Homeselling 101
A Ten Minute Primer to Selling Your Home
Once you've made the decision to sell your home, the question then becomes: Where do you start? And for most people, even those who have bought and sold several homes, knowledge is the best way to eliminate potential problems, reduce stress and ensure the success of their efforts. In this document, we aim to organize the chaos of selling your home and explain in plain English the generic process by which most homes are sold, while at the same time outlining not only the role of your Realtor®, but also yourself in the process.
CHOOSING A REALTOR
The first and most important step in selling your home is to find a qualified Realtor®. These days you can’t throw a rock without hitting one. With all the books, late night commercials, and exposure that real estate investment has received lately – we’re seeing record numbers of new agents entering the business. The problem of course is that just like every business – you get good agents and bad ones. It’s important that you find a Realtor® who is looking out for your bottom line and not their own. Discount brokerages make the problem even more difficult. We’re sure you’ve seen them – the companies that offer to sell your home for a flat rate, thus ‘saving you money’. The problem with their business model is that the flat rate is charged up front, and usually an extra charge is required for entry into the MLS system. After you pay them their fee – what incentive do they have to sell your home much less fight for the highest possible sale price? The longer their sign sits in your yard, the more exposure they’re receiving.
Choosing a Realtor® with a proven track record, a comprehensive marketing plan, and the ability to verbalize their value proposition (why you should choose them) should ensure you a smooth transaction in most markets. As a seller, you are expected to pick up the costs for Realtor® fees so why wouldn’t you utilize an agent who is going to take care of all the details for you? The National Association of Realtors tells us that it’s not the commissions that most home sellers have a problem with so much as it is the perceived value of the services rendered. A good Realtor® will serve home sellers by making them the most money, in the quickest amount of time and with the least hassle possible.
THE LISTING APPOINTMENT
Once you’ve selected your Realtor®, it’s time to prepare for your listing appointment. Your Realtor® will bring nearly everything needed to take your listing to the listing appointment, but there are several things you should prepare:
- A copy of your survey, if available
- A copy of your floorplan, if available
- Average utility bills for the previous year
- Copies of receipts for any major upgrades or repairs
- A recent mortgage payment invoice
- Insurance documentation
Your Realtor® will walk you through signing the listing agreement, which will detail the terms of your agreement with that agent. A typical listing agreement lasts for 6 months, but can be more in a poor market or if it’s in a rural location. There may also be addendums to the listing agreement for MUD districts, Homeowners Associations, Mortgage Payoffs, and Sellers Disclosures.
Once all of the paperwork has been completed, your agent will take photos of your home so it’s a good idea to prepare it for show prior to your listing appointment. Seasoned Realtors prefer to take outside pictures on days when it’s clear and sunny so as to present your home in the best possible light. It is for this reason that a return trip for pictures may be necessary. Your Realtor® should also place a for sale sign in your yard with at least two ways to contact them. Once the paperwork is complete, the pictures are taken, and the sign is in the yard – your Realtor® will head back to their office and begin all the back end work necessary to market your home.
STAGING YOUR HOME
Have you ever visited a model home in a new community and noticed how well prepared those homes appear? Everything in those homes is specifically placed to entice you to want to own that home. The sights, the sounds, the smells, the layout – the package – is specifically structured to entice you to buy. It works the same way for resale homes. Your Realtor® should make suggestions to help you stage your home for sale. This could include some simply tidying, or a complete makeover. Some common tips:
- Deep clean everything for a fresh clean smell in the home
- Declutter every room in the house to make it seem larger
- Remove personal effects so buyers can visualize their own belongings in the home
- Have soft music playing during showings to create a sense of calm
- Having baked goods smells in the home to create a sense of home
These may sound like simple things, but they really do make a difference. We once had a home on the market where the owner refused to do anything to the home to help it show better. After 5 months with no offers they finally relented. They made the five changes listed above and we had a contract on it 4 days later. If buyers can’t visualize themselves living in your home, they’ll never make an offer on it.
PRE-OPENING PREPARATION
Many agents will take your listing, put a sign in the yard, put your listing on MLS, and wait for the calls to start rolling in. Sadly, they still think that’s enough to sell your home for top dollar. There is a science to selling real estate in today’s market and part of that science is being prepared to act quickly. Quality Realtors® are pro-active when taking new listings and take a number of steps in advance to keep problems to a minimum. When we take a listing – we pre-open title at the Title Company of your choosing. This allows us to do several things:
- We get a copy of the title commitment before a contract is ever even in place. This allows us to know if there are any problems that will need to be addressed ahead of time.
- We can obtain an accurate loan payoff from your lender which in turn helps us determine your costs.
- Those costs can then be calculated against all incoming offers to determine your net proceeds quickly and efficiently. Net proceeds are the number one metric that most home sellers are interested in. If several offers come in, comparing the net proceeds from each makes choosing an offer much easier.
