So you want to sell your home, but you're feeling overwhelmed? There's no disputing that selling your home is a monumental task. Here is a nine-step guide to break it down, and walk you through the basics of how to sell your home.
Step One: Know Your Local Market
Understanding your local market can make a huge difference in terms of when you should sell and what you should ask for. During hot markets, multiple bidders can drive up house prices considerably. Similarly, in down times, you may have to settle for less than the house is really worth. In general, go to open houses and talk to your neighbors and real estate agents to get a feel for what condition your local housing market is in. In general, it's best to sell when:
Step Two: Compare Your House with Similar Houses
To really get a good idea for how much you should ask for, find out how much comparable houses sold for in the area (known as "comps"). To ensure that it's really comparable, a similar house should have sold within the past six months, be in the same neighborhood, and be similar in terms of age, size, and number of rooms.
To get a list of "comps", check websites, classified ads, and visit open houses. The National Association of Realtors publishes the Multiple Listing Service (MLS) which can also be good source of "comps".
Be careful, however, because "comps" are just listing prices, not what the house actually sold for. Although it's worth checking listings to set your price, also investigate what similar houses actually sold for in your area.
Step Three: Understand the Tax Consequences
The profit you make on selling your house produces capital gains, subject to capital gains taxes. Fortunately, many sellers can avoid paying capital gains taxes entirely, because under the Taxpayer Relief Act of 1997, individuals can exclude up to $250,000 in capital gains, and married couples can exclude up to $500,000 in capital gains. In practice, this means if you bought your house for $100,000 and sold it for $300,000, that $200,000 in capital gains is entirely tax free.
If the sale of your house will generate more capital gains than you can exclude under the Taxpayer Relief Act, then do additional homework to see if there is a better way to structure the sale of your house. For example, see FindLaw's article on the tax consequences for selling your house.
Step Four: Decide To Hire a Realtor or Go It Alone
Only a few states require you to hire a real estate agent or attorney, but it may often be worth it. Selling a house, even with an agent, is an exhausting process, and if you are the one stuck doing all of the paper work, and showing the house, it can be like taking on a second job. Expect a real estate agent to charge you around a 5-6% commission.
If you have a background in finance, are organized, and have an understanding of the legal issues involved, you can definitely go it alone. Be aware, however, that it takes a surprising amount of time and energy to sell a house, so make sure you have plenty of both to spare.
Step Five: Fix Up Your House
Before you sell a home, you should probably hire a professional home inspector. Eventual buyers certainly will, and it pays to know what deficiencies might be lurking under the surface. An inspector can provide you with a list of to-do items before you put your house on sale. Make the repairs before you sell the house because existing problems with the house can reduce the value of your home more than the actual cost of repair. Finally, since appearance is everything when selling your home, be sure to give your house a thorough cleaning, inside and out.
Step Six: Fill Out Your Paperwork
The buyer and your real estate agent will have to do the majority of the paperwork, but the seller often still has his or her fair share of paperwork to complete. For example, several states require that the seller fill out disclosure forms detailing the house's physical condition.
Step Seven: Advertise Your House
Use the same sources you employed to locate "comps" to advertise your house. This means you should list your house on the Multiple Listing Service, and consider listing your house on websites, in classified ads and holding open houses. Realize that many inquires are simply curious neighbors or are like you, getting a feel for the local housing market.
Step Eight: Evaluate Offers
Once you receive offers on your house, it pays to sit down and carefully consider them. If you have a real estate agent, this is where he or she can really prove his or her worth. The highest offer is not necessarily the best offer, and your real estate agent can explain some of the nuances of home buying. For instance, although one buyer may have offered more, there may be conditions attached to that offer. Another common example is when the buyer's financing is questionable: it may not be worth the risk even if the buyer's offer is the highest.
Step Nine: Close the Deal
Once you and a buyer have offered and counter-offered, you are considered "in contract" and if the conditions of the contract are met, you cannot back out without facing a lawsuit (except for certain contingencies, such as the collapse of the buyer's financing).
Once the contract is signed, it will include a closing date - usually a few weeks into the future to allow the buyer to secure financing, make any inspections, secure insurance, etc. That time also allows the seller to move out and make any agreed upon repairs. Once the contract closes, the buyer has the right to occupy the house, so you need to make sure you are out by that time or negotiate a working alternative with the new home owner.