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Selling for Top Dollar in any Market
Kevin J. Daum
This article was originally published in a 2006
edition of Log Homes Illustrated magazine.
For the last 10 years in most of the country selling your property was as easy as shooting ducks in a barrel. The last decade provided an abundance of over eager buyers looking for any property that was available. Even odd properties and houses on busy streets were easy to sell often with multiple bidders driving the price up by tens of thousands of dollars.
Well today’s real estate market is a different story. While most people’s fears of falling prices are largely unfounded, the market dynamic has changed and selling your home will require some planning and patience. The buyers today are looking for good value at a reasonable price. They no longer expect to see 20 percent increases from year to year. With the rush now at a reasonable pace, buyers are only willing to invest in quality homes that will provide good monetary and emotional value.
This slowdown in housing doesn’t mean that your home will necessarily drop in value. This generally only occurs in areas where the economy has collapsed. Most of the U.S. economy remains strong and housing sales are still strong as well. But prices today are only increasing by roughly 5 percent annually now as compared with 12 - 18 percent in years past and sales times can now take 30 to 60 days instead of one week or longer if your house is poorly located or unappealing in some way.
So what’s a seller to do? You may be just finishing your dream log home and need to sell or maybe you are relocating and have already purchased in your new location. Having just gone through this process myself I can give you true insight into the home sales process as well as my best suggestions to make it painless.
Prepare yourself – No need to go into this process blindly. Take stock of the situation surrounding your home, family and financial condition. Educate yourself on the implications of selling a home and the process required to make everything happen in a smooth and feasible manner. Take the following steps.
- Assess your home needs – Do you really need to sell? How does the house fit your present family needs? Maybe you need more space or a better school system. Consider whether remodeling the home will provide you with the things you find are inadequate about the house currently. If after careful consideration you still want or need to move then do a little research on how well homes are selling in your area so you have a sense of what to expect.
- Assess your finances – It’s time to take stock of the financial implications of selling. Selling a home creates a series of financial issues to deal with. You may have to expend some cash up front to make the house ready for sale as we discuss later. You will need to calculate the net proceeds from the sale to figure your bottom dollar price. Here is quick formula. Take the sales price x .94 (commissions and closing costs) minus your loan amount. This is your net proceeds.
Determine your profit on the house. This is done by taking the sales price x .94 minus the price you paid and the cost of any capital improvements made while you lived there. You may have capital gains tax to pay if your profit is more than $250,000 for an individual or $500,000 for a couple or if you have lived in the property for less than 2 years. Check with your accountant to see what your tax liability may be. In some states you may have to pay as much as 26 percent including state and federal tax.
- Assess your timing – The timing of the market will play a big factor in when to sell your house. If you haven’t made a purchase or built a new home you have some flexibility and may want to sell your home first before purchasing the new property. This approach will help you avoid making double payments while waiting for your old home to close escrow. If you have already bought or built, plan out the timing of moving with the marketing so that you leave the house messy or vacant for as little time as possible since this will make marketing the house more difficult.
Find the Right Agent – Real Estate agents come in all shapes and sizes. Over `the last several years the industry swelled with aggressive agents looking to capitalize on the real estate boom. When the market was easy, the agent was less of a factor and the important criteria were to find someone that made you feel comfortable or was the lowest price. In today’s market the right agent can mean higher sales price and faster sales time. Selling by owner may save you a commission but lack of marketing skills can cost you tens of thousands of dollars.
Find a marketer. Look for someone who is willing to expend time and money to get your house in front of likely buyers and their agents. Real estate agents that have more than 10 years experience have a distinct advantage over recent journeymen since they have handled homes in markets where marketing was necessary to get the house sold. That being said, An aggressive newbie willing to spend energy and cash to make a name for him or herself may give you the opportunity to make a big splash in the market to attract buyers. Ultimately go with the agent that is aggressive and excited about marketing your home but can give you a realistic assessment of what price is likely and what it will take to make the home marketable.
