How to get ready to sell your home...before you start cleaning & painting!
4 things to do before you put your house on the market
Let's make one thing clear about the housing market....it's not that no one wants to buy your house. It's that the whiplash reaction of the mortgage companies to the rising number of defaults is making it very difficult for even strong credit scorers to get a home loan. You have to get your financial ducks in a row before you make loan application. And though buyer confidence has been whittled away by horror stories of bad loans and sinking values, there are hordes of people who would like to buy your house. I'd like to buy your house. It's a great investment.
History has shown us that long term, investing in real estate is a sure fire winner. Market values may go down, but they are never down for long. Don't you wish you'd jumped in 10 years ago and bought that classy little bungalow for $115,000? It's now worth $275,000, down from maybe $305,000 two years ago, when asking prices were purely speculative and appraisers and banks would go along with just about any loan scenario....but. If you had it to sell now at the $275,000 would you consider that a loss? It's all relative.
So even though plenty of families would like a new home.....it's the lenders. Some have simply gone out of biz (implode-o-meter). Others are still there, strong but nervous, waiting for the dust to settle. They cannot make money if they are not processing new loans, so sooner or later they're going to have to jump back into the game. It seems to me that by NOT writing more new loans they are devaluing properties they are about to foreclose on!
In the mean time you have a house to sell. It may be time to downsize or find more rooms for your growing family. You've been transferred, you need to be closer to work, family, friends. Or you need to get out from under a bogus loan, take your equity and restructure your finances. There are lots of reasons to move, and right now very little reason to wait, since you probably will be able to get a good deal on your replacement property.
Before you put your home on the market do four important things:
1. Check your credit score. Who knows, you might be able to pay cash for your next home if you had that kind of profit in the home you're selling. But most people will use most of their money from the sale of their home and put down a healthy down payment, and get a new loan for the balance. (the new payment may be lower than the ones they have now!) Make sure your credit is in good shape because even with a large down, these days lenders are being picky, asking you to explain a lot of financial history. You may not be carrying a lot of debt, but if you hold a lot of different credit cards lenders look at this much as they do actual debt. They want to know you won't be racking up those cards of yours after you move into your new home. Because you could; that credit is already yours to draw on. They don't want you to be in a position to overspend your income and default on the home loan. Remember credit card companies have a nasty habit of jacking up your rate just because your credit score lowers...and it will if you start spending with those cards. Your payments skyrocket, you get behind....a downward spiral. If you have some cards you rarely use, or have a low balance on. Close the accounts and pay off the low balances. You should have some credit ongoing and pay on time...but we see people with 10 and more different store credit cards. Get rid of them.
2. Get an informed opinion of what your home might sell for right now,what your costs to market and sell will be, and what you can anticipate in net proceeds. You can pay a professional appraiser $400 and up. Along with that you can call lenders and title companies to gather the costs in your financing and title insurance costs. Or you can call a Realtor. They do Comparative Market Analysis as a free service, and use the same data bases for sold comparable properties as appraisers do.... And they also know about comparable listed (your home's competition), and sale pending properties. They can tell you what's moving, in what areas, at what prices. There have been a lot of agents who've left the business as quickly as they got into it during the boom market. Most of the ones still licensed are lifers...professionals who've seen the wars before and know how to optimize listings and sales even when the market is waffling. Of course they want your business. It's how they feed their families. They spend a lot of time, money and effort making sure your house competes in the market, and an often overlooked attribute of Realtors is that they are experienced and skilled negotiators. They are velvet hammers when it comes to getting you the best terms and profit when selling your home. It's getting harder and more expensive for For Sale by Owners to get their homes shown and sold. And the increasingly stringent real estate laws have created a lot of confusing paperwork. It's all too easy for a FSBO to not understand a small detail in the contract and end up making themselves liable in a number of ways. In my experience FSBO's often do not negotiate the best deal for themselves....that's where a Realtor is worth every penny of their commission. Do yourself a favor, hire one. They don't get paid upfront; you don't pay them a dime until they get your house sold...and their legal duty is do so with your very best interests in mind. It's all money out of their pockets during the marketing process. If your home does not sell they are out of pocket with no paycheck. How many professionals can you hire that way? Do you think they will make every effort to do a good job when their survival depends it?
