1. Buying your new home before selling your home when you must sell in order to buy your new home.
There are many times this happens when people are looking to move and they go shopping for a new home before selling their home when in fact they must sell their existing home in order to qualify for financing their new home.
Doing this can potentially cost you thousands of dollars on both the purchase of your new home and on the sale of your existing home.
I want you to imagine in a normal market, let’s say Mr. and Mrs. Smith are looking to move. There aren’t too many people when looking to buy a new home that say, hey when I buy my new home I want to pay full price. In fact it’s just the opposite of that right?
So when Mr. and Mrs. Smith shopping for a new home first and one of them or both of them fall in love with their potential new home they ask their agent to help negotiate with the seller’s agent and get them under contract right away to secure the home.
Now I don’t care how great of a Buyer Agent you are, when your client must sell their home before being able to purchase the new home – you now must ask the seller to do 2 big items. The first is to please pull your home off the market and risk I may never sell my home and actually buy your home, which is a pretty big ask if you ask me!
Then secondly oh by the way now that you are taking that risk, would you lower the price for my Buyer as well! So you can picture in order to make sure the Seller is going to take the risk to take their house off the market for you as the Buyer they are going to only do that if you give them the asking price and perhaps some other stipulations like a larger EMD and some timing conditions, etc. So this is how you can loose thousands on the purchasing side of things.
Next we have the Sale of your home to talk about. Typically when you go shopping first, people haven’t placed the home on the Market yet so there is a rush to do that right away because you are now under time constraints to sell your home or potentially loose the new home, your EMD, or both! So we rush and get the house on the market and now are left trying to get the house sold quicker than we normally would have if we were selling it first then going to purchase a new home. So what typically happens is you as the Seller now, may take a lower offer or an offer from a buyer that’s not as qualified as perhaps another buyer had we had more time to be patient and work with more potential buyers. So this is now how you can loose thousands on the Sale side of the process as well.
Going about moving in the incorrect order when you must sell in order to finance your new home could cost you thousands by simply going about it in the incorrect order. It usually makes an already stressful process even more stressful with all the added pressure you place on yourself.
There are some people that would say, well I don’t want to sell my house and be homeless potentially if I can’t find another one. True. We don’t want that either which is why you can either negotiate for longer occupancy or even add a condition that if you can’t purchase a new home you have the option to terminate the sale. There are many ways to ensure you are able to achieve your goals without sacrificing your finances in the process.
2. Repairing, Remodeling, and Replacing things before you list your home for sale.
This may be one of the biggest mistakes I see people make when selling their home. Its very important to understand a few key concepts for why repairing, remodeling, and replacing things can cost you more than it helps you when you sell your home.
Let’s take the example where the seller decides to remodel a portion of their home like installing a new countertop but leaving the out dated cabinets, flooring, and other fixtures. The buyer is now thinking when I buy this home, I need to figure out how to remodel all the items the seller didn’t get to without destroying these new countertops or they might think what a waste of money, I don’t even like these countertops – I’d rather have a different one. I’ve seen sellers do a $40,000 kitchen upgrade to have the buyer rip everything out because they didn’t like cherry cabinets and wanted a white painted cabinets! Flooring is another big example, you pick out grey carpet and the buyer would have preferred something more beige or perhaps they want to remove the carpet and install othering flooring.
Usually the buyer that is going to buy your home doesn’t have the same style as you and would prefer to remodel everything the way they prefer and not how you did it.
After you “remodel” as a seller you are now expecting the buyer to pay more because you spent money to do all of these things. I have news for you, the buyer doesn’t care what you spent on these things, especially if they are going to be spending their money to redo whatever it is you just did.
Next let’s look at when seller’s start repairing everything they can see that could use fixing around the house before selling their home. Depending on how long you have owned the property, you may have a few repairs, dozens, or even more to tackle. Unless you are handy, you will end up hiring a lot of different contractors and / or handymen and costs can really add up. So what could an entire remodel of your home cost when you do a kitchen, couple of bathrooms, some flooring, repaint the house? If you sink say $80,000 to $100, 000 into making your home look brand new again – do you think you are going to get all that money back as a seller? The answer is no so don’t waste your time and money.
