I Know You Want to Sell Your Home, BUT……
It used to be so easy (well, easy might not really be the right word, but at the very least it used to make a lot more sense!! If you owned a home and decided to move...to upgrade, or downsize, or relocate, or whatever you planned to do after selling, the process, though not really simple, was generally pretty manageable. You'd do so basic due diligence to find out the current market value of your home, decide how you preferred to handle the sale, perhaps interviewed one or more agents, did a basic overview of the market for the type of home you'd like to move TO and make sure you were financially qualified...and then you'd just DO IT!
In today's somewhat precarious real estate market, though, what used to be considered "due diligence" falls substantially short of the level of research necessary before taking that leap of faith. In many areas around the country, and certainly here in the Chicago area suburbs, values of properties have dropped, in some cases substantially (though perhaps not quite as substantially as some buyers seem to think!). Today, it's simply more important than ever to really understand the market as it pertains to your own situation because there's the very real possibility that the local market might not necessarily bear what you believe your home to be worth.
So, that being said, what steps are important to take before putting your home on the market?
- First and foremost, be very clear on exactly what you currently owe on your home. That doesn't mean just your "first mortgage". What are all the liens on your home? That includes first and second (or more) mortgages, home equity loan/s, home equity line/s of credit, any outstanding judgments and absolutely anything else that translates a debt for which your home was used as collateral
- Have a thorough CMA (Comparative Market Analysis) prepared on your home by a qualified, experienced Realtor you trust. They should provide you with extensive details on comparable properties to yours including their original prices, their asking prices when sold, their final sales price, how long they were on the market, what adjustments would be appropriate reflecting the differences between their home and yours. If there are any available, they should also provide you with interior photos of those properties and any details regarding room sizes and locations, property included, etc. In addition, the agent should provide you with comparable listings of homes that are currently on the market (which would, if you listed your home, be your competition), as well as those that have gone off the market unsold, including as much details and as many photos as possible. You need as clear an idea as possible of the marketplace in your area.
- In examining your competition and recent sales, determine whether those properties were "normal" sales, foreclosures, pre-foreclosures, or short sales. It used to be that, if your property would be a normal sale and there was a foreclosure in your neighborhood or nearby market, the foreclosure would simply be "acknowledged" in your CMA, but no real weight would have been put on its pricing because it was a "distressed" sale and not really representative of the market as a whole. However, in many areas and price ranges, those "distressed" properties (or owners) now represent a significant portion of the marketplace. In other words, distressed properties may well not be exceptions to the market...they may actually BE the current market. Even if your home is not a distressed sale, when all or most of your competition IS, you must price your home accordingly if you realistically expect to get it sold.
Here is where consumer understanding of the real estate industry and the realities of how things work can get a bit sticky. While "professional standards" requires that agents perform always in the best interests of their "clients", remember that an agent preparing and presenting a CMA is not your "agent" when doing so unless you have already firmly established that they are...preferably in writing. Why do I make that point? Think of this way. In real estate terms, preparing and presenting a CMA is generally a form of "job application". That entire process is what agents use to get their foot in the door, to get to know you and your priories, to let you get to know them and how they work. In many cases, perhaps even most, consumers make their decision as to which agent to eventually hire based, not necessarily on who they believe to be the most diligent or professional, but on who gave them the best "price" for their home. Many agents, as a result, are often "overly optimistic" about the market, presenting a potential seller with a less than realistic impression of the market in the hopes of securing a listing agreement with them. Remember, generally, agents receive no compensation unless and until they have a closed transaction. Most agents are not paid for those hours of work in preparing and presenting that CMA for you. That being the case, it's human nature for them to want you to want to sell...and, better yet, to want to sell and hire them as your agent. This presents a bit of a catch 22: If the picture an agent paints of the current market is too distasteful, a prospective seller may decide not to move at all...in which case the agent has invested all that time, effort, and expertise for which they've received, in most cases, not one penny; however, if the picture is too optimistic, the seller may have very unrealistic expectations and may be make additional plans than can either cost them financially or emotionally, or both, and the agent, if they have secured the "listing" in the process, now has a client who is likely destined for frustration and disappointment.
