This guide will prepare you to sell your home.
When it comes time for selling your home there are so many options. This actually makes selling your home very hard.
This is why we decided to put this guide together. After reading it, you will have all of the necessary knowledge to sell your home. Even if that means doing it yourself without a real estate agent.
What we will cover:
- What is your home worth?
- Determine true value
- Dealing with repairs/updates
- Working with a realtor
- Working with an investor
- Selling your home yourself
WHAT IS YOUR HOME WORTH?
The biggest question you must answer when selling your home is, what's it worth?
As a homeowner determining your homes TRUE value can be tough. This is usually why many people hire a realtor.
We will talk about the PROs and CONs of hiring a realtor later.
For now, let's figure out how to do this correctly.
Perceived Value vs Appraised Value
This is something that usually disappoints many homeowners. Especially, if you have done any considerable work to the home.
This is what your house is ACTUALLY worth. This is the value that an appraiser will give the home. This is then used for the buyer to get a loan. While an appraisal is an opinion and can be disputed, they're usually pretty accurate. This can really hurt if you have over improved your home and it is not reflected in the appraised amount.
How an appraisal works
An appraiser looks at your home and then compares it to "similar" homes that have SOLD in your neighborhood.
Similar homes are:
- Same number of beds and baths
- Close to the same square footage
- Around the same year built
- Similar construction
- Lot size
- Location within the neighborhood
- And many other things.
If they find plenty of similar homes, usually 3-5, then they can determine a value. Now, they will make some adjustments. The issue is that these comps will usually be done through PICTURES. If the homes look updated they will be considered comps. It won’t matter that you have more expensive cabinets or countertops or high-end paint.
If the other homes in that neighborhood are selling for $180,000 then your home is worth $180,000.
This is why we always explain what updates make sense for your home. We help homeowners determine their home’s value and what repairs they need to make. We have seen many houses where the homeowners have over improved their home. Then when it came time to sell they couldn't get their money back. So, when thinking about doing any work before selling your home, make sure to NOT over-improve.
This is usually what you as the homeowner feel your home is worth. This also comes in to play when a buyer is looking at your home.
Keeping in mind what we just talked about above. However, some over improvement might actually help you when selling your home. If all of the homes similar to yours are selling for $180,000 with say a standard style of updates. You can now come in and add a few extra features and sell faster! Of course, keep in mind that the features you add will NOT raise the value. But, it will help in the speed of sell. Also, if it's that nice then maybe someone is willing to pay more.
Now you're probably wondering how can they pay more if the value is appraised at $180,000. Just because the value of the home is $180,000, which is what the bank will lend. Doesn't mean the homeowner can't bring more money to the table at closing.
We understand this might get you excited. But, keep in mind this rarely happens. You need to be an extremely HOT market with almost no houses for sale.
Why is perceived value important?
Even though an appraiser says that similar homes to yours are worth $180,000 doesn't mean a buyer will pay it.
If, when you're selling your home you don't do the necessary updates then it will not sell for $180,000. The reason for this is, no one will pay for it.
So even it though it did appraise at that value, it doesn't mean someone is willing to pay that much.
Summing Up Perceived vs Appraised Value
Just because the house appraises for $180,00 doesn't mean:
- Someone would pay that much for it
- Someone wouldn't pay more for it
Also, just because you did all of these amazing updates doesn't mean it'll appraise.
So, what do you when selling your house?
DETERMINE TRUE VALUE
The best way to determine what the approximate appraised value will be to run comps.
Comps is short for comparables. These are the same houses the appraiser will use to determine your home's value.
The tricky part is that you will need access to the MLS (Multiple Listing Service) in your area. Only real estate agents have access to these.
You can hire a realtor. Or, you can reach out to an investment company like PRYME Homes and ask for a free evaluation.
With either option, you will have to listen to their sales pitch. This is fine because this is their business, not yours. You should always ask for experts opinions so you can determine the proper value.
Getting the right comps
So, now you have access to comps. You should look at houses that are very similar to yours. Look at the ones that sold for the highest amounts.
NOTE: If one house sold for $195,000 and the 3 other ones sold for $180,000. Don't think yours will be worth $195,000. There are many different factors to why just ONE property sold for significantly higher.
No matter who is pulling this info for you, make sure that they're looking for SOLDS, not Active properties.
The reason for this is, Active properties reflect a price that someone wants NOT what they'll get. SOLDs on the other hand, reflect what someone got for it.
So hopefully you have about 3-5 properties that have the same beds and baths as yours. With similar square footage and year built. Are also in the same neighborhood.
Now, you start to see what they all have when they sold.
What to look at:
- New kitchen
- Open concept
- New Baths
- Wood floors or carpet in bedrooms
- Granite counters
- New windows
- Nice Landscaping
Now you simply compare what you have or need to those houses.
Don't get creative or start trying to do what you saw on HGTV. This when people get into trouble. They start adding barn doors and subway tiles to a house that doesn't need it. That material is a lot more expensive than you would think.
DEALING WITH REPAIRS/UPDATES
Now you have your homes worth and what types of repairs/updates you need.
Time to get to work.