What about things you think might come up in an inspection though? I have had many clients that were told they need to at least address these type of items or no one would be able to buy their house. For example, I’ve had a client whose agent told them they needed to replace a part of their driveway because FHA inspector would not allow then to sell the home in that condition, as it turned out the FHA inspector didn’t care about the driveway and wanted other items fixed. Fortunately for my seller they didn’t spend that $10,000 to fix the driveway that the Buyer didn’t care had about the cracks either.
There are some municipalities that will require a City Inspection where they come in and have a checklist of items they review to ensure the safety of the home required to be updated before the Certificate of Occupancy will be allowed. Typically we have seen the municipalities require thing such as updating electrical outlets, installing fire alarms, updating fireplace units, etc.. I would recommend you have the City Inspection done before listing the home so you can find these out and have these scheduled or to be prepared to address with the buyer prior to listing the home. As the seller, you don’t necessarily have to make the repairs, the buyer could do them but it will be a negotiating the price so I would I’d prefer you know prior to going into the Sale how this will affect what you will NET once the home is sold than it be a surprise.
If it’s not broke don’t fix it! I’m sure you have heard this before. This is something I can tell you will drive you crazy as a seller and I’ve seen this happen more than once, a Seller decides to replace an item such as the Furnace or Air Condition Unit proactively and then before they close on the Sale of their home a storm hits and damages the system requiring it to be replaced for a second time! Imagine shelling out another $4,000 or $5,000 to fix a furnace you just replaced!
Time is another issue that is hard to determine how much money it can cost you. It takes a lot of time to remodel and repair things. What if you did this right before a market adjustment and your home value drops in the middle of you doing all these things or right before another mortgage rate increase that costs you much more to finance your next home.
We highly recommend to discuss your ideas of with us before spending unnecessary time and money on repairs and updates that we can negotiate a lower cost impact on the sale of your home verse the money would spend which will help you NET more money when you sell your home in the end.
3. Over Pricing your home
Despite what you might hear from your family, friends, neighbors, or others that may not understand how pricing truly works when it comes to selling homes, overpricing your home doesn’t help you net more money when you actually sell your home. We’re talking about the majority of homes that you would consider typical of a town or city, not some crazy celebrity mansion or other properties that ninety nine percent of the people on earth could dream to afford.
There is an art to pricing your home that professional, seasoned real estate agents know work successfully every time to help you as seller achieve the best price and terms, however it usually scares most sellers and rather than argue to be “right” just to loose a listing – most agents will side with the customer and over price the home. After all, listings are great! Agents use them to help get more business through advertising the property via the For Sale Sign, website platforms, open houses, news papers, etc.. Even if your home isn’t selling, it can be helping that agent out by gaining other buyers so why not let you over price the home, get some business, then hope you come around to lowering the price and sell it then?
The number one question I get asked is, “if we price the home at a low price, doesn’t that mean we may have to take it or we might not get what we really want? Why would someone want to pay more?”
Let examine this a little…
First, the majority of homes never sell at the Asking Price.
I’d like you to consider that when you price the home, this is not the actual price you are agreeing to sell your home for. Take for example if you over price your home, you could for see that you most likely will end up selling for less than the asking price. Especially if you actually, need to sell your home right. Then you will eventually take one of these offers that is for less than you were asking for. So that means you didn’t sell the home for what you were asking, right? Right.
If you can settle at a lower price, you can also settle at a higher price!
The Final Sales Price goes both ways and most people aren’t really aware of this until recently after COVID when everyone was getting multiple offers for homes because of the tremendously lopsided sellers market we were in.
If your asking price is less than it should be, more than likely you are going to get multiple offers and unless you have a very lazy or scummy listing agent – you should be able to sell your home for more than what you are asking for and you will take advantage of getting all the other terms and conditions you want as well.
So again, its actually very rare that a house sells at the exact price is was offered at. So we can agree, the asking price is not the price you are likely going to sell the home for.
Secondly, I really need you to get this other point. The buyer who is going to purchase your home, doesn’t care what you want! They are trying to purchase the best home they can with whatever means they have available to them. So if there is no one in the market who wants to buy your home at the high price you are asking, neither will the one buyer who may actually want your home. They will hope to get it then at the lowest price they can in this case. Why would they give you more than what they feel they need to?
