Do you need to sell your house? Then it’s time to stand tall, roll up your sleeves, and get down to business. I don’t need to tell you that real estate market isn’t so hot right now, but if you’re committed to selling and are willing to go above and beyond the average seller out there, you can move your house faster and for more money than you ever thought (even in this market).
In this post, experienced Realtor Sarah Davis shows us how to:
- Use a comparative market analysis (CMA) to price your home attractively without leaving money on the table.
- Fully understand real estate commissions so you can make an informed choice about working with a Realtor or selling your home by owner.
- Do a cost-benefit analysis of remodeling your home.
- Stage your home to deliver the best possible impression.
Price Your Home Right With a Competitive Market Analysis
A comparative market analysis (CMA) is the primary method by which real estate agents and brokers estimate the present market value of a property. If you’re thinking about selling, a careful CMA is an absolutely necessity. It does two things:
- Confirms you can afford to sell. A CMA will show you what properties in your area with similar features have sold for. If similar homes haven’t fetched the minimum price you would accept for your home (or would force you to consider a short sale), it might not be worthwhile to attempt a sale.
- Helps you set an appropriate asking price. Too many sellers list their homes with at an unrealistic price. Most potential buyers will view a home within 90 days, and lowering the price can hurt more than you think. The best strategy? Get your pricing right the first time.
In order to complete a CMA, a real estate agent or broker logs into their local MLS (Multiple Listing Service) where all of the area’s active, pending, and recently sold houses are posted. The broker enters specific details about the subject property such as square footage, number of bedrooms and bathrooms, and its address. Next, the real estate professional will search for:
- Between three and five similar properties currently for sale.
- Between three and five similar properties that have sales pending.
- Between three and ten similar properties that have sold in the last three months.
Although all the properties your agent pulls will be useful, he or she will often consider the recently sold properties most carefully. Put simply, your can arrive at a suggested listing price for your home by averaging the prices of the similar homes that have recently sold. That said, you’ll want to keep an eye on two factors:
- Sale date: The more recently a property was sold, the more useful it is in your CMA, as economic conditions are constantly changing.
- Similarity to your home: The closer the comparable properties are to the subject property, the better. This includes size and location, but also age and specific amenities like garages and pools.
Note: Two important things CMAs DO NOT consider are the type of sale (e.g., traditional, short sale, or foreclosure) and the condition inside the home.
CMAs are by no means perfectly accurate, but they can lead you to a listing price that’s realistic for current market conditions, and that’s essential if you want your home to sell! If your real estate agent doesn’t automatically offer you a CMA before listing your home, ASK for one!
Understand Commissions (And How Realtors Earn Them)
The idea of ceding a percentage of your home’s sale price to a real estate agent can be a tough pill to swallow—especially if you’re just trying to get out of your home with your head above water. But ask anybody who has attempted it—selling your home for sale by owner (FSBO) is hard work. Hiring a Realtor gives you:
- Somebody to manage the day-to-day business of your home sale.
- Experience and knowledge regarding the sales process.
- More marketing power than you would have on your own.
You can post your listing on real estate websites, Craigslist, and other classifieds, but a Realtor and get your listing posted on the multiple listing service (MLS) which increases the number of qualified buyers who see your property dramatically. The Realtor’s compensation, of course, is a commission payable upon a successful sale.
There is a lot of confusion about real estate commissions. Contrary to what many people think:
- Real estate commissions are NOT set by law. Although there are standards and norms for each area, real estate commissions are negotiable.
- Realtors typically DO NOT earn a salary. Commissions aren’t bonuses, they’re agents’ and brokers’ “bread and butter”.
Real estate commissions may seem high, but to be fair, this his how real estate professional earn a living. What’s more, these commissions are almost always split multple ways.
HOW REAL ESTATE COMMISSIONS ARE SPLIT
In California, the typical commission on a single-family home might be six percent. The listing agreement between the seller and the seller’s agent stipulates what percentage of the sales price shall be paid to the buyer’s broker and then to the agent, out of the selling broker’s total commissions. Therefore, that six percent is split between the Realtor who listed the property and the Realtor who procured a buyer. Beyond that, every Realtor works under a broker and must split that commission with the broker. (Each Realtor and broker have their own commission split agreement with some Realtors get as much as 80% of their side of the commission split and some getting as little as 50%).
AN EXAMPLE COMMISSION
On the sale of a $250,000 home with a six percent commission split between buyer’s and seller’s agent and split 70/30 between the listing agent and broker:
- You as a seller would pay a $15,000 commission.
- Your agent would get $5,250.
This amount may seem like a lot of money, but consider that if this were your agent’s average commission and she sold, on avearge, a house per month, her annual income would be $63,000 before taxes. That’s not a bad living, to be certain, but she’s not getting filthy rich, either.
If you want to sell a home but concerned about the price that using a Realtor to sell would cost, meet with the Realtor face-to-face. Negotiate the commissions until both you and the Realtor fee comfortable. Then, ask for a seller’s net sheet, a document which subtracts all selling expenses such as escrow fees and real estate commissions from the expected sales price in order to estimate your profit, before taxes. This way you’ll know what to expect so you can decide whether listing with an agent is worth it to you at the specific moment in time.
Remodeling and ROI: Is That Project Worth It?
If you’ve ever watched HGTV, you’ve probably felt the home reno bug bite once or twice. Although remodeling beautifies your home, not every project is a good investment. So if your goal is to sell your home and you think a few home improvements might do the trick, do your homework before spending dollars that you might not get back in your home resale price.
