Do you ever wonder what exactly the process of selling your home entails? As it turns out, there are plenty of things to consider when you’re ready to sell your house. To make sure you’re well-informed as you embark on this journey, here is some legal information every homeowner should be aware of when they decide to sell their home.
Understand The Housing Market & Macroeconomics
The best way to gain insight into how much money a house is likely worth is by looking at factors outside of a specific location. Macroeconomic indicators, like interest rates and inflation, have a strong effect on housing values and so pay attention to these as well.
If you’re hoping to get top dollar for your house, it can’t hurt to consult experts in finance or real estate before listing it for sale — and realize that their services don’t come cheap! Before doing anything, it’s important to get a feel for the housing market. Survey the current prices of the housing around you as well as the area you are trying to purchase a home in. With this information, you’ll be able to make well-informed decisions about what and when to buy and sell.
As well as, figure out whether or not the current market is in a buyer’s market or seller’s market. You’ll then be able to take advantage of the situation that best suits you.
Buyer’s Market vs. Seller’s Market
A buyer’s market occurs when the market is ‘cold,’ so to speak, or when there are a high number of houses on the market and prices are low. A high number of houses means many different sellers with few offers and a higher potential willingness to negotiate.
In this instance, it’s best to be a buyer. You have a variety of houses available for purchase at a low price. The downside is that it might be more difficult to sell your old home. One way to offset this situation is to offer the sale of your old home contingent on the purchase of your new home. People who can’t find buyers in a declining market are willing to wait for your home to sell.
Seller’s markets are rare, characterized by an abundant number of housing options, quick turnaround, and intense buyer competition.
In this scenario, you will be better off as the seller, and it will be easy to sell your home. Your only problem will be finding a new home before your house is sold. In order to protect yourself, there are two things you can do:
Talk to the buyer to have the contract stipulate that the closing of the house is contingent on the sale of your old home. If you do that, the buyer in a seller’s market is at a disadvantage and will probably be willing to wait for you.
Negotiate a temporary rental agreement with the new buyer. In this situation, the old owner becomes a tenant of the new owner, renting out the property for a set amount of time until they move into their new home. It could be over days, weeks, or even a few months.
Know The Ins & Outs Of Your Local Housing Market
A keen understanding of your local real estate market can give you a better idea of the timing of when to sell and the appropriate price to ask for. When there are many eager buyers in the market, this increases the likelihood of a bidding war. One similarity is that during an economic downturn, you might be willing to settle for a home that’s worth less than it actually is. In general, you can find a general feel for the housing market by checking out open houses and talking to real estate agents and your neighbors. In general, you are better off selling when:
- It looks like the economy is going well.
- Interest rates are lower than they’ve been, so people can borrow money more cheaply.
- Likely, people will relocate (spring and summer before school starts)
Know The Taxes Behind Your Home Sale
You will most likely have some sort of tax deduction available upon closing; however, it is important that you look closely at your situation and consult with a professional accountant before finalizing a deal. Withholding money from sales proceeds and paying an accountant can be costly, but it’s a good way to ensure that more money isn’t leaving your pocket when it doesn’t have to. If possible, talk about potential savings with multiple real estate professionals prior to signing on with one for representation or listing your property for sale.
Upon selling your house, the profit you earn from it produces capital gains, which are subject to taxation. Fortunately, for many sellers, such as those with gains up to $250,000, or $500,000 for married couples, the Taxpayer Relief Act of 1997 excludes the possibility of paying these taxes. In practical terms, this means if you buy a house for $100,000 and sell it for $300,000, that $200,000 in capital gains is tax-free.
If you’re planning to sell your house for more money than the amount of tax-free profit you can normally exclude under the Taxpayer Relief Act, then you may want to look into alternative ways to structure the sale of your house.
A Listing Agent May Be Necessary
Unless you want to sell your home on your own, your home selling journey will likely begin by finding a seller’s agent, or listing agent, who is familiar with your local market. These agents are responsible for representing the seller in a real estate transaction. These tasks include advertising the property, making listings, and researching the price. Make sure to conduct due diligence and see if the state in which you’re selling your house requires a real estate agent.
Your agent might require you to sign a listing agreement, which gives them permission to sell your home and shows the agent’s percentage on the deal. Now, it’s always important to conduct due diligence when selecting a listing agent. That means reading reviews and looking to see what others’ selling experiences were with the listing agent.
Deciding What Price To Sell Your Home
With your agent by your side, it’s time to investigate the real estate market and make a few important decisions about your home sale. In this step, most importantly, you’ll want to decide on the right list price. The list price is what the seller wants you, the buyer, to pay for his home. An effective list price considers several factors in the final sum, such as the state of the market in your area, the condition of the property, and whether or not it’s the right time of year. For the most part, the comparison analysis your agent conducts should show you how much comparable homes in the area are selling for, and what price range you can expect to find reasonable.
As your real estate agent, I can lead you to a number, but it’s ultimately your decision on what you think your home is worth. You can list a home at a certain asking price, but that does not guarantee the home will sell for that price.
