Should I Sell My House? A 3 Step Guide to Deciding
By Steve Flanagan
Planting a “for sale” sign in front of a house might seem like the beginning of your home sale process, but in reality it’s only one step in the journey that really starts weeks before any potential buyers visit your home. Setting the price, getting the house ready for the market, hosting open houses and showings and negotiating with buyers are all vital steps on the road to selling a home, but the most important part of the sales process is the first step: clarifying your goals and making the decision to sell.
Before you move forward with selling your home, answer these questions:
• Why do I want to sell?
• What will a new home offer that my existing home can’t?
• Can I afford to sell?
• Do I have enough equity in my home to make a down payment on a new house and/or achieve other financial goals?
• Do I need to sell within a certain amount of time?
• How much preparation or repair work do I need to do before my house is ready to sell?
• Is making a profit on the sale of my home one of my goals?
The selling process is a combination of research, solid reasoning and common sense. You don’t need an agent to handle that for you. All the tools you need are at your disposal, and if you think you can DIY, we think you can too.
Step I: Gauge Your Finances
First, review your general financial situation so you have a solid understanding of how a home sale will affect your budget and net worth. Estimate what your new mortgage or rent will be after you move (including down payment, changes in property taxes and homeowners insurance). After all, your next living situation will have an impact on your monthly budget – either costing or saving you money – and you should have a good idea of what that will be before you commit to selling your home and moving.
Once you have evaluated your overall financial position and decided to move forward, calculate the equity in your home. Here’s how:
current value of your home – what you owe your mortgage lender = your equity
The first step in solving that equation is getting a solid estimate on the value of your property. You can conduct your own comparative market analysis and consider hiring a professional appraiser to determine the current value of your home and competitive market price.
Your current mortgage bill or other mortgage documents will give you the amount you owe your lender, including any second mortgage or line of credit you might have as well. Subtract what you owe from what your house is worth and you have your total equity.
For example: if your home is worth $265,000 and you owe $135,000 to your mortgage lender, you have $130,000 of equity ($265,000 – $135,000 = $130,000).
Your next step is to figure your net equity, which is your total equity minus the expenses you expect to pay as you move through your selling process, including:
- home repairs or improvements
- listing fees if you sell by owner or agent commissions if you go that route
- appraisal fee
- title insurance and other charges.
At this point, take a long look at the condition of your home. Gauge the investment you’ll need to make before listing. Identify the repairs your home needs before you put it on the market and what kinds of upgrades would help you sell more quickly and for a higher price without blowing a hole in your budget.
Once you have your figures together, add them up on a spreadsheet to see where you stand. If you hire an agent to sell your home, your spreadsheet for that $265,000 home could look something like this:
Total equity (ex. $130,000) minus the following:
Home repairs/improvements: $5,000
ForSaleByOwner package fee: 0
Traditional Agent Commission: $15,900
Title Insurance: $1,200
Attorneys Fee: $500
Other fees (inspection, etc.): $500
Net equity: $105,100
Or, if you buy even the most basic listing package from ForSaleByOwner.com:
Total equity (ex. $130,000) minus the following
Home repairs/improvements: $5,000
ForSaleByOwner package fee: $80.95
Buyer’s Agent Commission: $6,625
Title Insurance: $1,200
Attorneys Fee: $500
Other fees (inspection, etc.): $500
Net equity: $114,294
Whatever your particular circumstances, reaching that net equity number is a critical part of making your home selling decision. That number must be put into context alongside your general financial situation and your goals/hopes for what the proceeds of your sale will be to make an informed decision on whether you are in good position to move forward with your sale and how you will sell your home.
Step 2: Assess Your Home-Selling Strategy
Your home-selling strategy and the proceeds you can expect to receive from your sale will revolve around your decision to hire an agent or sell by owner.
Hire an agent and you’ll get excellent exposure while likely paying the traditional 6 percent commission. It’s as simple as that. Sell your home completely on your own and you’ll retain the commission you’d normally pay an agent but you might struggle to gain widespread exposure. Selling your home by owner using ForSaleByOwner.com, however, brings you the best of both worlds. Agent commission will be zeroed out and you’ll get instant exposure for your listing across major real estate websites like Zillow, Yahoo! and Redfin. We can even help you get your home on your local MLS so you reach the maximum number of buyers possible.
Whether you list your home with a real estate agent and pay 5 to 6 percent of the sale price in commission or decide to sell your house on your own, it is going to involve considerable effort on your part. Either way you will be responsible for gathering most of the relevant documents, getting your house ready to sell, and ordering and paying for any pre-inspections or appraisals. Either way, in some states, you will also have to hire (and pay) an attorney or an escrow agent to complete the sale. In some instances an agent might ask you to participate in any special advertising for the property.
Going the “for sale by owner” route, also known as FSBO, will require you to invest your time showing the property and negotiating with buyers, but you will save thousands of dollars that you’d otherwise pay in agent commission fees. You will also determine how much you spend on marketing as well as where and how you publicize your property. Additionally, shaving or eliminating commission dollars gives you more flexibility to make your home stand out from the crowd with a competitive price.
