PREPARING TO SELL

Deciding the Best Course of Action - the Whole Plan:

Before you go to all the trouble of putting your property up for sale, it is a good idea first to determine if that is really what you should be doing. That seems like an obvious statement, but you'd be surprised at how many times people put their house on the market, then decide they didn't really want to sell it after all, or that selling it wasn't as good a solution to their problem as something else. It usually begins with a person discovering that they have a problem of some kind that involves their real estate. The real estate can be part of the problem, and it can also be part of the solution. A good approach to take first is to thoroughly examine and clearly state just what the problem actually is. That is Step One. Next, one should pose possible solutions that will handle that problem - without creating worse problems. One should also state the desired OUTCOME one wishes to see. Whichever solution promises the greatest benefit and is the least detrimental is obviously the best choice.

Here are some examples where putting one's house up for sale is probably not the best solution:

The house is just about perfect in every way, except that the dining room is too small for the new dining room set your wife just purchased. A house with a much bigger formal dining room is needed, to accommodate the new dining room furniture. Selling the house to find one with a larger dining room is a wrong solution, as it would be much easier to simply get rid of the dining room furniture and replace it with something that fits the existing dining room.
Grandma has expressed some interest in selling the farm and moving to town to be closer to the grandchildren. It would be nice if grandma could live with us, maybe in her own basement apartment. Let's sell our house and buy one with a "mother-in-law" apartment in the basement, or maybe buy a duplex. We could live in one side, and grandma could live in the other. We can store whatever of our ( and her ) furniture that we don't have room for. Wrong solution. Grandma hasn't made a serious commitment yet, only toyed with the idea, and she probably won't ever move. Even if she did, it would mean making a catastrophic change in both her and your family's life style, especially regarding the furniture.
Since dad got laid off down at the shoe factory, we've gotten behind a few payments on the mortgage. Let's sell the house and get something smaller and cheaper, before things get worse and the bank forecloses on us and kicks us out on the street. Wrong solution: Foreclosures take longer to happen, and just one or two months in arrears, while serious, is not the "End of the World". Besides, it is doubtful that you could qualify for a new loan on a replacement house, since your credit is now worse due to the late payments and the fact that dad no longer has a job. Also, a replacement house may not necessarily be "cheaper", especially if prices have gone up. You'd probably be better off trying to ride out the storm by borrowing money, cutting your expenses, and looking for one or more new replacement jobs to tide you over, working out a solution that would allow you to recover over a period of time.
I heard a friend of mine say that the State is thinking of buying up all the land around here to build a new jail, and if they do, then property values will crash. Best to sell out now, before prices hit bottom. Wrong solution: At this stage, it's only a rumor and probably not ever going to happen.
The house needs too much in the way of repairs, and it would cost us too much to fix it. Better to sell it "as-is" and buy something that's already remodeled - maybe a brand new house. Wrong solution: Unless you yourself fix it up, chances are you will take a big loss on it if you try to sell it "as-is" in bad condition, and you'll end up paying a sky high price for a new house that isn't much bigger or better. Just like a new car, you'll be paying for the "newness" of it.

One can probably come up with many more similar scenarios, like the above, that are not so obvious but where nonetheless selling the house may not be the best solution for the property owner.

However, once you do decided that selling the property does make the most sense, its a good idea to map out the general sequence of actions and events which need to take place in order to bring about the desired outcome.

For example:

Let's say that Step One (Problem) is: The house is too small for my growing family and I can't function in it as I want to.
Step Two - The desired Outcome, is: I want a house that I can afford and is large enough to suit my needs, with a minimum of 3 bedrooms, 2 bathrooms, and a 2 car garage.
Now, in order to arrive at Step Two, one needs to do someback tracking and find out what steps need to occur, and in what sequence, in order to move from Step One (where one IS) to Step Two (Where one wants to Be).
We discover the following steps are needed:

Ascertain if solution type homes are available and at what price.
Ascertain if I can obtain financing needed to purchase one.
Determine market value and equity in my present home.
Decide if it is feasible to sell it.
Select a Realtor to handle #1 thru #4.
Select a lender to finance all of it.
Put the house on the market.
Look/shop for homes.
Arrange to contract for a house, while at the same time getting a buyer for your house.
Close on both houses simultaneously.
Move.

That would be an example of a typical sequence of actions between the posing of a problem and it's ultimate solution. That would be a typical sequence of events where one is actually moving from one property into another. Happens all the time.

Here is another example:

Step One:

I have owned this rental property for 17 years and I am tired of being a landlord, dealing with tenants, repairs, etc. I want an easier life, with less headaches.

Step Two:

The desired outcome is: I want to get rid of the property and convert my equity into cash (for now), then invest it into something passive that I do not need to spend a lot of time on managing and worrying over. The sequence might be:

Determine your equity by obtaining an estimate of market value (see a Realtor).
Investigate any tax problems you might have in selling the property (see your tax adviser).
Decide where you'd rather have your money invested (see an investment counselor).
Hire, as needed, any of these guys to do what is needed.