Know That Selling Your Home May Be A Lengthy Process
Similar to the home buying process, the home selling process takes a considerable amount of time. But, knowing how long it takes to sell a house can help you to set realistic expectations and keep the process moving quickly. These are some of the most important considerations to be made.
- Time your house has been listed for: If your home has been listed for a while without any bites, it might be time to budget more time into your schedule. Prospective buyers might infer there’s something wrong with a house that’s been on the market longer than average.
- Current market and macroeconomic conditions: A seller’s market is typically beneficial for sellers and creates faster transactions while a buyer’s market would typically be better for buyers and involve slower transactions. If interest rates are high, people may be less inclined to take out mortgages to buy a home. The opposite may occur in a low-interest-rate environment.
- The price of your home: Buyers may not want to make an offer on your home if they believe it’s overpriced. That’s why it’s so important to work with a real estate agent and conduct due diligence to establish a reasonable price. If your home is not attracting any offers, it may be wise to review your pricing and try something more competitive.
- Home appraisal and fair market price: A home appraisal can determine the fair market value of a piece of real estate. Many home appraisals which are much lower than the agreed-upon price can stall the sale or entirely render it infeasible.
Listing Your Home
When you are staging your home, you are preparing it for showing and helping to find a buyer. It is up to the real estate firm or agent to make the best listing possible if you have a listing agent. Remember, some states may require real estate agents.
Now, when your home is featured on the multiple listing service – a directory of every home for sale in the area – it will become easier for buyers to see and understand your property.
Settling On A Final Offer That Makes You Happy
Before you can sell your home, you will need to select the appropriate buyer and put an offer on the table.
For some sellers, selecting which offer to accept is as simple as choosing the highest bidder. But there are a few other factors you should consider aside from price.
- Will the buyer be taking out a loan?
- Do they have preapproval or prequalification, or do they only have a pre-qualification?
- Does the buyer’s offer have any conditions, and which ones will they grant you?
- Does the buyer’s offer align with your desired endgame?
Taking these factors into consideration will better prepare you to get the best offer on all aspects and move forward.
The Costs Of Selling Your Home
Before selling a house, there are a number of costs to keep in mind. The following are the most significant of these expenses.
- Closing costs: Buyers and sellers can be responsible for closing costs in the closing process. For sellers, there are usually attorney fees, escrow fees, outstanding HOA fees and property taxes from the current date up to the date of the closing.
It’s possible that you will have to pay some of the seller’s closing costs as well. This typically comes out to be around 5% – 6% of the total purchase price. In negotiations, a buyer might ask you to contribute some of their closing costs; this is called a seller concession.
- You may be subject to capital gains tax: If your home has increased in value by $250,000 since you purchased it, you should also think about capital gains tax (the tax you would pay on any asset that has appreciated in value). Many sellers won’t have to pay a capital gains tax, though this will depend on your unique situation.
- Moving expenses: Even if you’re lucky enough to recruit friends and family to help move you out, there’s a good chance that moving out of your home will cost you something. If the timing’s right and you can buy and sell a home at the same time, you can have your movers move everything in one go. You will also need to plan for the cost of storing and moving your things when you sell your property.
Getting The Right Documentation
On the sales transaction, there’s paperwork to fill out and it’s never a bad idea to begin preparing the paperwork that you’ll need to fill out and sign.
Often just called a disclosure, a Seller’s Disclosure is a legal document that covers any flaws with the property. In order to protect the consumer, these disclosures are necessary for most states.
On the flip side, there’s the closing disclosure. Though this form is meant for the buyer’s benefit, it might be beneficial for you if you’re paying for any or all of the buyer’s closing costs.
One of the many important documents you need to know when buying a home is your deed, which authorizes you to transfer the title to the new home buyer. Along with other transfer documents, the deed must be signed to indicate the transfer of ownership.
Either the buyer or the seller should present a government ID for identity verification in order to take part in the transaction.
Closing On The Home Sale
When you’re ready, it’s necessary to meet the closing date, which for a home buyer is to be present for the closing. Sellers, on the other hand, do not always have to attend their closings. In states that require it, some people have an attorney act as their representation, rather than requiring the person themselves to show up in person.
Skipping out on the table closing brings with it both advantages and disadvantages. Sellers who miss the closing face the possibility of creating conflicts with the buyer, but others believe you should attend anyway. If you can’t make it to the closing, be sure that your attorney or agent has the power of attorney to sign any necessary paperwork on your behalf. In the event that you do rent the house to the buyer after the sale, you’ll be required to attend the closing.
After the buyer and seller negotiate terms and an agreement, you successfully complete the sale of your home to its new owner.
Final Remarks: The Home Selling Process
If you’re not familiar with the home selling process, it can seem daunting, but there are many steps along the way and having a few knowledgeable experts on your side is always a good idea. Consider talking with an experienced listing agent or even a lawyer who specializes in real estate transactions before selling a home in order to minimize any potential headaches and ensure that everything goes smoothly from start to finish.
The more prepared you are for each step along the way, the easier it will be for everyone involved and for that reason alone, making sure everything is taken care of before the “For Sale” sign goes up is worth spending some time doing research upfront (not unlike other big decisions in life).