ForSaleByOwner.com puts you in charge of your listing and also offers a variety of tools that enable your home to compete with properties represented by agents. And you’ll keep more of the money you’ve invested in your home. We call that a win-win.
Step 3: Price It Right from the Start
Getting the price right might seem like a major hurdle to anyone who decides to sell their home without a real estate agent, but determining your optimal price simply requires you to do the same legwork an agent would. Researching homes that are “comparables” in your local market is the key.
What Makes a Property Comparable?
Both appraisers and real estate agents will base their price opinions on comparable sales, ideally those that occurred within the last three to six months and in your neighborhood or the closest comparable subdivision. When looking for comparable sales to use as a yardstick for pricing your home, consider the condition of the property, age of the home, location and the number of bedrooms and baths.
The sale date is important since it will reflect the most recent changes in the market in your area and a good comparable, according to HouseLogic.com (a consumer information site sponsored by the National Association of Realtors), will be in your neighborhood, subdivision or on the same type of street in the same school district.
Other variables to take into account when researching potential comparables is the type of house, since the preferred style in any area typically garners the highest price. Number of bedrooms and baths are also critical and play a bigger role in valuation than square footage. For example, a two bedroom home in a neighborhood of predominately three bedrooms or more, no matter how ample the square footage, will always receive some type of a price discount based on the number of bedrooms.
The same is true for a home with one bath, since a majority of buyers look for more than a single bath. If most homes in the neighborhood have air conditioning and, especially if the climate warrants it, no air conditioning will affect price.
Once you identify several recent sales as potential comparables take the time to drive by and see how they shape up at least from the outside. That will help give you empirical evidence of how the exterior of similar homes, including lot size and landscaping, shapes up compared to your home.
Get Down to Pricing
You’ve already taken an important first step by understanding of what your home is worth. There are additional reliable sources of home pricing trends that you can use to construct you own market analysis. For instance, the Federal Housing Finance Agency has two tools that draw from home sale data pulled from federally insured loan programs. The FHFA’s House Price Index tracks home prices in all 50 states, the District of Columbia and most Metropolitan Statistical Areas (MSA). If your metropolitan area is included, FHFA’s index is a great gauge of your local market.
FHFA’s House Price Calculator allows you to plug in the price you paid when you purchased your home and it will estimate the likely market value of that house today. Other good sources of information include local property taxes sites which contain the most recent sale prices of homes like yours in your neighborhood.
Now, find current homes for sale on ForSaleByOwner.com and other online websites like Zillow, Trulia and Realtor.com to get an overview of listing prices for comparable local homes. Go to local open houses and pay close attention to any properties that are similar to yours. They will be your competition.
Next, find properties that have sold recently and then determine how your house fits into the mix. Scour local records for comparable homes that have been sold recently. Local county records are a great source of that information and in many counties now can be researched online. Many local papers also print lists of recently sold properties on a weekly or monthly basis. Add homes that make sense to your database and you will be able to further zone in on your asking price.
Once you’ve compiled a sound database of information about home values in your local market you can move toward deciding on a listing price that makes sense for you and will appeal to buyers.
Not Too High and Not Too Low
The temptation to overprice is strong. Almost everyone believes their home is the exception and will fetch more than other similar houses that have sold. But that is rarely, if ever, the case. Buyers today are savvy. Chances are anyone who looks at your house — with or without an agent — has spent time both online and offline scoping out properties and most likely it will be obvious to them that the property is overpriced.
Too high a price will turn off potential buyers. Many won’t even consider seeing a house that’s out of their price range. An over-inflated price also means your house will not compare favorably with other similarly priced homes since they will have additional features such as more bedrooms or be in more desirable neighborhoods than your home.
Even worse, those who are most likely to buy your house won’t even see it when they search online, since they will be searching using lower price points. Set your price too low, of course, and you won’t realize your financial goals for your sale.
A few other things to keep in mind:
1) Whoever buys your house will most likely need a mortgage, which means their lender will require an appraisal. If your home doesn’t appraise at or above the agreed upon sale price, the potential buyers would have to come up with the additional funds to close the gap between the appraised price and the actual sale price. Even then, there is no guarantee the lender will underwrite the loan. So, even if you find a buyer willing to pay your price, unless they are paying cash they most likely will not be able to complete the sale. Not only will you lose valuable marketing days but a sale that doesn’t go through will also put your future plans — and your next home purchase — on hold.
2) It might be worthwhile to consider paying about $300 for a certified appraisal at this point in time. Without question, an appraiser will provide the most authoritative price opinion. Additionally, if your house is unusual, in a neighborhood with diverse housing stock or in a location that is difficult to value, it might be worthwhile to have an appraisal done.
3) Another pricing option you might want to consider is calling a real estate agent (or two) for a Comparative Market Analysis (CMA). Asking for a CMA in no way obligates you to list with an agent and the agent’s point of view could be valuable.
Determining your asking price is a tricky balancing act between maximizing your appeal to buyers and attracting offers that reflect the actual value of your home and work for you financially.Once you’ve figured that out, you’re ready to move on to preparing for your sale.