One other option might be to hire a fee appraiser, but it's important to remember that appraisers do something entirely different than what a Realtor does. In basic terms, an appraiser interprets historical information...what recent comparable properties have sold for in the past, and apply that information to determine what they believe is the "current" value of a property. A Realtor's task is to combine historical information and current information (the properties currently for sale and those currently under contract, but not yet closed) and interpret that information with a future prospective...in other words, to give their clients an idea as to what price a particularly property will likely command in the current marketplace.
OK, let's assume that you've utilized the services of one or more professional Real Estate agents and gotten a fairly clear picture of the current market. Here are some additional steps you might want to take:
- This step is CRITICAL: Using the data from the CMA's you've had prepared, have the agent provide you with an Estimate of Net Proceeds (commonly known as a Net Sheet) which estimates how much you would likely walk away from the closing table with if you were to sell your home. This begins with an estimated selling price, and deducts all of your likely expenses, including, but not limited to, title charges, prorated real estate taxes (remember, if you're an Illinois seller, taxes are paid in arrears so at closing you'll need to come up with the difference between the amount your lender, if you've been escrowing taxes, has in your tax escrow account and the amount required to bring your up through the date of closing), recording fees, escrow fees, tax certification, release of lien fee(s), brokerage fee, attorney's fee, survey, flood certification, interest proration through the day of closing, etc.
- Determine, based on your likely selling price and the estimate of expenses you'll incur (don't forget to estimate moving expenses as well), whether you are in a financial position to sell at this time...will you likely be able to leave the closing table with money available, or, if you were to sell now, would you need to consider doing so as a short sale?
- Assuming you will have funds available after closing, combine those funds with other monies you currently have available and decide how much of that you would want to apply toward a downpayment on a future property (if your decision to move also includes the purchase of a new property). With that information in had, get one or more lender "preapprovals". Your Realtor can most likely recommend a few excellent loan officers who can give you a pretty clear idea as to how much of a mortgage you "qualify" for, and under what specific terms. Please note that in the recent past, lender underwriting guidelines have changed considerably, so it's important that you stay current as to how those changes might impact your qualifications to purchase, provided you need a mortgage to do so. Based on a lender preapproval, coupled with your available down-payment, you now have an idea of your maximum purchasing price range
- Armed with your financial qualifications, determine the specifics of where you'd want to go if you did in fact sell your home. Think about things like price range (now that you know your "maximum" price range, determine how much you are actually "comfortable" spending each month. I routinely get two numbers from my buyer clients...the amount they are pre-approved to buy, and the amount they are comfortable spending. Our search always begins with their "comfort" number), communities you'd like to live in, type of home (is it attached or detached housing), what style of home are you interested in, how many bedrooms and baths do you need, what about a basement, or lot size, etc.
- Create for yourself two lists: the first is your "must haves", the other is your "wish list". Your initial focus should be on your "must haves".
- Have your agent, if your market place has it available, set up your "must have" search parameters in their local MLS (Multiple Listing Service) system so you can receive copies of listings meeting your criteria. Review those listings online, and choose a few that you feel are the closest match to what you would like to buy. Remember, at this point you are simply trying to get a feel for whether or not the type of home you would want to move to if you sold your current home is readily available in the price range you are qualified and prepared to spend. You are not really looking to "find" that specific home at this point, unless you are in a position to purchase that next home without having to sell your current home.
- Schedule an appointment with your agent to actually go out and visit several homes in person.
Once all that is done, you'll find you're in a better position to determine whether you really want to (or are able to) sell your home. The more preparation you do prior to making a decision to move, the better position you will be in to make that move with confidence.