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 the home sale process. The truth is, it’s only one step of a journey that typically starts weeks or even months earlier. Setting a price, listing a home for sale and showing the home to potential buyers are all vital steps, but perhaps the most important step is the first one: clarifying your goals and making sure it’s the right time to sell.
Before you move forward with selling your home, start by answering these questions:
• Why do I want to sell?
• What will a new home offer that my existing home does not?
• Do I need to sell within a certain amount of time?
• How much preparation or repair work is needed to sell my home?
• Do I have enough equity in my home to make a down payment on a new house and/or achieve other financial goals?
• Is making a profit on the sale of my home a must? If so, how much of a profit?
The answers to these questions can help you figure out whether you should sell now or wait for a better opportunity. When you get to the financial questions, take these three steps to make a fully informed decision.
Step I: Gauge Your Current Finances
If you’ve paid off all your debt (aside from your mortgage) and have an emergency fund to cover at least six months of your expenses, that’s a good start. However, when you sell your home, you’ll need to cover several upfront costs in the process.
Your first order of business? Do some math to see approximately how much money you’ll have to work with before purchasing your next home. To do that, calculate the equity in your current home. Here’s how:
Current value of your home – What you owe your mortgage lender = Your equity
If you aren’t sure about the value of your home, you’ll need to come up with a solid estimate. There are several ways you can approach this. One is to simply hire a professional appraiser, who will examine all the data on recent nearby sales and factor in your home’s size, features, age, condition, location and other traits to provide an unbiased estimate. Another way is to ask a real estate agent for a comparative market analysis (CMA), which is a detailed report on recently sold homes in your neighborhood. The information in a CMA will help guide you to a competitive asking price. If you’re willing to put in a little time and do the research yourself, you can conduct your own comparative market analysis.
Once you have an estimate, check out your current mortgage bill or other mortgage documents for the amount you owe your lender, including any second mortgage or line of credit you might have as well.
Now you can subtract what you owe from what your house is worth to get a rough idea of your equity. For example: if your home is worth approximately $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 out your net equity, which is your total equity minus the expenses you expect to pay as you move through the selling process, including:
• Home repairs or improvements
• Listing fees if you sell by owner or seller’s agent commissions if hire an agent
• 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.
Once you have these numbers, 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
Even with the most basic listing package from ForSaleByOwner.com, you can save on commission fees and increase your net equity considerably:
Total equity (ex. $130,000) minus the following
Home repairs/improvements: $5,000
ForSaleByOwner package fee: $99.00
Buyer’s Agent Commission: $6,625
Title Insurance: $1,200
Attorneys Fee: $500
Other fees (inspection, etc.): $500
Net equity: $114,276
Whatever your circumstances are, establishing that net equity number is a critical part of making your home selling decision. This will help determine if you’re in good position to move forward and what the best method for selling your home will be.
Step 2: Consider Your Home Selling Options
Should You Sell with an Agent or on Your Own?
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 your home on your own.
Hire an agent and your home will likely be seen by a high number of potential home buyers instantly – but you’ll probably need to pay commission fees when your home sells. Sell your home completely on your own and you won’t have to pay commission fees.
Whichever option you decide, chances are the process will involve considerable effort on your part. Either way you’ll be responsible for gathering most of the relevant documents, getting your home ready to sell and ordering and paying for any pre-inspections or appraisals. In some states, you’ll also have to hire (and pay) an attorney or an escrow agent to complete the sale.
If maximizing your profit is key to your decision to sell, becoming a For Sale By Owner may be the way to go. If selling your home fast with minimal effort is more important, hiring an agent is probably a better option.
Should You Sell Your Current Home or Buy a New One First?
A big part of the decision to sell your current home is figuring out when you should buy your next home. There’s no right or wrong answer for whether you should buy or sell first. For some, it boils down to preference. Some people do everything they can to avoid the stress of carrying two mortgages for a time, which is what you’ll probably need to do if you decide to buy before you sell. Others are more resistant to the notion of being “homeless,” which is unavoidable if you sell before you buy.
If you’re open to either scenario, looking at your current housing market can help you decide. In a buyer’s market, you have a better chance of making an offer on a home contingent on the sale of your current home. That means you can secure a purchase and have the home waiting for you while you go through the selling process. If you’re in a seller’s market, homeowners can be a lot more selective about the offers they receive. That means they’ll be far less likely to accept a contingency that forces them to wait around.
When Is the Best Month to Sell a House?
According to a recent study by ATTOM Data Solutions, most people wait until the summer to sell, with June, July and August accounting for the most home sales since 2011. But getting out in front of the crowd tends to yield the best results. The most profitable month was shown to be May, with homes selling at 5.9% above estimated market value.
Of course, that doesn’t mean you should rearrange your schedule and wait a year if you start to think about selling in June. There are pros and cons of selling in every season, and every market is different. If you have your choice of any season, however, you may want to plan for a springtime sale.
Step 3: Price It Right from the Start
You may have a solid estimate of your home’s value, but setting your asking price will take some research and consideration. One of the advantages of working with an agent is that you’ll have a market expert to help you arrive at a precise, competitive asking price. Without an agent, getting the price right might seem like a major hurdle. It’s true that you’ll need to do a little extra legwork, but determining an optimal price is actually a fairly simple process.
Researching homes that are “comparables” in your local market is the key. Find out what your home is worth using our Pricing Scout tool which can help provide a solid estimate in minutes.
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 in your neighborhood. When looking for comparable sales to use as a yardstick for pricing your home, consider each home’s condition, age, square footage, location and the number of bedrooms and baths. The sale date is also important since it will reflect the most recent changes in your market.
Typically, the most important home feature to concentrate on is the number of bedrooms and baths, which usually play a bigger role in valuation than square footage. For example, a two-bedroom home in a neighborhood of predominately three-bedroom homes – no matter how ample the square footage – will almost always sell at a discount. The same is true for a home with one bath, since a majority of buyers look for more than a single bath. Along the same lines, if most homes in the neighborhood have a certain feature – like air conditioning – the absence of that feature will drop the price.
Once you identify several recent sales as potential comparables, take the time to drive by them and see how they shape up from the outside. You want to make sure a home’s lot size and landscaping are similar to make sure it’s a true comparable.
Get Down to Pricing
You’ve already taken an important first step toward understanding what your home is worth. Next, seek out additional reliable sources of home pricing trends that you can use to construct your 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, so you can get an estimate on 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.
You can also scope out information on properties via public records online or scour lists of recently sold properties on a weekly or monthly basis in local newspapers. Add homes that make sense to your database and you will be able to further zone in on your asking price.
Lastly, it’s a good idea to visit comparable homes for sale during open houses. Checking out your competition will help you determine the right asking price, and it might give you an idea of how you can improve your home so you can get an edge.
Resist the Urge to Overprice
The temptation to overprice is strong. Almost everyone believes their home is the exception and will fetch more than similar houses. 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. Most buyers and real estate agents will know right away if a property is overpriced.
An over-inflated price means your house will be competing against homes that have more bedrooms and baths, or square footage, or a better location. The buyers who are in the market to purchase your home will be less likely to see it since most buyers are searching lower price points. This is the main reason homes sit on the market for months, with the price usually coming down to where it should have been from day one.
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 buyer will need 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. This will cost you time and put your plans — and your next home purchase — on hold.
2. If you haven’t already, it might be worthwhile to consider paying 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 or in a neighborhood that is difficult to value, it might be a good idea to have an appraisal done.
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. Once you’re confident you have your home priced perfectly, however, you’ll have a clearer picture of what you stand to gain and when you should sell your house.