There has never been a better time to sell your house but finding a new one could be a challenge.
Housing market experts predict 2022 will be another year of high demand and rising house prices. That’s good news for you as a seller but bad news if you also need to buy a home in the process. It’s a situation that’s affecting millions of homeowners nationwide.
In the past two years, the COVID-19 pandemic helped fuel a 35% rise in home prices, creating one of the most competitive housing markets in recent U.S. history. Attempts to cool the market have slowed things down, but it hasn’t stopped the trend completely. The median home sales price may rise another 2.9% this year.[1] While many homeowners have taken advantage of this to sell their homes for more than they ever could have, affording the next home can be an issue.
If you’re in this situation, this guide will help you navigate how to sell your house successfully in this unique market. We’ll cover all the basics and hear from experts on how to tweak the tried-and-true approach to selling for a situation like this.
How much is my house worth?
The short answer is easy: Whatever someone is willing to pay for it!
While home values are objective and constantly changing, there are 3 values that matter for home sellers:
Fair market value
Fair market value examines what a home would look like to prospective buyers compared to others in the area. Essentially, it is a comparison of what others have paid for homes that are similar (bedroom/bathroom count, overall square footage, outdoor space, etc.).
An experienced real estate agent can do a Comparative Market Analysis, or CMA, which is a comparison of one property to other comparable properties in the surrounding vicinity. This offers a good picture of what other homes are selling for in the area. You get a tool to negotiate and a reference when it comes time to “price” your home.
Appraised value
To get appraised value of a house, a licensed appraiser will examine your home, considering the location, size, and condition. If you’ve renovated the home, they add into these considerations as well. The appraised value is what lenders look at when a buyer applies for a loan to purchase a home or when a homeowner refinances.
Assessed value
This is the value used by local tax county tax assessors to determine property taxes.
“Tax assessors calculate the assessed value based on various factors, which may include the appraised value and the fair market value, as well as any home improvements, whether you generate income from the property, and any tax exemptions.”
Jade Duffy, Realtor TXR Homes
Assessed value is usually below fair market value and doesn’t accurately represent how much a property will sell for.
How to price your home for sale
“There are a lot of ways to estimate how much your home is worth, varying from online and quick valuation tools to consulting real estate professionals. By googling or searching online, you can easily find different tools that can estimate the value of your home with just a few settings. These tools can typically leverage records such as tax assessments or property transfers and use a mathematical model to estimate the price.”
Bob Scott, Founder Sell Land
A great tool you can use is the calculator offered by the Federal Housing Financing Agency, backed by a lot more data and a scientific basis. When in doubt you can always approach lenders or agents to get an estimated worth of your home.
Another way to get the exact value of your home is to hire an appraiser. Known as a pre-listing appraisal, an appraiser can not only dive deep into what other comparable homes have sold for, they can also provide a detailed report about each comparable used. Just be aware that this is just a reflection of a specific moment, as home values change often. So, the price the buyer’s appraiser comes back with once you get an offer may differ.
How to sell your house
Selling a home involves multiple moving parts, some of which are controllable and some that are completely out of your hands. Since the coronavirus pandemic, there has been a significant hike in pricing due to the extremely low levels of inventory. This has allowed those selling their homes to not only sell them for above the asking price but to sell them in record time as well.
The most important thing when selling your home is to understand your need for wanting to do so. Understanding the market is the second most important factor, because though it is a very good time to sell your home, figuring out where to live or what to buy is much more challenging.
Retaining the services of a professional realtor is one of the first steps you should take. They have the experience needed to not only price your home appropriately, but take care of all the marketing, paperwork, and negotiations. Though it is possible to not use an agent, the responsibility for everything above and below will be yours and yours alone.
A step-by-step guide to selling your house
The first thing you’ll want to do is decide how exactly you want to sell your home. Do you want to retain the services of a listing agent, or would you rather do everything on your own? There are pros and cons to each, which we explain below.
You can also have an appraiser calculate the actual value of your home, which is very important should you choose to sell your home on your own.
This should also be the time you do any renovations or improvements to add more value to your house.
You, or your agent, should have professional photographs taken of the home to paint your home in the best light possible. This is crucial because there are tons of homes available to be viewed on listing sites such as Redfin or Zillow.