3. Talk to a lender. Your Realtor may be able to give you a list of tried and true loan officers. For those that still have jobs, their jobs are challenging theses days. Like Realtors, if they are still in the business, they know their stuff. DO NOT try to find a lender online, and especially DO NOT fill out any applications on line unless you've met and talked to the loan officer ahead of time, and know they are sending you to a very secure site to make application. If you work from an online "cheap home loan" pop-up ad site, at the very least you risk being spammed into eternity, and at worst you personal financial information could be compromised.
Have your loan officer pull your credit report, or if it is very recent, you might have your own to show them. Make sure you have a copy, whichever way you go. You can use that copy to shop several lenders if you choose. Fees and costs can vary from lender to lender, but the cheapest deal may not always be the best. Read the fine print or have your lawyer check it out. Do not permit a number of different credit reports to be run! Don't ask me why, but this lowers your overall credit score. Stick with the one. When making loan application be totally honest about debts and circumstances. Anything less can amount to having your loan fall through at the last minute....or even be considered loan fraud. They are going to be looking out for loan fraud now the horses are out of the barn.
It's a pretty good idea to feel comfortable with the loan officer; you're going to be talking to them a lot. Do they explain in understandable terms; are they patient; do they return your emails and phone calls in a timely manner? I once had a lender tell a client he could do a little tap dancing with figures and get them a loan. NO. This is not the guy you want.
Once you have a Comparable Market Analysis from your Realtor and know what your gross proceeds will be, your lender will want to know approximately how much you will be putting down, how much your new home will cost, how much the property taxes will be, how much you want to borrow. They will tell you how much you can borrow and give you a good faith estimate of the cost involved with the loan within 5 business days. That's the law. For more on borrowers rights check out the RESPA (Real Estate Settlement Procedures Act) information page on the Federal government's HUD pages. Your lender should provide you with RESPA information too.
Need more info?
Now comes the fun part!
4. Look at homes for sale that meet the criteria of what you want to buy next. This is enjoyable and inspiring. Ask your Realtor to run and email you a fine tuned search of listings, and start looking at a few homes in the price range and area you want to be in. Be realistic. Consider the bones of a house...but overall make sure your dream home matches your reality. By looking at a few homes ahead of time you'll be excited and inspired to prep your home for sale...AND you'll get some ideas of what to do and what to avoid while you're optimizing your home for the buyers' eyes. What is important to you, and what strikes your interests in the homes you're viewing, are likely to be the same hot buttons that your buyers react to as they shop.
But! Only shop around enough to know that the type of home you want to move to is available in your price range. Don't spend too much time house hunting until you have readied your home and put it on the market. At this point you can get a letter of loan approval ready from the lender....you won't need it until you make an offer, and at that point it will have numbers in it specific to the house you're offering on. You wouldn't want the loan approval to state you can borrow up to $275,000 when you only want to offer $255,000! Your Realtor will get that specific letter at the very last minute when the offer in writing is being prepared.
Now you can get your home spiffed up to place on the market. Your Realtor will tell you what to do to show the home to its best advantage. This will often include packing some of your things up and storing them so your décor is simple and uncluttered. We know that's not how you really live, and that's okay. But the buyers' eyes are tunnel vision eyes. Homes look bigger when décor is scaled down. Don't be offended when asked to clean the garage, just remember the reward when you sell quicker and for more than the people who didn't think a tidy garage was important because they lived in and loved their home the way it is....and so should the buyer.
Keep in mind that ultimately two things sell houses. Price and motivation. How badly do you want to move, and how reasonable are you willing to be about that initial asking price to make it all happen? (These days motivation is "smart money"...utilizing long established equity to get a good buy on a nicer home.) Testing the market is not a winning plan. Houses that linger on the market at too high a price get "shopworn". Price reductions that are too small too few, or too late diminish your showings and can lead buyers to believe you would be difficult to negotiate with. This is no market in which to speculate asking price! Buyers shop in a specific price range, according to their loan approval numbers. Placing a higher price than comparable properties will not invite buyers to come in and bargain with you. There are other houses to look at and some buyers are reluctant to insult a seller with a low offer. Price your home as the best buy in your competition's range; look better than your competition. Be willing to negotiate on lender required repairs...just as you will expect the seller of your next home to negotiate with you.