On the other hand, if the buyer wants your home and must compete against other buyers for it, then they will offer as much as they can afford to be able purchase your home. How do you get buyers to compete for your home? I can tell you its not by over pricing it!
The other option for pricing is to price your home right at the market price, which will tend to cause a buyer to proceed with offering you a great price and terms because the buyer looking to purchase your home and knows the market will feel what I would refer to as “Market Pressure” to make sure they solidify the deal and not loose out.
So now as a seller, you must think – Should I price my home competitively to sell it quickly with gdo terms and conditions? Should I under price so that I get multiple offers where I can negotiate until I get to the best price and terms? Or…Should I price my home high where I might receive an offer if I’m lucky? Oh and I’m so lucky this buyer who has no other buyer to compete against will agree to over pay me for my home no matter what?
I don’t know about you but this doesn’t seem likely to happen, but ninety nine percent of sellers all want to start higher than they should thinking what’s the harm in trying.
Well the harm can be that the potential buyers see you over priced the home and can see your home either sitting there on the market longer than it should or can see you lowering the price and now feel they are in a better negotiating position which doesn’t translate to you receiving the best offer. Or even worse, the buyers won’t even come look at your home because they can see its overpriced it and don’t want to waste their time?
Keep in mind that pricing is an art and a professional agent can use techniques to choose the price we think will work the best to achieve your goal but we may choose incorrectly. Not to worry the market will let us know. Its absolutely crucial we listen to what the market is telling us and make pricing adjustments timely to achieve the best results.
It might be the case that the market is telling you, you are not going to get what you need, not what you want, from your home sale and you need to change plans and try at another point and that is perfectly acceptable. Sometimes trying to force the sale when its just not the right time can hurt you as well.
A professional listing agent that has experience selling homes using pricing strategies and understanding the market and how to make the proper adjustments can be the difference in tens of thousands of dollars or hundreds of thousands of dollars depending on the price range of your home. Make sure you are comfortable that the agent you are using understands pricing inside and out before selecting your agent.
4. Accepting a contract too quickly
I’m here to let you in on a little secret. The entire real estate industry has been transformed over the years to protect buyers when it comes to the Home Sale Process. I’m not against consumer protection, but I do feel that you as a seller also need to be protected during the home sale process just as much as the buyer does. As you can imagine though, the boiler plate purchase agreement template and mind set of the Buyer Agent is not designed to offer you as the seller all of the terms and conditions you want but rather the terms and conditions that favor the buyer instead.
Let’s look at what we would call the most critical terms and conditions that you as seller would want to focus on and in the order I would suggest you evaluate them on. 1. Sales Price, 2. Financing Method (Cash, Conventional, FHA, VA), 3. Amount of the Down Payment, 4. Amount of the EMD (and is it real), 5. Closing Date, and 6. Occupancy.
If you notice, I’m not listing inspection in my top items and that is because if you have multiple buyers to choose from – this is usually not an issue. One of the buyers will be wiling to purchase your home as is without asking for a bunch of ridiculous things to be done. You can only achieve this freedom if you are willing to not over price your home though and have multiple buyers to choose from. If you choose to overprice your home and are the mercy of the one buyer who wants to purchase your home, these terms and conditions are all difficult to achieve and the inspection may or may not be difficult but either way this is more or less random whether some buyer feels that you are responsible to give them a new home when you are selling them a resale home. You may be best with negotiating a lower price to finish the deal or let that crazy buyer loose and move on to a new strategy altogether.
Let’s look at the terms…
1. Sales Price. I know this seems a bit obvious but a high Sales Price offer could be meaningless if the buyer is not able to guarantee the Sales Price. Sometimes or many times I should say, the buyer’s offer is contingent on being approved for a Mortgage which could be very dependent on appraisal value. If the buyer is not able to guarantee the Sales Price and you accept their bogus offer, you may have no choice but to lower the Sales Price so the buyer can obtain the financing and that costs you thousands in your sale.
So how do we know if the buyer is able to guarantee the Sales Price? How do we get around the pesky appraisal issue? Well, let’s take a look at item two on our list.