With an agent, they can list your home on the Multiple Listing Service or MLS. This is an advertising platform exclusively for agents, to help their clients buy and sell homes. Each house has their own “page”, which lists all the information of the house, from the square footage to the property taxes. If you aren’t using an agent, you can pay up to $1,000 to have it listed on the site for you.
Once, it can happen in a multitude of different ways. The 2 most common ways are private showings, where the buyer’s agent walks the prospective buyer through the home, and open houses, where the home is open for a specific time which allows all to come by and view it under the supervision of either yourself or your listing agent.
*Disclaimer* If you are having a listing agent run your open house, it is very important for you NOT to be at the home. Listing agents are trained professionals who know what to say and what not to say about the specifications of the home. Plus, most homeowners have some semblance of attachment to the home, and you don’t want emotions to impact any prospective offer.
In today’s market, homes can sell in a matter of days after getting listed on the market. Of course, every home is different, so this isn’t always the case. But the fact of the matter is you can sell your home in almost no time. The consensus is that after a week of being on the market you should have a few offers on the table to choose from.
Your agent can help you decide which offer is more advantageous. If you don’t have an agent, you can have a real estate attorney to help you with any paperwork. Real estate contracts are tricky and there can be certain contingencies included, counteroffers and stipulations, not to mention negotiations.
Once negotiations conclude and you accept an offer, the buyer can inspect the house as they see fit. Inspections are the buyer’s opportunity to find anything wrong with the house that could collapse the deal. It is highly recommended for inspections to happen, though it has become less of the norm due to the volatile nature of the market.
If the buyer waives their right to an inspection in their offer, that really works in your favor as a seller. It means there won’t be any inspection issues that come up that you would need to fix or adjust the sale price around. If the buyer gets an inspection, be prepared that the inspector could find something that would affect your deal.
Buyers also have the chance to get an appraisal done to check the actual value of the home. Just like you can have an appraisal done to accurately price your home, buyers get one to make sure they’re getting a fair price and not being ripped off.
Once everything checks out, the funds from the buyer clear and everyone crosses their T’s and dots their I’s, it is time to close. Should you have an agent, they will take care of all the paperwork, transfer of title, and the delivery of keys to the new owner. You just show up to on closing day and sign when told.
And should you be on the hunt for a new home, learn how to ACTUALLY buy a home here.
For sale by owner vs realtor
For sale by owner
When you list your home for sale without the assistance of a professional real estate agent, it is know as for sale by owner (FSBO). When you sell your property on your own, you are responsible for the process from start to finish. This includes pricing of the home, staging, advertising, negotiating, drawing up the paperwork, and closing. Most sellers who decide to go it alone do this to avoid paying a commission fee to the agents involved.
There are other benefits to selling your house yourself, such as:
The most common reason people list their own homes is to negate paying the normal 4 to 6% of the sale’s purchase price to the agents involved.
Since you won’t have an agent helping you, you have the flexibility to work as you see fit. This will include listing your home at a price you deem suitable, though make sure the price is realistic and not priced on emotions. You will also be in control of when potential buyers come to see your home.
Since it is your time and money on the line, you’ll obviously want to make the most money back possible. Advertising online is the best place to advertise that your home is for sale. Nearly 8 out of 10 buyers say they search for homes online through sites such as Zillow or Redfin.[3] Professional photos, signage, and print ads are also instrumental to getting your home sold quickly. While you can list your home for free, if you want it posted to the MLS, so Realtors know it’s for sale, it usually costs a flat fee of under $1,000. However, a listing contract is mandatory. [4]
Realtor
The most common and advantageous way of selling your home is to use the services of a professional realtor. Now, that said, you want to use someone with vast experience in the industry. Using a cousin who just got their license is a great way to jumpstart their career, but it could mean money left on the table. You also shouldn’t just choose the first realtor that you interview. Instead, set up different “interviews” with several agents to get an idea of how you’ll work together and what strategies they plan to implement.
There are other benefits to using a realtor, such as:
The best agents are ones that have years of experience in the area your home is located. Whether they’ve lived there or have just done their research, agents need to know just about everything in that area. This helps when it comes to pricing your home. There may be a new commercial shopping plaza under construction 15 minutes from your home that you don’t know about, which could be a selling point for a buyer. This can help you squeeze the most money out of your home. Leaving thousands of dollars on the table is a rough prospect that can go unnoticed without an experienced agent.