Make the House Desirable! – It’s amazing how much we are willing to live with our homes in a state of disrepair. Little issues in the house that may not bother us or we don’t have time to fix can add up in the minds of a buyer. Now is the time to get around to all those fix-it projects you have been putting off. Ironically you may find that you wish you had fixed all of those things sooner since it is so nice to live in the house all done and pretty. Pay particular attention to paint, doors, landscaping, electrical and plumbing. Spending $10,000 today may save you $30,000 in negotiations for repairs. It is best to have your inspections such as roof and pest done before you list the house so your buyers know what they are in for up-front and won’t likely renegotiate after the offer is accepted.
Prepare the house for showing as you would a model home for presentation. Some real estate agents recommend “Staging” which can cost over $1000. It can be worth it if you don’t have an aesthetic sense. What you mostly want to do is remove clutter and extra furniture so the house looks clean and spacious. Arrange the furniture to create the most open space in a room. Don’t wait for the move to throw stuff away. Call 1-800-GOT-Junk and have them haul away as much as possible.
Take your personal pictures and possessions and box them up for storage. Not only will this give you a head start on the move but it will allow prospective buyers to view themselves in their own home to be. Make sure you agree as a family to have the property “show ready” every morning. It’s probably the only way to get your kids to make their beds and pick up after themselves every day.
Market, Market, Market! – Now that the house is ready to sell it’s time to get people in the door. Don’t be shy. You want everyone to see the house and know that it is for sale. If you picked the right agent she should be promoting your home heavily in the Multiple Listing Service, local newspapers, Craig’s List, etc. Open houses should be held on both days every weekend in addition to broker’s open houses with wine, cheese, donuts, dancing girls or anything else you can use to attract people.
Be creative in your marketing. Work with a local mortgage broker to broadcast special financing like “Nothing Down” or “Low Payments” to help would be buyers know they can afford the home of their dreams. Hold barbeques for all of your friends and email announcements with pictures to make sure everyone you know is aware the home is for sale. In a slower market, no idea is too silly to give a try.
Don’t be cheap about your marketing. Your agent will undoubtedly spend money but you can contribute to the cause as well. If spending a couple grand on marketing yields you $10,000 in your final sales price it was certainly worth it.
Get Real! – After the last decade most of us are overly optimistic regarding the real value of our home. We have been trained to think real estate is a commodity that rises significantly every year. It’s time for a reality check. Prices are stabilizing. If your property has flaws they will be reflected in the number of offers, the time on the market and the ultimate sales price.
Don’t get greedy. If an offer comes in consider it seriously. Evaluate how much you are really giving up versus the cost of carrying your property at a potentially unrealistic price. Chances are the price being offered is more than you ever thought possible when you bought the house. Unless you are truly in financial need of a specific price, negotiate to a reasonable middle and move on with your profit.
In the escrow process some further negotiations may be necessary but unless your buyer is truly being unreasonable don’t sweat the small stuff. Negotiate a credit and finish the transaction. Putting a house back on the market may cost you more than fixing any small detail that will probably need to be fixed for the next buyer.
Ultimately the good news is that most houses are still selling at record prices and within a couple of months. While the extended timeframe can be a bit more nerve wracking than before, most sellers will walk away with a decent amount of profit from their purchases with a bit of patience and persistence. Be prepared for what the market has to offer and be realistic with your approach. You have probably emotionally detached yourself from this home already so let it go at a reasonable price and move on with your new home life.
Kevin Daum is the Founder and CEO of Stratford Financial
Services, a Real Estate finance and education company, founded
in 1989. Stratford specializes in Purchase loans, Refinance
loans and Custom Home Construction finance and has successfully
financed thousands of clients. He is the author of "Building
Your Own Home for Dummies" (Wiley), as well as "What
the Banks Won’t Tell You." Mr. Daum was an Underwriter
for Plaza Savings and Loan and Key Bank of New York. He is
an INC 500 CEO and has been listed as one the 40 Most Influential
People Under 40 in the San Francisco Bay Area. He is the Global
Chair for the Edison Innovation Program with the Young Entrepreneurs'
Organization (YEO) and is a founding Board member of the Bay
Area Chapter of YEO.
Mr. Daum is a frequent contributor to numerous business
publications on the subjects of Real Estate and Small Business
leadership and speaks regularly on both subjects. He can be
contacted at kevin@stratfordfinancial.com.
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