Pre-opening title is done by delivering a copy of the listing agreement to a Title Company who in turn assigns the file to an examiner. The examiner will then gather all available information about the history of the property – both the land itself and the improvements upon that land (a house). The examiner researches the property to determine whether or not the title to the property is insurable.
Once the examiner completes their work, a commitment for title insurance is issued which states in essence that they will insure that the property is clear of title defects or liens provided that a certain set of conditions are met. Usually these conditions include any outstanding mortgages, and personal liens, unknown heirs, etc. Typically your Realtor® will receive the title commitment and then it becomes your Realtors® responsibility to help you meet any required conditions to close prior to any closing date.
IT’S ALL ABOUT THE MARKETING
Any Realtor® worth their salt will have an aggressive marketing plan already established before they ever speak with you. As mentioned previously, a sign and an MLS entry simply aren’t enough anymore. Realtors® have more tools than ever to help them market your home, but if they don’t know what is effective they could simply be throwing good money after bad and never getting your home the exposure it needs to sell. Classified ads, magazine ads, internet ads, open houses, IVR systems, postcard campaigns, flyers, etc. It all works some of the time, and nothing works all of the time – it’s a matter of your Realtor® knowing what to implement when, and to track the effectiveness of those marketing tactics. After all - if weekly classified ads haven’t worked after several months – why would you keep doing it? What’s more – your Realtor® should be able to identify why your home may not be getting more showings and/or offers.
MANAGING SHOWINGS
Your home is now on the market and in every system across the nation. (At least it should be!). You’re getting showings left and right but you don’t know why offers aren’t pouring in. Your Realtor® should be regularly following up on all showings for your property to determine if there is an interest, and if not – why not? Most Realtors® use some sort of showing service to manage showings. These systems can be configured in such a way to allow you access to the comments and reports as well as change the showing instructions should you choose.
Unfortunately, not all Realtors® are very good about offering feedback on showings. It is for this reason that you want an aggressive Realtor® to follow up and make sure you get feedback. After all, how can you know what is preventing buyers from making offers if you don’t ask?
RECEIVING OFFERS AND NEGOTIATIONS
So now you’ve received an offer on your home and must decide whether or not to accept it. If your Realtor® has done their pre-opening prepwork they should be able to take your loan payoff, along with the other closing costs you’ll incur and determine what the your net proceeds will be. If those proceeds are not what you expected then your Realtors® negotiation skills will get a test. There are many conditions on a contract that can be changed that will affect your bottom line – not the least of which is the offered sales price. Your Realtor® should review all offers with you regardless of how out of line they may seem.
People change, and their needs change. What one seller would not accept one month, might suddenly be acceptable this month. It’s important to keep your eye on the bottom line – if the contract you’re looking at now is $500 too low, would you want to walk away from it knowing you’ve got a $1400 mortgage note coming up in a couple of weeks. You pay your Realtor® a good deal of money for their advice – consider what they are telling you and make the best choice for you and your family.
Should the deal not work for you as is, your Realtor® will suggest changes and start the negotiation process with the buyer’s agent. Typically these are done in writing and finalized on the contract once an agreement has been reached.
EXECUTE AND DELIVER CONTRACT TO TITLE COMPANY
Once the terms of the contact have been agreed upon by all parties and signed off on, the listing agent will usually execute the contract (meaning he’ll sign and date it – making that the official date of the contract) and deliver it, along with your buyer’s earnest money check, to the agreed upon title company. If title has not already been opened on the property, the title company will then open title and begin the process as described earlier.
OPTION PERIODS AND INSPECTIONS
On most contracts, buyers will pay for an option period which gives them the unrestricted right to cancel the contract for any reason for a particular amount of time. Essentially it works like this – your buyers pay a per diem, typically $10 per day, for the unrestricted right to cancel the contract. The most common option period we see is $100 for 10 days. This money is paid directly to the seller upon execution of the contract and may or may not be credited to the buyer at closing depending on the terms of the contract. In the event your buyer does cancel the contract, the option period money is yours to keep but their earnest money check is refunded.
Option periods are typically the time that your buyers will have the home independently inspected. Should the inspection turn up any problems that the buyer wants addressed, and amendment is drawn up requesting those repairs. It is important to keep in mind that professional inspectors will turn up many things that aren’t necessarily a safety risk, but must be disclosed as a matter of law. You should also keep in mind that home sellers are NOT REQUIRED to perform ANY repairs. It’s all negotiable!
However – it is for this very reason that buyers buy option periods. If buyers are insistent about repairs being made, and sellers are obstinate about NOT making those repairs – sometimes buyers will take their option and cancel the contract; then you’re back on the market without a sale. Not what anyone wants. It is your Realtors® job to help you pick and choose the repairs that you think are reasonable and those that are simply the result of an overzealous buyer. Typically – most home sellers agree to make repairs to items that pose a safety or security risk while leaving the cosmetic problems for the buyer to contend with. But remember – it’s all negotiable.