There’s no denying that people are emotional. But in the world of real estate, there is no time for emotions. If you want to sell your home for the highest price possible, you must look at the facts, not the love and memories that you had there. Agents also have a wide range of connections, such as photographers and home stagers, that will show off your home in the best light, maximizing the chance of a fast, profitable sale. Look at the listings on Zillow. Can you tell the professional photos from the ones shot on a camera phone?
The Multiple Listing Service (MLS) is an online listing portal that real estate agents use to market homes. To view a home through the MLS, buyers need access given to them by their agent. What makes the MLS such a valuable tool, is that it works in a supply and demand capacity. Agents for buyers use this to find homes and your home could be that perfect fit. It’s the first-place buyer agents will go so you can get your listing in front of the right people faster.
A homebuyer’s agent gets paid commission by the seller based on a set percentage of sale price. When a homeowner opts to sell the home themselves, the goals is to cut out the commission paid to the respective agents. Some FSBO sellers won’t pay a buyer’s agent for bringing them a buyer. To be honest, FSBO sellers aren’t required to pay that commission. Agents also run the risk that you could go behind their back to make a deal with a buyer without them. So, they may be less likely to recommend your property to their buyers.
Negotiations are an integral part of any real estate transaction and being successful is much harder than people think. Experienced agents can spot serious buyers and steer you toward the strongest offer on the table, netting you the most money possible.
There’s a ton of paperwork when you sell a home and without an agent, you’re stuck making sure it’s accurate and complete. Real estate agents are masters of the purchase and sale contracts and the legalities that come with them. This is a very important part of the process. Should you go this avenue alone, the services of an attorney are HIGHLY recommended.
Selling a house with a mortgage
When people sell their homes, often they’re still in the process of paying off their mortgage. This isn’t surprising considering the most common form of home financing is a 30-year agreement. In fact, 63% of homeowners that want to sell are still in the process of paying a mortgage.[5]
When you sell your home, you can use the equity or the property’s actual current market value to pay off the mortgage balance and closing costs associated with the sale. Your money gets divided four ways:
- Your lender gets paid to pay off your mortgage
- Additional loans like HELOCs or home equity loans (if applicable) also get paid off
- Closing costs get paid (agents commission, taxes, HOA expenses, etc.)
- The remaining proceeds go to you
When trying to calculate your profits, know that some of your equity will always go towards the transaction and closing costs of the home you sell. Assuming your home hasn’t dropped in value and its higher than what you owe, you have a significant chance of turning a profit at resale. Then you can use that profit for the down payment and closing costs on your next home.
That means your ability to buy a home may hinge on the chances of selling yours first. Things like home sale contingencies can protect you, both as a buyer and a seller or as someone doing both.
You generally want at least 20% equity in your home before you try and sell it. Should you have any equity in your home leftover, known as “excess equity”, you can use it for renovations, new home loans, bills, or however you see fit.
What happens if you don’t have enough equity?
Should you not have enough equity in your home to pay off the loan, you would have negative equity or be “underwater”. If you need to sell your home in this situation, you must either bring money to the closing to cover this shortfall or do a “short sale”.
A “short sale” or pre-foreclosure sale, happens when you sell your home for less than the remaining balance on your mortgage. Should your mortgage servicer agree, you can sell your home and pay off a portion of your mortgage balance with the proceeds. Short selling will hinder your prospects of buying a home. You won’t get any money for the down payment or closing costs on your next home. It also affects your credit, making it harder to get financing. A short sale should only come as a last resort.
Qualifying for a mortgage before selling a house
Qualifying for a mortgage can be tough but qualifying for two mortgages at the same time is a whole other proposition. It comes down to the fact that you could theoretically find your new home before you sell your current home. You’d need to carry two mortgages at the same time, which could severely impact your budget, depending on the time it takes you to sell. There are instances where lenders will deny a new mortgage while you’re still making payments on an existing one.
Just like with your first mortgage, a lender will look at your front-end and back-end debt ratios to calculate how much you can afford to pay. Adding in a second mortgage payment will change those ratios exponentially. Should the additional payment push these ratios too high, above 28% and 36% respectively, the lender won’t approve you for the second loan.