Hiring a contractor
A few things to keep in mind:
1- A friend recommended them. Just because they did a good job before doesn't mean they will now. Many people get hire a contractor because they did work on their friend's house. Nothing wrong with this. But don't give them a really big job all at once. Section it off so if you see they're not doing something right you can correct it or fire them.
2- Hiring just on price. We know that you want to make as much money possible. But, if you hire purely because they are the cheapest you might actually spend more. The reason many end up spending more is because the cheaper contractor cut too many corners. Or maybe they use really cheap materials. Or they may have even done it all wrong and now you have to pay someone else to fix it. Fixing bad jobs sometimes cost more than doing right from the beginning.
3- Have a scope ready. The reason you did all of the research above is to know what work your home needs. Asking a contractor what you should do is the wrong way to go. The contractor doesn't know what you need for your home to sell in that area for top dollar. This is why you do the value research. We go over this in one of our podcast episodes.
4- Be clear with what you want. Make sure to explain very thoroughly want it is you expect. Don't just say wall tile in the showers. Tell them "I want these long tiles that I saw at Home Depot". They may recommend similar material for a cheaper price which is good. But you want to make sure you OK all materials before they're installed.
Should you hire a GC?
Many homeowners, for big jobs, hire one General Contractor(GC) to handle the whole job. This is fine. Just keep in mind that with GCs there is always a markup in price.
If you hire a GC, we would recommend you hire one that will be there working in the project. There are many GCs that send their guys there and you don't see him until the end of the project. This is a big red flag because the workers they brought may not have clear instructions which will cause problems. Also, in order for GCs to make more money, they hire cheaper help. This means that those guys need to be watched over to make sure they do things right.
Another option is to hire individual tradesmen. If you need a roof, call a roofer. If you need floors, call a floor guy. You get the point. This helps keep prices low because usually, the guy you're calling is the one doing the job.
Where to find good contractors?
The easiest way to find contractors is at the places they sell the materials they will need. Go to a tile place to find a tile guy and so on.
When you're there you simply ask someone that works there. Don't just ask for one person. Ask them for multiple contacts. This way you can call them all and compare.
Always get more than one bid for a job. The reason for this is obviously price, but also to learn. What we mean by "learn" is, you can see what's different about each one. You may get one contractor that says you need this while another says you need that. When that happens ask each of them, "why this and not that?". This way you can see which one really knows their craft and which is just selling.
WORKING WITH A REALTOR
When selling your home, many decide to go with the help of a realtor. This is a great choice for many reasons.
- This is their job! This is what they do every single day. Like hiring a tile guy to install your tile, you hire a realtor to sell your house.
- They know the market. A good realtor knows their market very well. This is crucial for knowing what your house is missing.
- They watch out for you. A realtor needs to have your best interest first. By being a realtor they must always be completely transparent with you.
But, there are also downsides to hiring a realtor.
- Fees. Hiring a realtor costs money. It usually costs you 3% of the sells price plus any concessions the other realtor negotiated for their buyer.
- Lack of experience. We're seeing so many people becoming agents now. This is making harder for homeowners to find savvy agents.
- Starving for money. Sometimes homeowners think getting a realtor that's hungry for money is good. Not at all! If a realtor needs to convince you to take $20,000 less to sell your home, this only hurts you. A $20K price drop is less than $600 to the agent!
There are exceptions to both sides. Let's cover how to hire the RIGHT realtor.
Hiring the right realtor
Yes, you can hire the wrong realtor. There are over 1.3 million real estate agents in the US. With less than 5% selling more than 15 homes per month. This means the majority may not be even able to cover their bills.
Like we spoke about above in "2. Lack of experience." Sometimes new agents can cause more problems than they solve.
Qualities you want to look for:
- Local. Not to the city but rather to the neighborhood. While a very savvy realtor can sell a house anywhere in the city, you never know who it is that you're hiring. So making sure they sell houses in your neighborhood is very helpful.
- Can tell you NO. Many homeowners think they know what their home is worth. Sorry to burst your bubble but, chances are that you don't. But, a realtor does. If you call a realtor and they tell you your house is worth $200,000 but you want $230,000 they need to be able to say NO. You can list a house for whatever price you want. This doesn't mean it will sell. If they it do list it anyway, all this does is waste their time and yours. If they're willing to waste time then there's an issue.
- Has a marketing plan. Many realtors simply list the house online and sit back to get the calls. You don't want this. You want someone that has a real marketing plan to make sure your house sells fast and for top dollar!
- Large network. Many times it's actually not worth listing a property. This could be because of your financial situation or the home's condition. We will cover this further next.
5 Questions to ask your realtor when selling your home
- What is my home worth in its current condition? The reason for this question is, to see if you need to do anything else. Many times because of lack of inventory you can sell a home in As-Is conditions. This means no repairs or updates.
- How fast do homes sell here? This will help you determine price if you need to sell faster. When selling your home sometimes you need to drop the price to sell quickly.
- What would I need to do to sell for a higher price? Here you want to see their knowledge and honesty. If they're telling you that you can sell for higher than every other house that's sold, its a red flag.
- Can you recommend anyone to do the work? If they're a good realtor they will have a large network they can reach out too.
