IS IT WORTH SELLING MY HOUSE? MAKING A DECISION IN 3 STEPS
To sell or not sell; that is the question
Here are some questions you should answer before you sell your home:
- What are my reasons for selling?
- Why should I buy a new home over my existing house?
- Does my house need to be sold within a certain timeframe?
- Does my home need to be prepared or repaired before I sell it?
- Will I be able to make a down payment on a new house and/or achieve other financial goals with my home equity?
- Do I have to make a profit when I sell my home? Is there a profit if so, how much?
You can decide whether to sell now or wait for a better opportunity by answering these questions. Take these three steps when making a financial decision to ensure you are fully informed.
The First Step: Assess Your Financial Situation
Home value minus mortgage debt = equity in your home
It’s important to come up with a solid estimate of how much your home is worth if you are not sure. This can be approached in a number of ways. You can simply hire an appraiser to provide an unbiased estimate, based on local sales data and a variety of factors including the size, condition, location, age, and other features of your home. You can also ask your real estate agent for a comparative market analysis (CMA), which provides details on nearby homes that have recently sold. CMAs provide valuable information that will help you determine your asking price. You can conduct your own comparative market analysis if you are willing to put in a little time and effort.
To calculate the amount you owe your lender, examine your current mortgage bill or other mortgage documents, as well as any second mortgages and lines of credit you may have.
You can now calculate your equity by subtracting your mortgage from the value of your house. In the case of a $265,000 home and a $135,000 mortgage, you have $130,000 of equity ($265,000 – $135,000 = $130,000).
Your next step is to figure out your net equity, which is your total equity minus the expenses you expect to pay as you move through the selling process, including:
- Renovating or repairing your home
- The price of a listing if you are selling by yourself or the commission of a seller’s agent if you hire one
- Fees for appraisals
- Fees associated with title insurance
Consider your home’s condition at this point. Make sure you know how much money you’ll have to invest before listing. Determine what repairs your home needs and what upgrades would help you sell it more quickly before putting it on the market.
To figure out where you stand, add these numbers up on a spreadsheet. An agent’s spreadsheet for that $265,000 home might look like this:
The total equity (ex. $130,000) and subtract the following:
Renovations/repairs: $5,000
Commissions for Traditional Agents: $15,900
Amount of appraisal: $300
The cost of title insurance: $1,200
The attorney’s fee: $500
Relocation: $1,500
Fees for other services (inspection, etc.): $500
Amount of net equity: $105,100
In order to make a smart decision when selling your home, you must establish your net equity number. As a result, you will be able to determine whether you’re in a favorable position to sell your home.
The second step: Consider your options for selling your home
What is the best way to sell your house? Should you use an agent or should you just do it yourself?
How Do You Decide If You Should Sell or Buy a New Home First?
Choosing when to buy your next home is an important part of the decision to sell your current home. When it comes to buying or selling first, there is no right or wrong answer. Choosing is a matter of preference for some people. Buying before you sell is likely to require carrying two mortgages for a time, which is what some people do in order to avoid stress. When you sell before you buy, you are inevitably going to be “homeless,” which is an unavoidable reality.
You can make an informed decision based on your current housing market if you are open to either scenario. It is easier to make an offer on a home if your current home sells in a buyer’s market. This allows you to secure a purchase while you work on selling the house. The homeowner can be more selective when it comes to receiving offers in a seller’s market. Therefore, a contingency that requires them to wait will be less likely to be accepted.
Which month is best for selling a house?
You’re likely to achieve the best results if you get ahead of the crowd. Home sales in May exceeded the estimated market value by 5.9%, making it the most profitable month. However, if you start thinking about selling in June, you don’t have to rearrange your schedule or wait a year. Every season and market has pros and cons. A spring sale may be a good choice if you have the choice of any season.
THE THIRD STEP: SET THE PRICE RIGHT AT THE BEGINNING
How is a property comparable?
It is most likely that appraisers and real estate agents will base their price estimates on comparable sales in your neighborhood, ideally ones occurring within the last three to six months. You should take into account the condition, age, square footage, location, and the number of bedrooms and baths of comparable sales when determining the price of your home. As your market changes, the sale date will also reflect the latest changes.
Bedrooms and baths are typically more important to buyers than square footage when determining the value of a home. A two-bedroom home in a neighborhood with mostly three-bedroom homes will almost always sell at a discount, no matter how large the square footage is. Similarly, most buyers are looking for more than one bathroom in a home with one bath. A home’s price may plummet as well if it lacks a particular feature that most homes have – such as air conditioning.
After you identify a few recent comparable sales that look promising, drive by them and take a look around. The size of the lot and landscaping should be comparable in order to determine if a home is a true comparable.
Let’s get to the pricing
Having an idea of what your home is worth is already a good start. To construct your own market analysis, you will need to find more reliable sources of home pricing trends. FHFA, for example, has two tools that draw data from federally insured loan programs to analyze home sales.
A House Price Index is compiled by the Federal Housing Finance Agency (FHFA) and tracks home prices across all 50 states, the District of Columbia, and most Metropolitan Statistical Areas (MSAs). You can use FHFA’s index to gauge your local market if your metropolitan area is included. By plugging in the price you paid when you bought your home, FHFA’s House Price Calculator can estimate what the house is likely to be worth today. Your local property tax site may also provide you with information on recent sales prices of homes similar to yours. Also, check out local newspapers for a list of recently sold properties or search public records online for information on properties. You will be able to further narrow down your price range by adding homes that make sense to your database.
Additionally, checking out comparable homes for sale at open houses is a good idea. If you check out your competition, you’ll be able to determine the right asking price for your home, and you may also be able to gain an edge over them by improving your own.
Defy the urge to overprice
Overpricing is a strong temptation. Most people believe their home is the exception and will fetch a higher price than similar homes. Usually, though, this isn’t the case. The modern buyer is savvy. Almost everyone who looks at your house – with or without an agent – has scouted out properties online and offline. The majority of buyers and agents will recognize overpriced properties immediately.
A house with an overinflated price will compete against homes with more bedrooms, bathrooms, square footage, or a better location. Typically, buyers who are looking at lower price points will not see your home since most are looking at lower price points. Home prices usually come down to where they should have been from day one when homes sit on the market for months.
Keep these other points in mind:
An appraisal is usually required by a lender when someone buys your house and subsequently gets a mortgage. Buyers will need to come up with extra funds if the appraised price of your home is less than the agreed-upon sale price. In any case, the lender is not guaranteed to underwrite the loan. In other words, even if you find a buyer willing to pay your price, they most likely will not be able to complete the sale unless they are paying cash. As a result, you will lose time and be unable to purchase your next home.
Considering a certified appraisal at this point in time may be worthwhile if you have not already. Price opinions provided by appraisers are unquestionably the most authoritative. In addition, an appraisal might be a good idea if your house is unusual or in a difficult neighborhood.
Achieving a price that maximizes your appeal to buyers and attracts offers that reflect your home’s actual value is a tricky balance act. Your home’s price will become apparent once you’re confident it’s priced correctly, and you will know when to sell your house.
A house with an overinflated price will compete against homes with more bedrooms, bathrooms, square footage, or a better location. Typically, buyers who are looking at lower price points will not see your home since most are looking at lower price points. Home prices usually come down to where they should have been from day one when homes sit on the market for months.