Still come, creditors may be willing to overlook your high debt-to-income ratio. Instead, they’ll look at your credit score and other positive factors in your favor. So, if you have a high FICO score of 740 or above and can off a higher down payment to reduce the loan amount, lenders may be flexible.
In a perfect world (and this market) you should be able to avoid this scenario. You will receive the money from your existing home, pay off the remainder of your mortgage and happily go about paying off the mortgage to your new home, solitarily.
Another option that has become more common in the real estate market, is working out a deal with the buyers to live in the house after you have sold it to them. You essentially rent out the place from the new owner, as you continue your search for a new home. This offers the freedom to take your time looking for a new home, while saving you the hassle of paying closing costs and payments for a new mortgage at the same time.
Find solutions to pay off debt so you can get mortgage-ready.
How to buy and sell a house at the same time
More than half of sellers (63%) are trying to buy a new house while selling theirs at the same time. What happens to your mortgage depends on which transaction you close first. There are six steps to go through to have the most success.
Step 1: Assess the market
In the perfect world, you list your house as the market begins to change from a seller’s market to a buyer’s market. This lets you obtain the highest possible price for your home, while simultaneously getting you the lowest buying price for your new home. While this is just a hypothetical, many factors will affect the market and there may not be “perfect” time for you to go through with this.
Step 2: Timing is everything
If an agent tells you what is GOING to happen to the market soon, they’re most likely lying. While experts will have an estimated guess, things can change very rapidly, like the Federal Reserve raising interest rates again. Timing does play a factor in selling your house. Prices can literally change with the seasons.
Generally, late spring and summer are popular seasons for homebuyers. This is usually a good time because families can avoid moving during the school year. Winter is typically a slower season, especially in areas with a penchant for heavy snowfall. Even if you decide now is not the best time to put the house up for sale, you can still prepare for the eventual sale. The sooner you prepare, the smoother the process will go later.
Step 3: Declutter before showing your home
If you are weeks or months away from listing your home, take the time to declutter. Throw away anything that no longer serves you any purpose. Consider having a yard sale because one person’s trash is in another person’s treasure. It also doesn’t hurt to make some extra cash in the process. Once you’ve decluttered, you may notice some marks or holes you might miss otherwise. Use this opportunity to make any renovations you can make affordably as well.
Step 4: Listing your home
Before listing your home, evaluate your finances and think about working with a mortgage lender to get pre-approved. That way you can move swiftly the moment you find the right home. This will also help you figure out how much new house you can afford. As I’ve mentioned before, make sure to list your home with a professional real estate agent. They will help you find buyers, host open houses, and show your home on your behalf. Agent’s network with one another to help streamline the selling process. A local real estate agent knows the market like the back of their hand, so the pricing will be appropriate and attractive.
Step 5: Coming up with cash
If your sales transaction is slower than molasses and you’ve already found your next home, what can you do? If you need cash for the down payment, there are a few options you can consider:
- Home Equity Line of Credit (HELOC) – A home equity line of credit, or HELOC, is one way you can get access to funds. HELOCs use the value of your home as collateral for a loan. By taking out a HELOC, you can fund a down payment on your new house. When you sell your house, you’ll repay the HELOC with the proceeds.
- Bridge Loan – As its name implies, bridge loans help to “bridge the gap” between now and when your home sells. A bridge loan is a type of personal loan that is repaid whenever you close on the sale of your home.
Step 6: Finding your new home
As you go through the process of selling your house, make sure to communicate with your agent about your next steps for finding a new home. This is a conversation that you need to have with your agent BEFORE you list your home. If you plan to stay in the same area, consider using the same agent for the sale and for your next home purchase. Have them begin looking for homes as soon as serious offers are on the table. A typical real estate transaction takes 30-45 days, which is the same timeframe for you to purchase a new home.
A good idea is to wait for the market to become more balanced. Though it could slightly decrease the sale price you receive, it will also reduce the price of your new home. This may allow you to keep more money in your pocket and diminish the prospect of being “house poor”.
If you plan to move a greater distance, the process of selling and buying at the same time can get more complicated. In this market people buy homes without even seeing them in person first. This is a risky move but with the right agent, who can help you “see” the property through videos, it can turn out to be a frugal choice. Be sure to articulate what exactly you want your agent to look for, and if you do buy a property unseen, DO NOT FORGO THE INSPECTION.
Sources
