Home Seller's Guide

Planning Your Strategy

Marketing your home effectively means first getting an overview of all the elements involved, then fitting the pieces into their proper places.

Your first step is to formulate a strategy for putting your home on the market: what services to expect from your real estate agent, how to set your asking price, how to estimate the net proceeds from your sale, how to figure your tax benefits and more.

What are the overall steps in selling my home?

Essentially these:

• Meet with your agent to determine your asking price and work out your personal plan for maximum marketability of your home
• Review all financing options, including seller financing and other acceptable terms
• Make repairs or improvements that will increase the marketability of your home.
• List your home for sale at a certain price
• Permit your home to be shown to prospective buyers.
• Consider offers and negotiate a sales contract.
• Have necessary inspections made.
• Stand by while your buyer applies and is approved for financing.
• Go to settlement (also "closing" or "escrow" - term varies by area.).
• Move out of old home and into new one.

How can I determine how much cash I will walk away with from the sale?

That's a good question - in fact, two good questions. During your listing appointment, your agent will help you set a listing price for the property. Based on that price, your agent will be able to give you an idea of your expected expenses and your estimated proceeds - or net "walkaway" cash.

Your agent begins with the sales price and then subtracts anticipated costs, such as any mortgage payoff penalty, any discount points - interest prepaid to the lender - which you have agreed to pay, settlement fees, taxes, broker's commission and , typically the largest of all, paying off the old mortgage balance. Your agent then may add in any anticipated prepaid tax reimbursement or escrow reimbursement. The bottom line is your net cash.

Remember this exercise is only a ballpark figure based on estimated costs and sales price. Any changes in the figures will affect the bottom line on the actual sale.

Are there any other costs of selling my home that I should know about?

Besides the above costs of mortgage payoff, fees, commissions and settlement costs, you'll probably have the following expenses :

• Fix-up costs.
• Home-buying costs, including down payment, if you buy another home.
• Moving costs.
• Costs of equipping and/or furnishing your new home.

Your gain from the sale will probably cover your additional costs but, if it's close, be sure to maintain a cash or credit reserve for unexpected expenses.

Will I have to pay taxes on my profit?

As you know from the tax deductions you've received from owning your home, housing is probably the most tax-advantaged investment available to most taxpayers. When you sell your home, taxes come into play in many ways. Because of the Tax Relief Act of 1997 and other tax law provisions:

• Up to $500,000 of any capital gains realized on selling your residence is excluded from taxation ($250,000 for single and those using married, filing separate status). The property must have been used as your principal residence for at least 2 of the 5 years leading up to the sale date. You can exclude $500,000 on sales over and over, but there must be at least 2 years between each sale.
• If your gains are larger that the $500,000 or $250,000 exclusion amounts, you can reduce the tax by deducting from the sale profit:
  • the cost of improvements
  • the cots of broker's commission and lawyer's fees.
  • the cost of title insurance, recording charges, transfer fees and other settlement or closing costs.
• You can reduce your immediate tax burden, in situations where the gains are larger than the exclusion amounts, by making an installment sale where you spread out your income - and taxes - over a period of years.
• In cases where the gains exclusion is not available or not large enough to eliminate the gains, if the residence is converted to an investment property, a Section 1031 "tax-free swap" might be used to defer the gains into another investment property. You should consult with your tax professional in such situations, particularly since you might be losing the benefit of the $500,000 exclusion.
• If your lender requires you to pay a penalty for paying off your mortgage before is due date, that charge is deductible.

Remember: all tax matters are subject to change and you should consult your professional tax preparer or accountant before making any claims.

In selling my home and buying a new one, what can I do to be sure I won't get stuck with two mortgages?

Your best strategy is to place your home on the market for enough in advance to attract a buyer, negotiate a contract with an acceptable settlement or closing date, then go house hunting.

If you find a new home before you've sold your old one, you have several options:

• You may be able to arrange a bridge loan (also "swing" loan) secured by the equity in either your old or new home to cover your expenses until the closing on your old home. Lenders of bridge loans sometimes require you to have a purchase contract on your old home. But bridge loans can sometimes be found if your home is not yet sold.
• If your move is job-related, but no home-purchase relocation program is in effect, you might persuade your employer to either provide a bridge loan or pick up some of your relocating expenses.

Your agent can help you decide how to shift your strategy to fit your specific circumstances.

How do I develop the best possible "Selling Strategy?"

Planning a selling strategy means looking at all the elements of selling your home and putting them in their proper places. Then you can move easily from one step to the next.

Your first step is a meeting with your agent at your home to go over every part of your home, noting its floor plan and special features. You'll discuss how to show your home most appealingly. You'll discuss any repairs and improvements which might increase the marketability of your home. These repairs may bring you back more than they cost you and are likely to help sell your home faster. Your agent will compare your home with other homes for sale in your area and with those previously sold. That helps you arrive at a competitive asking price.

Your agent will discuss different financing possibilities that may be useful to buyers who look at your home. Your agent will also go over financing costs to both you and a buyer, and help you estimate your net proceeds from the sale in each case.

What's the difference between a broker and a salesperson?

Many people confuse broker and salesperson; however, the salesperson is the "agent" of the broker and the broker is the "brokerage service" of the seller.

By law, only a broker, who has passed a special exam to earn the designation, can receive a brokerage commission. A salesperson is associated with a broker. When a salesperson represents a broker in a transaction - rather than the broker working personally with the seller - the broker splits the brokerage commission with the salesperson.

While we're defining roles, you should also know the difference between a "listing salesperson" and the agent - either a broker or a salesperson - who produces the buyer. The listing salesperson is the individual who works with you to market your home under a "listing agreement." Sometimes the listing agent also finds the buyer, but not always.