2. Buyer Financing. If the buyer is paying Cash then there is no appraisal and its definitely not a problem. Now if the buyer is going to get a mortgage, if they are able to get a Conventional mortgage they typically are going to be putting a minimum or 20% down and may have more they could put down so this is another way the buyer is able to guarantee the Sales Price. Now if the buyer is only able to barely put 3.5% (using FHA) or possibly 0% (VA) then they more than likely will not be able to guarantee the Sales Price. Sometimes a buyer may choose thees though as a preference to keep cash on hand, so this is not always the case, but best to ask enough questions to ensure the buyer is not simply relying on whatever the bank can hopefully do for them.
3. Down Payment. The amount of money down the buyer is using is a crucial part of ensuring they are able to guarantee the offered Sales Price. Now this may not seem obvious but if a buyer is putting 50% down, the lender is not as worried about the buyer fulfilling their mortgage obligation as they would be if they only put 3.5% or 0% and the appraisals tend to come back much higher or sometimes even get waived altogether. So electing a buyer that is able to put more money down, the better the chance there won’t be financing issues preventing them from being able to pay the offered Sales Price. IF the buyer was going to put say 30% down and the appraisal came back off a little bit, the buyer would be able to put a little less down and still get financing which would make their ability to honor say a Price Guarantee much better than if they were putting very little down. So the more the buyer is able to put down the better for you as the seller.
4. Amount of EMD and its terms. So let’s consider a buyer is buying a $300,000 home and they offer a $1000EMD with a offer contingent on mortgage approval. What is to say this buy has a chance of mind or something else that sways them to walk away form the purchase of your home. Well no one really wants to lose their $1000 EMD but let’s say that buyer had offered you a non refundable $9000 EMD upon removal of their inspection contingency? Now I think this buyer is much less likely to walk away from the purchase of the home and much more serious about purchasing the home than the buyer who is only willing to provide a $1000 EMD that may be refunded for any variety of reasons that could come up during the process. This is what I mean by is the EMD real? For example if you give a builder a EMD to build you a home and you end up not purchasing the home, you are more than likely losing your EMD.
5. Closing Date. Closing date is important because you as a seller may need the closing date to be quick or as late as possible depending on your situation. For example, maybe you need to close in 2 weeks so you can sell your home and go complete your purchase in a new state as part of a job transfer or relocation. Or perhaps you’re building a home and want to drag our the closing a little bit because you know the builder won’t be finishing as soon as you would want and you want to time the closing better to meet your moving needs.
6. Occupancy duration and cost. As mentioned above as the seller, you are more than likely moving into a new home and may need occupancy because the home you purchased the seller won’t be out right away or you need time to get in and renovate the home, replace carpet, or paint, or whatever. The other item that usually catches sellers off guard is that once you close on the home, the buyers want you to pay rent. That’s right, they after all usually have a mortgage they are paying on and most normal people don’t want to be paying their mortgage for you to be living in there home. So the cost of the rent is important as if you agree to pay too much verse playing a smaller amount or getting some free occupancy that can have a impact on your overall net proceeds.
As mentioned at the start of this, these terms and conditions that you will want as a seller aren’t normally offered up to you from the buyer in the Offer to Purchase your home so your Listing Agent needs to address these topics and that an take some time to iron out all the details and then either get an updated offer or write up the counter offer with the terms you want. What’s most important is to take the time to evaluate each offer and give you agent time to address these topics with each buyer agent before accepting an offer. Accepting an offer too quickly is usually what leads to you accepting less than what you might be able to get if you took a little more time and negotiated these with as many buyers as possible. Sometimes the longer this negotiation takes, a buyer willing to give you the best of all these shows up out of no where.
5. Not choosing the most financially strong buyer
We touched on this a little bit already, but let’s discuss this in a little more detail. There are many times I’m discussing with my seller what financing terms are they open to for potential buyers. Most sellers response is “As long as I get my money, why do I care?”
Well, I’d argue you should care as there is a big difference in the buyers ability to complete the Purchase depending on what financing they have available to them. The number one issue that causes a Home Sale to fall through is the buyer is not able to obtain financing. This can happen for multiple reasons and I can tell you there is nothing worse than someone thinking they SOLD their house and have made multiple steps toward purchasing another home and moving to find out weeks into the process that the buyer is unable to purchase their home now.