The exact details and sequences are, of course, going to be slightly different for each case, but in general this is what you would do, so that you and everyone involved know, going in, what everyone is shooting for.

Preparing the Property for Sale

Preliminary Title Search What you don't know will hurt you.

Your broker can contact one of the Title Insurance Companies he deals with and order a full Ownership & Encumbrance Report (O & E) on your property, prior to listing it for sale. This O & E report amounts to a preliminary title search, free of any cost to you, the seller. It will reveal the present status of the property as far as what liens and mortgages - paid or unpaid - may be recorded against it, deed information, information on any easements, restrictions, covenants, mineral rights, etc. The O&E report will more than likely reveal most things of a detrimental nature that could effect the sale of your property. Just like a pre-inspection, it is better to know sooner rather than later if there may be any problems that could cloud the title to your property and make it hard to sell.

Pre-Inspection, to Find Problems: What you Don't Know Will Hurt You!

(One reason to do an inspection is to find out what repairs you may need to make, and then see if maybe you can get it done for free if it is covered under your homeowners insurance. For instance, if you have unrealized roof damage, you could get compensated for all or part of a new roof and not have to pay, except for the deductible).

The old adage " What you don't know won't hurt you" sounds great, but it's not true.

There is a small chance that some physical or mechanical problem with your property may go unnoticed by either you or the buyer, but don't count on it, as the odds are it will be discovered. Here is the set of choices sellers face when a physical or mechanical problem with their property exists:

If the seller knows about it, he must disclose it to the buying public or face a possible law suit, as failure to disclose a property defect constitutes fraud.
If a defect exists and is then discovered by a buyer, it may or may not be required that the seller fix it. It depends on how serious it is. It's often negotiable. It is usual, however, that the more serious items will be matters that the buyer will want the seller either to fix or to adjust the price to compensate for.
No property is perfect. Any property is going to have a few things wrong with it, and most buyers are sensible enough to realize this. It is, after all, a "used" house, and is not brand new. The buyer is mainly interested in discovering the present condition so that he can predict any future problems and costs as best he can. Chances are, finding a few defects is not going to surprise him, nor kill the deal.
It is usually best for a seller to be made aware of a defect - especially a serious one - well in advance, so that he has time to deal with it, rather than have a resolution of it forced on him as a big surprise requiring big, rush, emergency measures to handle it.
It is human nature and not uncommon for people to form a negative opinion of a property if it has a lot of flaws. If a number of flaws are found, people will wonder what else may be wrong that's more serious that they can't see, and this may color their judgment when it comes to renegotiating price and terms when a negative inspection has been made.
A property with very few flaws, that is in excellent condition, tends to sell faster and for a better price than those that aren't.

Because of these things, I and many other Realtors recommend that the first thing a seller does, either before or just after listing their property, is to order out a home inspection for themselves, to objectively ascertain just what condition their property is actually in. Then, working with their broker, they can better map out a strategy which will accentuate the positive features of the property while handling and/or eliminating the negative features found.

Following is an example of 2 scenarios involving a home sale - one with a pre-inspection, and one without, to illustrate what can happen:

Example # 1 - Without a Pre-inspection:

The home is a 3 bedroom, brick home with a full basement and a 2 car attached garage, built in 1963. Listed for $200,000, the property has been priced for a "quick sale". It has been shown 17 times in the last 30 days, before receiving an offer. The offer was for $193,000. The buyers justified their low offer by stating to their Realtor that they felt the property was "old" and "needed work". This opinion was based on their own observation of one or two small cracks in the basement wall, and what looked like water stains on the basement ceiling. Also, one of their in laws had told them that a lot of houses in that area had "soil problems" due to bentonite in the soil. They also felt that the wiring might be defective, as there was an electrical cord in the garage that had multiple outlets and many wires coming out from it, and it looked funny. Also, when the wife had turned on the kitchen sink, it seemed like the water pressure was low, and the faucet continued to drip after the water was shut off. The seller countered their offer, and the home went "under contract" for $195000. Feedback received by the Seller's broker from other previous showings had indicated that many of the other prospects had had similar concerns and wanted to keep on looking for a house that needed "less work" (fewer repairs/lower maintenance). The contract date was October 27th. The closing date was to be November 27th, which was typically about the right time needed to process the deal. The contract called for an Inspection to be done by Nov. 3rd and any objections to be resolved by no later than Nov. 6th. As they had already used up 2 days negotiating back and forth over the price, the buyers now had 4 days left in which to order and make a home inspection. They contacted several home inspection companies, and arranged to meet with one of them at the house on Nov. 1st at 2:00 p.m. The inspector spent about 2 hours (typical) going through the property and making his report. At the end, the inspector gave the buyers a written report on everything he had found, good and bad, about the property. He'd listed all of the negatives on the summary page of his report, and went over it briefly with the buyers before leaving for his next appointment, stating that if they had any questions they or their broker should call him. Of course, the seller of the property was not there and had no idea as to what the inspector had found. That evening, the Buyers and their broker met to go over the Inspection report and decide what to do next. The inspection report contained the following negative comments:

Evidence of possible homeowner wiring. Recommend electrical certification from licensed electrical contractor. (This was based on some questionable wiring that had been done by the Seller in a spare bedroom in the basement, where he had tried to rig a built-in stereo system into the wall).
Evidence of water damage to ceiling the basement. Recommend plumbing inspection from licensed plumbing contractor to determine condition of bathroom plumbing on floor above.
Two broken floor tile in bathroom.
Toilet loose where screwed to floor, in upstairs bathroom.
Low spots near foundation, SW corner of house.
No safety valve on hot water heater, and wrong type of pipe being used on overflow pipe - should be copper instead of galvanized iron.
Hole in master bedroom door.

Now the buyers were a bit worried about what needed to be done to make the house safe and functioning, versus what the sellers would be willing to do. After discussing the pros and cons for an hour or so with their broker, the Buyers made the following requests on their Inspection Notice: They decided to require the Seller to make the following corrections:

Provide a certification from a licensed electrical contractor that the wiring in the home was safe and adequate.
Provide certification from a licensed plumbing contractor that the plumbing in the bathroom was o.k., and also fix the loose toilet and the faulty safety valve and pipe on the hot water heater.

They decided to forget about the other minor flaws. They felt that their requests were reasonable as, after all, they had to do with issues of health and safety. The Sellers, when presented with the Inspection Notice requests were initially upset and felt that the plumbing request was unreasonable. They knew that the reason for the basement ceiling showing water stains was because 5 years ago the bathtub had overflowed and made a mess. They had just never bothered to repaint the basement ceiling to get rid of the water stains. But there was no plumbing problem. One of the kids had became involved in watching t.v. and had forgot to shut off the water he was running in the tub for a bath, and it overflowed. However, they could understand how the Buyers might think there could be some problems and so they agreed to the plumbing certification, as well as the other items. The total cost of the required inspections, certifications and repairs came to about $825. It involved running around making phone calls, meeting with the plumber and the electrician, getting 2 other estimates on electrical work, as the first electrician would not certify the wiring until some other work having to do with the breaker box was corrected, for which he wanted $600. As all of the repairs could not be completed in time for the Nov. 27th closing date, the Buyers and the Sellers faced another problem. If they had to extend the closing into the following month, the Seller's lender, since the loan they had was an FHA loan, would charge them a full month of interest for the month of December - even if they closed and paid off their old loan on Dec. 4th.
The Sellers naturally did not want to do this. The Buyers, however, didn't want to wait an additional month to close on Dec. 27th, and they definitely wanted the repairs done and paid for by the Sellers. A compromise was made and the Buyers and the Sellers agreed to have the closing agent hold out some of the Seller's funds in escrow to pay for the repairs, which would then be done at a later time after the Buyer's moved in to the house. To be on the safe side, as was the closing agent's policy, they held out 2 times the amount of the average bid on the electrical work, just in case the contractor couldn't perform. As a result, the Sellers had to wait an additional 3 weeks to get a refund of the excess amount that was held out.

Example #2 - With a Pre-Inspection:

Broker and Seller meet to discuss putting the house (SAME house as above ) on the market. Sold comparables range between $200 - $205,000 for the same model/size, etc. in the area. The Seller wants a quick sale, "as-is" and feels that the property should go fairly soon at $200,000. This will be a "bargain" for a buyer, who at that price could now afford to do his own repairs with the $5000 "savings". The broker, however, points out that he may be better off doing some repairs now and get a higher price. The Seller agrees to have an inspection done, prior to listing. The Inspection comes up with the same list of items as in the first Example. In addition, the inspection also indicated some possible old hail damage to the roof. The Seller then contacted his homeowners insurance agent and filed a claim for roof damage. Even though the hail damage had occurred several years previously, and the roof was not leaking, the insurance company approved the claim and paid $2200 for the damages. The Seller then got several estimates from local roofers and got one bid for $3000. He hired this roofer to put on the new roof, and it cost him only $800 out of pocket. The Seller now does all of the repairs indicated by the Inspection, including the brand new roof. His total cost was $1600, including his share of the roof and the cost of the Inspection. In addition, he agreed to purchase a Home Warranty Policy for the new Buyer, offering coverage against failures to all systems and appliances for one full year. This cost him $350. His total cost for all repairs, inspections and home warranties was $1950.

Compared with the Seller in example #1, he paid out $1125.00 more of his own money. However, he could now advertise the property as having a brand new roof, plus the fact that he was providing a free one year Home Warranty Policy. The end result was that he sold the property at his full asking price of $205,000, instead of $195,000 as in the first example. And, the property sold within the first 10 days! The seller netted an additional $8875.00, and the Buyers felt that they had gotten a really great deal on a home that was in "excellent repair"!

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