability. Your agent should be readily available by phone, email, mobile email, text, et cetera. For buyers, this can be the difference between winning your home of choice, or living forever in your second choice home. Don't settle for an assistant.
- Computer literacy. Your agent has to think like a computer in order to maximize the number of times your home comes up in other agents' searches. And when your page pops out of the computer, the information needs to say, "Come visit me." (See Appendix D.)
- Your agent needs current market knowledge that comes from working with both buyers and sellers over a wide area and price range, and the ability to separate the actionable information from the mindless prattle. This is especially important in pricing your home to sell, and is critical in setting the pace of negotiations for buyers.
- An agent who is numerate and uses the appraisal method to determine a home's market value for buyers as well as for sellers. Focus on how a home's value is determined. (See Chapter 4.)
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12 Interviewing Mistakes to Avoid
Home Sellers: Are you interviewing agents thinking you will learn all their secrets? Here's the real secret: Every transaction is different, and a lot can go wrong. You will not be sure that you hired the right agent until you are negotiating the unforeseen bumps in the road.
Avoid serious mistakes not selecting an agent who...
- ... swoons over your home: Remember, it's about the agent not about your home! Don't get confuseled.
- ... does not understand round-number pricing: This can be very important! Review a few of an agent's recent listings to check their past pricing policy.
- ... has the dynamite marketing plan or one who claims to have a unique, exclusive plan: Don't fall for the gimmicks, known in the trade as "listing tools." Nasty: These things sound good but are absolutely worthless in practice! Further, your agent's direct sales efforts are insignificant in comparison to the efforts of thousands of other agents using the MLS to find your buyer.
- ... is not computer-literate: Your agent will not personally find your buyer. The information entered into the MLS is critical to your success! Your listing agent is your connection to the buyer. Your agent's computer literacy is one of the most important factors in putting your home's best foot forward.
- ... claims to be a specialist: Your agent will rarely show your home in person, and therefore will rarely get to impress a potential buyer with local expertise. What does your local specialist know that you don't know?
- ... suggests the highest price: Do you think an agent would suggest a high price just to win your listing? Remember, it's the contract price that's most important, not your initial asking price.
- ... uses Zillow, tax assessments, etcetera to price your home: This "data" is pure baloney; that's why mortgage lenders are still requiring appraisals.
- ... plans to use a combination lockbox on your home, which makes no record of who entered. Worse, some can be accessed by anyone even if they do not have the combination. (Instructions can be Googled.) Be sure you get the SentriLock (electronic) lockbox.
- ... claims to have a ready buyer: This is downright dangerous, and is an excellent reason to select a different agent to represent your interests.
- ... cannot meet with you for a week: Anyone who is that busy should not be taking on new business.
- ... is from the closest office location: Sales from office call-ins and walk-ins are non-existent.
- ... is with a certain real estate firm: You will never meet Mr. Long who is long gone nor Mr. Foster who has retired. Agents are as different as snowflakes, regardless of their company. Get the right agent.
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APPRAISAL - An estimate of the value of real estate provided by an expert, the appraiser. In many states, appraisers must be licensed.[Return to Top]
ASSESSMENT - Also tax assessment or assessed value. The hypothetical value assigned to real estate by the local government tax assessor that is used to determine the amount of real estate taxes to be paid, nothing more.
BUYER-BROKER - Also buyer's-agent. An agent who is representing the buyer's interests in a real estate transaction. It was once customary for all agents to represent the seller, but buyer-brokerage has become very popular in our area.
CONVEY - To transfer ownership.
FHA - The Federal Housing Administration, a government agency that facilitates mortgage loans.
FRT PLYWOOD - Fire Retardant Treated Plywood. This material was used in the roof construction of some attached homes in some areas. Over time, it can become structurally unsound and roof replacement is then required.
HUD-1 FORM - The form used at closing to account for the financial details of the transaction.
LISTING AGENT - The real estate agent hired to be directly responsible for the marketing and successful sale of a home.
LOCKBOX - Also called keysafe. A strong and secure box attached to the outside of a home, frequently to the doorknob, which contains keys to the home. It is accessible to real estate agents who have a special key to open the lockbox. It facilitates home sales by making the home readily accessible and easily shown to prospective buyers.
MARKET VALUE - Sometimes called fair market value. The price agreed between ready, willing, and able buyers and sellers, providing neither were under undue pressure to act. In most cases, market value and contract price are identical.
MLS - The Multiple Listing Service is an arrangement by which real estate brokers (and their associated agents) agree to sell homes being marketed by each other (sometimes called listings) and to share the resulting commissions. An MLS computerized database is a critical factor enabling the exchange of information and thereby facilitating the sale or purchase of real estate.
RADON - A colorless, odorless, naturally occurring gas that is a potential health hazard. It can seep out of the ground and accumulate in homes.
SELLING AGENT - The agent who brings the buyer, shows the home to the buyer, and helps the buyer prepare the offer. This could be the same person as the listing agent but usually is another agent. Historically the selling agent was an agent of the seller and had fiduciary responsibilities and owed loyalty to the seller, in spite of the fact that the selling agent was "helping" the buyer. The practice of selling agents who are the agent of the seller is almost extinct in our area. (See buyer-broker above).
SHORT SALE - A sale where the mortgage against a property exceeds the property's net market value. Buyer beware!
STATISTICAL SIGNIFICANCE - A mathematical concept, too infrequently applied to real estate publications, which holds that in order for a conclusion to be meaningful, it must be based on a sufficient number of observations or individual bits of data. A complete treatment of the subject is far beyond the scope of this book, but the concept is important: Depending on the data set being analyzed, there is a certain minimum number of individual data points required in order for the conclusion to be reliable. For example, just because one can calculate an average, does not automatically mean the resulting value can be used to draw conclusions about the global data set that gave rise to the average.
UFFI - Urea-formaldehyde-foam-insulation. A potential health hazard resulting from vapors that might be released from the insulation into the home.
VA - The Veterans Administration, a government agency that facilitates mortgage loans.
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