When prioritizing renovations, repairing structural or functional problems take precedence. Think about it: cracked slabs, peeling paint, and leaking roofs or faucets will jump out at prospective buyers as major red flags and–more often than not–may deter them from buying. I know that fixing an aged roof isn’t as sexy as upgrading bathroom tile, but it’s probably a wiser investment.
If your home is in good repair, you can start to think about remodeling. Decide whether you’ll do the work yourself or hire a contractor. If you’re hiring help, get referrals from friends or purchase an inexpensive subscription to Angie’s List for access to contractor reviews.
DECIDING ON YOUR PROJECTS
There are major and minor home renovation projects. Minor projects can often be done in a weekend or two for less than $1,000 and often don’t require any permits. They might include:
- Basic landscaping
- Installing energy-efficiency toilets or appliances
- Painting (neutral colors, if the walls are in wild colors or in need of new paint)
Major renovations usually require permits which can add to your cost and time frame. Better Homes and Gardens states that remodeling a kitchen typically costs anywhere from $15,000 to $45,000, whereas remodeling a bathroom can cost $7,000 and up.
Although most people think remodeling the kitchen is going to give you the greatest return on investment, that isn’t always the case. According to Fidelity National Title Company, window replacement is actually the remodeling task which will give you the most money back when you sell. They state that the average return on investment (ROI) for window replacement is 163%, compared to major kitchen remodeling, which brings an average return of 95% or adding a family room, which brings about a 101% return on investment.
These ROIs are relative to the specifics of your house and the local market, however. For example, if you live in Miami and don’t have air conditioning in the home, adding central air will probably be a better investment than windows! Secondly, updating a kitchen built in 1960 will obviously improve the home’s value more so than updating a kitchen built in 1995.
Other changes which typically bring good ROIs include:
- Adding a deck
- Adding a bathroom
- Finishing a basement
- Adding a garage
Adding new carpet before selling can also make the home more appealing to potential buyers and possibly even bump up the sales price. Just be mindful of potential buyers’ tastes when you start to consider things like paint and wallpaper; it’s best to keep colors neutral and conservative. When in doubt, ask your Realtor for advice.
Wow Prospective Buyers with Great Staging
In today’s economy, homes for sale are often on the market for as long as 100 days or more. Proper staging can help your home sell faster.
Staging is the process of preparing a home to sell. This might mean making an empty home look ready to live in by adding furniture and decorations. Alternately, staging can refer to cleaning, deculttering, and depersonalizing a lived-in home. Staging helps prospective buyers visualize the house as their future home rather than just an empty house (or somebody else’s home). In general, staged homes sell faster—and fetch a better price—than empty ones.
1. Clear The Clutter: If you’ll be living in the house while it’s on the market, you want to declutter as much as possible. Neater houses show better. It’s also a good idea to pack away family photos because you want the potential buyer to think of their family; not you and yours! Finally, hide anything political, religious, or potentially offensive. Depending on how much clutter you have, you may be able to store items in boxes in the attic or closet, get a storage unit until the home sell, or sell or donate it.
2. Clean, Clean, Clean: The right furniture accents won’t matter if there are big stains on the carpet, so make the house as clean as possible. Vacuum, mop the floors, clean the windows, dust, and make appliances sparkle. Use special products to get stains out of the carpets. If you don’t want to do the work yourself, spending a couple hundred dollars on a cleaning service is a good investment.
3. Think Furniture: A key to good staging is using just the right amount of furniture to show off a room’s functionality. Just be careful, as too much furniture will make rooms feel small. You can work with your existing beds, couches, tables, and chairs as long as they’re in good condition. For several hundred dollars (or more), professional home stagers can consult with you on layout and even rent you additional furniture on a weekly basis. Of course, if a home stager isn’t in your budget, you can ask friends for their opinions on where your furniture should go and even borrow some furniture or buy some inexpensive used pieces to fill an empty room.
4. Add Finishing Touches: Don’t forget final touches like scents and colors. Lighting a scented candle can make the home more appealing. If the house is mostly neutral colored, try adding a few bright colors with the help of new drapes, bright accent pillows on the couches, or a vase of fresh flowers. For some inexpensive decorating ideas, visit a few model homes in your area and steal some of their tricks.
5. Don’t Forget Curb Appeal: First impressions count, and the first part of your home prospective buyers will see is the exterior and yard, if you have one. Spend some time pulling weeds and planting colorful flowers. Add a mat, flag, or wreath to your door to make your home feel welcoming. If you have a backyard or patio, show propsective buyers how the space can be used by leaving a clean grill and seating in place.
Note from David: If would bet these strategies will absolutely work to help you sell your home faster and for more money. Even in today’s slow real estate market, there are people who want to buy homes. The trick is to make them want to buy the house that you’re selling. Although you may not be able to sell a one bedroom condo to somebody who wants a four bedroom single family, you can get far by just doing a little bit more than other comparable sellers. Think about this:
- Most sellers price their homes too high; you can get your pricing right.
- Most sellers don’t carefully consider going with a Realtor; you can choose to work with a Realtor to leverage their experience and marketing power or accept the downsides to selling yourself if you need to save on the commission.
- Most sellers renovate what they want, not buyers; you can invest where it matters.
- Most sellers don’t carefully stage their homes; you can create rooms that help prospective buyers see themselves living there.
So get out there, one-up everybody else, and sell your house!
The Question: Have you sold your home recently? What did/didn’t you do to help the sale along? If you bought a home recently, did the sellers do anything that enticed you to buy?
Thanks to Financial Highway for including this post in the Carnival of Personal Finance.
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