Preparing to Sell Your Home

For most people, buying a new home is only half of the home buying transaction because they must also worry about selling a home. For these folks — about 85 percent of all home buyers — the other half of the homebuying equation is selling their existing home in a timely manner.

Selling your existing home at the right time can be the difference between acquiring or not acquiring the new home you desire, because few families can afford to carry two mortgages for any length of time. And if you don’t sell your existing home when you buy your new home, you’ll be paying for both.

Conversely, if you sell your existing home before you move into your new home, you won’t have anywhere to stay until you close on the sale of your new home, which means you’ll have to find a temporary home (and move twice). To reduce these problems, most people choose to look at homes for sale while their existing home is on the market.

What to do before you sell

Know what you can and cannot change about your existing home before you list it for sale. There are plenty of things you can do to reduce the uncertainty of buying a home and selling a home at the same time. As we have stated in previous installments of this series of articles, proper preparation is critical.

You want to stage your existing home to make it desirable to prospective buyers. Staging your home involves disassociating with it on an emotional level, whether you have lived there for one year or 30 years. Think of your existing home as a used car. If you were in the market for a used car, what kind of used car would appeal to you? The cleanest, lowest-mileage, best-maintained used car at the fairest price would be at the top of our list. Make your existing home just as appealing.

Let’s explore and explain some ways to become prepared:

Get preapproved for a home loan

If you already own your own home, preapproval is the first step. Prequalifying for a mortgage is very important, because you need to begin thinking about where you’ll live (and how you’ll pay for your new home) once you sell your existing home. Knowing what kind of loan you can get (and how much you can get from a lender) will help you determine what you can afford in a new home.

Know how much you owe on your existing home

Check with your current lender about a payoff amount, which is what you must pay to satisfy your existing mortgage in full. The payoff amount changes daily.

Determine the value of your existing home

What is the current fair market value of your existing home and how does it compare to what you thought you should be able to get for your existing home before you knew the fair market value? Real estate agents will usually be able to help you determine fair market value, based on the recent sales prices of other existing homes in your neighborhood. There are Internet sites, such as HomeGain and Zillow, that provide home values. You can also hire an appraiser, who will determine fair market value, but most often, prospective buyers are the people who hire appraisers to make sure they are not overpaying.

Estimate your costs of selling your existing home

Real estate agents are required by law to provide an itemized list (disclosure) of the costs and fees related to selling your home, including:

• Sales commission: The sales commission is how the agent makes his or her money and, traditionally, it is about 6 percent of the sales price, but the actual commission you will pay can vary depending on how much your home is worth and (sometimes) how much work the agent has to do to sell your home. Don’t be afraid to negotiate this amount in your initial contact with an agent or seek an agent who will work at a reduced commission.
• Advertising costs: If you have a sales agent, he or she should bear the advertising costs, but if you are selling on your own (also known as For Sale By Owner or FSBO), you will have to pay for signs, newspaper or magazine ads and other fees associated with the marketing of your existing home.
• Professional fees: Everybody involved in the sale of your home is going to want their cut. In addition to the real estate agent, these professionals include attorneys and closing agents.
• Taxes and similar charges: Depending on where you live, there may be excise taxes on the sale of your existing home. Keep a record of all home improvements you make in preparation for sale, as some of these expenses may be tax-deductible.
• Annual or monthly expenses: Some home-related expenses that are traditionally paid once a year or once a month, such as property taxes, homeowners insurance, homeowners association fees, condominium association fees, etc., may be partly your responsibility and you will have to pay a prorated amount at closing.
• Other fees typically paid by the seller: Examples include a land survey, home inspection or other expenses related to selling your existing home.