- How many houses do you have listed? Here you want to see if they can handle yours. Too busy is an issue and zero houses is an issue. A good realtor should always have at least 1-2 houses on the market. But, if they have too many, you want to make sure they have the team. This way yours gets the necessary attention.
WARNING: You want to make sure you watch out for is hiring your "friend" the realtor. Many people make this mistake because they're thinking it might save them money. IF your "friend" is a good realtor then there's no issue with this. But, if they're not, now you have a problem.
Hiring the wrong realtor can actually end up costing you thousands of dollars more!
When selling your home, having the right person representing you means a lot. A friend or family member while might not have the necessary knowledge or skills.
WORKING WITH AN INVESTOR
When selling your home working with an investor may be by far your best option. Realtors can only list your property on the open market. This also costs you money. Many times working with an investor can be FREE!
- Investors are the buyers. This means no agent fees.
- Multiple options. Investors can offer you many different ways of selling, which we'll cover below.
- Sell for cash. This avoids appraisals and inspections.
- Sell fast. An investor can buy in as little as 2 days!
- Sell As-Is. Because the investor is the buyer, they don't mind buying with a house needing a lot of work.
- Flexible closing time. A lot of times with an agent you have a set time to move out. With an investor, you can negotiate that.
- Problem Solvers. Investors are known for being problem solvers. Investors usually buy a lot of troubled houses.
- Who to trust. Like agents, there are too many people that call themselves "investors". Unlike a realtor, an investor doesn't have to have your best interest. This can be a big issue if they really aren't as they will waste your time and money.
- Low ball offers. Many "investors" only care about the money. This causes them to lowball you.
- Lack of knowledge. Real estate is hot right now and everyone wants to be an investor. They may not have the experience or really know what they are doing.
- Multiple options
We have seen many, many times when a homeowners only option is to sell to an investor. This is an issue if you go with a realtor because your house won't sell.
Here are some of the options you have available to you.
- Selling As-Is. They're many times your home wouldn't qualify for traditional financing. This is a problem when working with an agent because it excludes most retail buyers. While investors do buy from agents, you're now paying for the realtor fees on top of the discount the investor needs.
- Take over payments. Sometimes you owe to much for a quick CASH sale. But, you also can't afford your house anymore. So an investor can structure a way where they take over your payments. This protects your credit and can sometimes put money in your pocket.
- Leaseback. Many times you need the proceeds from selling your home to move out. An investor can buy the house from you and give you the time you need to move out.
- Partnership. There are times where you have a lot of equity in your home but it needs A LOT of repairs. You can partner with the investor and essentially flip your house!
- Full-service. Many investors (like yours truly) that can not just buy your house but get you your next one. This makes the transition from selling your home to buying your next one easy!
Finding the right investor
Like realtors, there are right and wrong investors. If you think that when selling your home having someone agree to your price is enough... listen up.
There are many investors that will agree with your price at first just to get you under contract. They then wait you out and lower the price last minute.
There are also wholesalers, who call themselves investors. Wholesalers pretty much negotiate a price with you and they sell it for more to an investor. There's nothing wrong with this if it solves your problem. But this does become an issue when they don't have a network of buyers.
Always reach out to multiple investors to average out the truth.
5 Questions to ask an investor when selling your home.
- Do you offer a report? This helps weed out the experienced investors from the new ones. Also, you can compare reports with not just other investors but realtors too.
- What are my options? If they look confused or can't think of any chances are they're new. Or, maybe they just don't know anything other than one strategy.
- What are your goals for the house? You want to again, test their knowledge. If they fumble with the answer they may not be the actual buyers.
- Will you be wholesaling my house? You want to know if there's a risk that it won't sell.
- How fast can you close? If they need 30-45 days without giving you a real reason, chances are they're wholesaling it. A true investor should be able to close in a week or two.
As you see both working with realtors and investors have their pros and cons. We recommend reaching out to both to get the full story. A good realtor or investor will tell you when they can't help you.
SELLING YOUR HOME YOURSELF
For Sale By Owner (FSBO) is something many homeowners try in order to save money.
There's nothing wrong with trying to save money. But, you must understand that there's a reason we talk a lot about experience.
Besides the fact that most FSBO sell for 23% less than what they would sell with an agent. There are a lot of risks when selling on your own.
- No professional representation. This can cost you a lot.
- Not knowing which contracts to fill out. How to fill them out correctly.
- Choosing the right attorney or title company to close with.
- Negotiating with a buyer.
- Having to deal with title issues.
- Working with an appraiser.
- Understanding what's important from an inspection report.
- Knowing what repairs will generate the most returns.
There are more but we think you get the point. While you're more than welcomed to try, we don't think it EVER makes sense. Unless if you already have the buyer and your house is in perfect conditions. Even then, you should get an agent to assist for a very reduced fee.
We know you may feel overwhelmed with all of the information in this guide. But, use it as a guide!
Feel free to scroll to the parts that you care about and read that part.
Of course, PRYME Homes is always here to help. So, feel free to reach out to us for any questions or concerns. When it comes time for selling your home PRYME Homes is here to help!