Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Wednesday, July 29, 2009

The Selling Side of Today’s Real Estate Market

We all are aware that the housing market in Metro Detroit is anything but a seller’s market. But, if you’re looking to sell and then buy something in the same area, it may not be all that bad. Of course, being able to sell has a lot to do with the equity position you have in your house and when you bought it. If you are able to sell, you can position yourself to get a really great deal on a new house. Selling at a price much lower than what you have invested in your home is very difficult to do. Just make sure you view the sale of your house as an investment and avoid getting hung up on all of the sweat equity you put into improving it and making it your own. The more emotional you get, the harder it will be to move on.

One thing for sure is that putting your house on the market is very expensive.
Consider the typical costs (Example: $150,000 house):

Hire a traditional real estate agent to list your house = $4,500
Pay the Selling Agent a commission for bringing you the buyer = $4,500
Pay the State regulated transfer tax of $8.60 per $1,000 = $1,290
Purchase Title Insurance = $600
Pay Home Warranty premium (if required by buyer) = approx. $375
TOTAL $11,265

To top it all off, it is not unusual for buyers to ask sellers to pay up to 3% of the buyers’ closing costs to obtain their mortgage! When it is all said and done, you could be looking at a $16,000 bill just to sell your $150,000 house.

Because of this, sellers are trying anything to lower their costs to sell. The only potentially negotiable costs listed above are agent commissions and paying the buyers’ closing costs. And, closing costs may not be negotiable with many buyers strapped for funds.

One thing to consider is what’s called a “flat-fee listing service”. These arrangements are quickly growing in popularity. Essentially, a flat-fee listing service provides you with the same online exposure as a traditional real estate agent at a much lower fee (usually $500 - $1,000 depending on the services you are interested in). It’s a huge step up from “For Sale By Owner” but without a huge cost. When you’re looking at paying an agent three percent to list your house, consider a flat fee broker and use the extra cash to save for your next house. Not only that, if you can somehow find a buyer that isn’t working with an agent, some flat fee broker arrangements allow you to sell your house on your own, avoiding the three percent fee on the other end. While the odds of finding your own buyer are slim, you just never know who has been eyeing your house for years.

If we assume you will have enough equity after the selling costs are accounted for to buy a bigger/better home, you still have three other hurdles to overcome once a buyer is found. The first is that your house must appraise at a high enough value to secure approval of the buyer’s mortgage. If the appraised value comes in too low, you will either have to renegotiate with the buyer, or risk losing the deal altogether.

The second hurdle is making it through the buyer’s inspection of your home. They may point out repairs that are necessary before they agree to buy the home. If you can’t do the repairs yourself, you may have to foot those bills too. The buyer could even back out of the purchase if there are too many things wrong.

Last, but not least, the buyer needs to qualify for their mortgage. In today’s volatile job market, just because someone is pre-qualified doesn’t necessarily mean it’s a done deal. What happens if the buyers lose their job at the last minute? Assuming they do qualify, try to arrange for a closing as soon as possible just in case something happens and they want to cancel the deal at the last minute.

Hopefully this hasn’t scared you off from making a move. There is still a nice $8,000 tax credit for first time homebuyers to take advantage of and don’t forget - it only takes one buyer to seal the deal. Good luck!


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