Estimate your costs of buying your new home

In addition to the actual sales price of your new home, there are assorted other fees that will be added to the transaction. Lenders are required by law to itemize these fees and provide an estimate of them in a disclosure statement. These fees can include:

• Downpayment or “earnest money”: Whatever you call it, a relatively small amount of money (usually 1 to 2 percent of the sales price or a few thousand dollars) is paid by the prospective buyer after an offer is agreed on to initiate the real estate transaction and demonstrate the buyer’s earnest desire to buy the home, (usually) taking the home off the market. This money is deposited in a trust and technically is the joint property of both the buyer and the seller (in most states). It is then applied to the sales price at closing. Check with the real estate agents involved to understand how the deposit money would be disbursed if the sale is not completed (the seller doesn’t automatically keep the money if the buyer cancels and the buyer doesn’t necessarily get all of the money back if the deal falls through due to the seller).
• Cost of the loan: In addition to the actual loan amount, lenders often charge additional fees, usually rolled into the loan amount, that add to the principal amount of your loan. Lenders are required by law to provide you with a disclosure statement estimating all fees associated with your real estate purchase prior to closing.
• Home inspection: It is wise to hire a professional home inspector to check out the home, especially if it is not a new home, right away after you make a down payment. Major defects can alter the sales price or prompt you to cancel your purchase. You should contact a home inspector before you start looking for homes, so that he can be ready for the day you make a down payment.
• Insurance: Title insurance, homeowners insurance and hazard insurance are among the insurances that a lender will require. A title search and the drawing of a title insurance policy involve a public records search and complicated property laws, which vary between states and within states, but basically it assures that your real estate is free of any encumbrances or liens so that you will own the property “free and clear” after the purchase is complete and be able to sell it at a later date without legal problems. Hazard insurance is often required if your new home is threatened by its geography, such as existing in a flood plain or hurricane- or earthquake-prone area. Homeowners insurance protects you against other loss, such as from a fire. All of these insurances are payable in advance at closing in addition to the mortgage principal and taxes.
• Moving expenses: Depending how far you are moving and how much stuff you have, this expense can vary widely. Get estimates before you move so you know how much it will cost. Arrange for the movers to come on closing day to assure a smooth and happy transition.

Calculate your estimated proceeds or shortfall of the combined transactions

Will selling your home and buying a new home be a net gain or a net loss for you? Do you have or can you get the difference if this amount is a shortfall? In order to estimate the proceeds: Subtract the payoff amount of your existing home loan from your home’s fair market value (the actual sales price may differ), then deduct the costs of buying your new home. If you have significant equity, this amount will be a positive amount and you will get a check at closing. If you have little equity or are buying a home that is markedly more expensive than the one you now own, this amount will likely be negative and you will need the difference in cash or as a loan at closing.

Perform necessary repairs and maintenance

You want prospective buyers to want your existing home. Don’t give them ammunition to lower their offer. Make any necessary repairs to eliminate concerns about the unknown. Anything that is broken must be repaired. Anything that looks shabby should be refreshed including painting. Choose light, neutral colors for walls and a contrasting white or cream for trim. Pay special attention to mold, mildew, obvious dampness and other water-related damage, as evidence of leaks can indicate hidden damage. The roof, the plumbing and the electrical system are also important (and potentially expensive-to-fix) areas that should raise no objections.

Prepare your existing home for showing

Other considerations

• Design a marketing plan: Consult with your real estate agent to determine what kind of advertising or how many open house showings you should have. Learn the tricks of the trade to maximize your sales potential and sales price.
• Home warranty?: Decide whether you want to offer a home warranty. Depending on the age and condition of your home and its fixtures and appliances, offering a home warranty can ease the minds of prospective buyers because if something does break or go wrong after the sale is complete, they won’t have to pay for it.
• Familiarize yourself with financing options: Know what options are available to prospective buyers. Be as knowledgeable as they are about their financing options, which sometimes can be a major obstacle to completing a sale.
• Negotiation: Learn how to negotiate an offer, make a counter-offer and settle on a sales price. Be realistic and flexible. Familiarize yourself with sales contracts. Be as knowledgeable as the prospective buyers about this.
• Plan ahead: Reserve your movers in advance. Be prepared with cash or a cashier’s check when you go to the closing. Know what to expect at the closing.

If you get this far, smile! Congratulations! You have sold your existing home.

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