APPRAISALS AND SURVEYS
Appraisals are almost always required when your buyer is financing the home. They are normally ordered by your buyer’s lender and paid for by the buyer. An appraisal is an independent analysis of the value of your home and is used to ensure that the home is worth what the lender is loaning for its purchase. Lenders won’t loan $100,000 to purchase a home that’s only worth $80,000. Typically – the seller’s sole responsibility where it pertains to appraisals is to make the home available to the appraiser. Usually, your Realtor® will assume the responsibility of scheduling the appraisal and ensure that they can access the property.
Surveys are usually required by Title Companies to close transactions. They are the line drawings or meets and bounds descriptions of the properties that describe the boundaries of both the land itself and the improvements upon that land. Most homeowners have them – although they don’t realize it – and in most cases, existing surveys can be used to close a sale. In the event permanent changes have been made to a structure on the property since the last survey was performed, usually a new survey will be required.
If an existing survey cannot be found, a new survey will be required to close the sale. Who pays for that survey is determined by the terms on your contract. Nine times out of ten, the survey will be ordered by the Title Company at the instruction of the paying party. The cost for surveys varies widely, but you can expect to pay at least $350. Again, some title companies will front the cost of the survey, while others will require a check be delivered beforehand. Surveys are usually performed after the expiration of the option period.
CLOSING COORDINATION
Your contract dictates a date that your closing must occur by. It states that closing must occur on or before a given date. Usually this means that closing happens on that date – but in actuality means you can close on any date up to that closing date. Your Realtor® will coordinate with all parties – you, the lender, the buyers agent, and the escrow officer to make sure all requirements have been met and to set a date and time for your closing. Ninety-nine times out of a hundred if there is a delay with closing, it involves hang-ups with the lender documentation. Your Realtor® should be in direct contact with your buyer’s agent to ensure that all paperwork is delivered accurately and on-time to the title company. Everybody wants to close, and everybody has to schedule time to attend closing, so nobody likes when a closing gets delayed. Your Realtor® makes sure you’re ready to close before you walk out the door.
REVIEW SETTLEMENT STATEMENT
Once all documentation has reached the title company, a preliminary settlement statement (HUD1) is drawn up and delivered to your Realtor®, the lender, and the buyer’s agent. Your Realtor® should review the settlement statement with you as soon as possible to address any corrections that might need to be made. Once all corrections have been submitted to the title company, another settlement statement is issued and must be approved by the lender. Once final approval from the lender has been obtained, closing can proceed at the scheduled time. In rare cases, some sellers are upside down in their mortgages and are selling to get out from under the mortgage payments. In these types of situations, sometimes sellers must bring money to the closing to pay their costs. In these cases, your Realtor® should be tell you how much your cashiers check should be made out for. In all cases, cashiers checks should be made payable to the title company.
Under normal circumstances, sellers receive funds from the sale of their home at closing. You’ll need to decide whether you want your proceeds dispersed as a check or a wire transfer. If you opt for a check, keep in mind that most banks have holding periods for large deposits. If you opt to have your proceeds wired to your account, simply bring a voided check with you to closing. Keep in mind that most banks charge a wire transfer fee. Check with your banking institution for more information on fees.
CLOSING
Closing occurs at the offices of the agreed upon Title Company. Typically, you and your Realtor® will sit on one side of the table, while your buyers and their agent will sit on the other. The closer will sit in the middle at one end, and the lender might sit at the other end. Everyone is there to make sure your closing happens smoothly. Be sure to bring your drivers license, as well as all accessories that come with the home such as keys, mailbox keys, garage door openers, remote controls, etc. that may no longer be in the home. Your buyers will expect to receive them at closing.
The closing agent will first review the settlement statement with you and ask if you have any questions about any of the fees on the statement. Since you’ve already reviewed the statement with your Realtor®, you should already have a good understanding of the document. Both you and the buyers will be asked to sign a final copy of the settlement statement.
Next you’ll proceed through all the documentation (and there will be a lot of it) for the sale of your home. The closing agent will briefly describe what each document is and have you either initial or sign each page. There is ALWAYS much more documentation for the buyer to sign than for the seller. Once all documentation has been signed and notarized, the closing agent will deliver the documentation to the lender and the lender will subsequently issue a funding number. This funding number allows the title company to disperse checks for all parties receiving them – including the sellers and Realtors®. Once funding occurs, your home is officially sold! Congratulations!
A SIDENOTE FROM AT HOME IN KATY
Selling a home is not something to be taken lightly; there are many documents with time sensitive deadlines that must be adhered to for legally binding reasons. A Realtor® can help you understand each of these documents. This report is of course simply a summary of the process – but we hope that it gives you just a little insight into the process of selling a home. It is our sincerest hope that we’ve helped you in some small way. We wish you the best of luck selling your home – and if there is anything we can do to help you, we hope you’ll give us a chance to earn your business.