The agent who produces the buyer may be the "seller's agent" or a "buyer's agent." A buyer's agent represents the interests of the buyer. A buyer's agent's fee or commission may be paid by the buyer, the seller or negotiated between buyer and seller. Regardless of whether the buyer is found by a listing salesperson or a buyer's agent, anyone with a real estate license is required by law to treat both the seller and the buyer fairly and ethically.

Your listing salesperson does not receive all of the commission from the sale of your home. Actually, this commission is frequently shared by as many as four different parties - two brokers and two salespeople - depending on the nature of the transaction.

Although you may work personally with either a broker or a salesperson, we use the term "agent" interchangeably throughout the handbook for simplicity.

What can a real estate agent do to sell my home that I can't do for myself?

Facts and experience show the difficulties of trying to sell your own home usually far outweigh the benefits.

Here's what your agent does that a home seller can't do or finds hard to do:

• Places your property in the Multiple Listing Service (MLS), which exposes your home to all the buyers working with cooperating member brokers. This effectively puts every agent in town to work helping to get your home sold.
• Exposes your property to a large pool of qualified buyers the agent spends a career generating. Without that network, a for-sale-by-owner home seller is reduced to a yard sign, some classified ads and lots of luck.
• Provides solid up-to-date market information with recent sales and current listings, which helps you price your home realistically. Such pricing is crucial to the possibility of a quick sale at the best price obtainable.
• Shows your home whether you're in or not, saving you hours of "minding the store."
• Provides pre-qualified buyers who know what they want and how much they can afford. Screening prospects saves you from the hassle of keeping appointments with "sightseers" and protects you from the threat of "unwelcome vistors."
• Shows your home to its best advantage. Buyers often shy away from asking homeowners questions; homeowners are sometimes defensive about defects in their homes. An agent can answer necessary questions objectively and guide the buyer to a purchase.
• Helps you negotiate a satisfactory sale. Without an experienced mediator to act as a buffer between the parties, many situations bog down.
• Leads both you and the buyer through the puzzles of rates, points, fees and financing options, helping with loan placement and follow-up, including the provisions of names and telephone numbers of specific loan officers. Without expert knowledge of alternative financial resources, many sales are lost - especially in tight money markets where knowledge of buy-downs, variable-rate mortgages, graduated-payment mortgages and various types of seller participation come into the picture.
• Protects your interests from contract to settlement or closing with an understanding of real estate procedures. An agent has the ability to smooth the way toward agreements and the experience to attend to all the details that must come together before settlement or closing can take place.

What does a listing agent do between the signing of a listing agreement and sale?

Once you decide on the terms of a "Listing Agreement," your agent will:

• Enter a description of your home and your terms in the Multiple Listing Service of homes on the market in your area.
• Show your home to prospective buyers.
• Advertise your home as appropriate.
• Possibly hold an open house or broker tour.
• Promote the sale of your home in every way possible and/or deemed appropriate.

Once you and your agent have a solid marketing strategy formed and your agent is actively promoting your home, you're well on your way to a sale.

Your agent keeps tabs on the changes in the real estate market and tells you what's new in mortgage loans, what sales have recently been made and what pricing fluctuations, if any, are in view. You'll be kept up to date on activity concerning the sale of your home: what advertising has been done, what responses have come back from people who have seen your home. You and your agent will confer regularly so that you stay informed and consider any changes in your marketing plan.

When a buyer makes an offer, your agent's good closing skills play a vital part in helping you negotiate a contract to effect a sale at a good price.

When you have accepted an offer, your agent helps you prepare for settlement or closing by giving attention to details and by staying in touch with you through the process.

How and where do agents find buyers?

Agents are constantly in contact with the largest number of potential buyers possible to generate a steady flow of prospects specifically interested in your property. Typically, 60% of all buyers come thorugh these referrals and ongoing markeing, about 20% come from "for sale" yard signs (where permitted) and general company reputation and less than 20% come from promotions and advertising. These percentages vary by area and company. It's not uncommon for less than 12% of sales to come from classified advertising, for example.

By far the largest number of buyers come from referrals sent by satisfied past customers, corporate contacts, friends, acquaintances, relocation networks, the Multiple Listing Service and cooperating seller's agents or buyer's agents. Regular sales meetings and listing tours in your agent's office also promote your home to agents throughout the area. Agents and companies continually work to maintain a "pool" of buyers through an extensive network of contacts and sources. That's why agents and real estate companies frequently have buyers on hand, just waiting for the right home to come on the market.

In some areas, other buyers come from open-house signs or call in after seeing the phone number on a yard sign. These "sign calls" often produce excellent prospects for that home because callers have already shown an interest in the neighborhood by driving through.

Still other buyers come from extensive advertising placed by real estate companies and agents.

Why and how does my agent "pre-qualify" buyers?

Since it could be a waste of your time to negotiate with an interested buyer who could not afford to buy your home, your agent is trained to politely ask buyers the right questions about their finances - a far easier task for an agent than for a homeowner.

Factors that determine a buyer's qualifying situation include:

• The buyer's employment, including job title, length and stability of employment, including job title, length and stability of employment.
• Income and general financial position.
• Debts.
• Cash for down payment and settlement or closing costs.
• Maximum affordability monthly payments.
• The existence - or not - of another home to sell.
• The time period during which the buyer must reach settlement or closing, and the buyer's urgency to buy.
• Other homes the buyer may be interested in and the primary reason for buying.

The sum of this information makes it possible for you to negotiate effectively, should the buyer make an offer.

Time for Action

Now that you've gotten an overview of the home-selling process and have sorted out a few of the benefits and pitfalls of making your sale, your next step is to put your strategy into action - and your home on the market.