Buyer Financing is one of the terms we enter into the MLS that let’s potential buyers and their agents know whether you as the seller are wiling to sell your home to a buyer who would either pay Cash, Conventional, FHA, VA, or through a Land Contract. So for example if you are only open to selling to a Cash Buyer, we can enter that into the MLS and buyer agents can tailor the search criteria for their buyer so if they are unable to pay in Cash your home will not show up as a potential home for them to purchase.
So why would you not just select all of the Financing options then?
Well, you may have a home that you know may have issues with traditional lenders and can only sell to a buyer who can and is willing to pay in Cash so you wouldn’t want to select all the financing options and waste your time and the buyers time..
The other reason is that you may be more selective in what Financing terms you want to evaluate and only want to look at Buyers who are paying Cash or using a Conventional Mortgage.
Cash. Cash is king. When a buyer offers to purchase your home in Cash, with proof of having the Cash, they do not need to get approved from a Lender so its very unlikely this buyer will not be able to close on the purchase of your home where that would screw up your plans so it is always recommended to strongly evaluate Cash offers when you receive them.
Conventional Financing. Typically, a buyer obtaining a Conventional Mortgage will be putting 20% down or at least have a high credit rating with enough Cash reserves that will result in them receiving the Mortgage approval and they can close on the Sale. There are many things such as appraisal gaps, a buyer has a emergency that comes up during the mortgage process, etc that could potentially derail the Mortgage Approval. A financially strong buyer will have options to finish the mortgage process and be able to close on the sale where a financially weak buyer may not.
Now there are FHA and VA loans which are available for buyers who have a less financially strong position to obtain financing. Most of my sellers avoid working with these types of buyers to avoid the potential of not being able to complete the mortgage approval process. There are many instances where buyers will choose to use FHA or VA loans that are strong financially so it may still be an option to proceed with a buyer who is using one of these mortgage products the key is to investigate each buyer first before just blindly accepting these and ending up in a bad situation for yourself and for the buyer as well. Its bad for everyone involved when financing falls through in a home sale.
I can’t emphasize enough how important it is to question, is the buyer looking to purchase my home financially strong enough before entering into a Purchase Agreement.
6. Not using Logik Realty to sell your home for as little as 1%!
First it is important to note, that typically a seller will NET more when they sell their home using a professional real estate agent than if they do it on their own. I know many people out there question this, if you simply look at the fact that you are going to pay a professional real estate agent or agents 6 to 7% of the Sales Price on your home verse potentially 0% of the Sales Price, math suggests otherwise.
Let’s keep in mind however that what you NET as a seller is not always just based on a simple 6-7% commission payout. There are many other factors at play and the majority of sellers NET an average of 12% more using professional services than when they choose to sell their homes on their own. Not only do the sellers NET more, there are far often less other issues you have to deal with as well which make it worth using a professional than not.
When you use Logik, we are a professional real estate service that will help you sell your home with our exclusive 1% listing program. Our commission for the listing service is 1% and you can offer how much you want to offer a cooperating selling broker. We recommend 2.5 to 3% for the best results but he choice is yours. So if you sell your home with Logik and a buyer has a realtor helping them your commission would be 3.5 to 4% depending what you select to pay the buyer agent involved. Now if you sell your home with Logik and the buyer doesn’t have a realtor, then you simply pay just 1% in commission!
Most sellers don’t know that you have some options when it comes to commission. You can accept a commission agreement that traditional brokers offer when you agree to 6% where they will split it 50/50 with a cooperating selling broker if there is one or they will keep the entire 6% if there isn’t one involved. We call that double dipping when the Listing Broker keeps the entire 6%.
Or you can select what you will offer to the Listing Broker who is helping you sell your home and you can also select what you are willing to reimburse the buyer for their Cooperating Selling (Buyer) broker. Yes that is correct, you have a choice.
So you could for example say I’m wiling to pay 6% if there is another broker available or perhaps if there isn’t another brokerage involved I’m only willing to pay you Listing broker 4% instead. Most Listing Agents find it difficult to discuss commission with their clients so they keep it as simple as possible and want you to agree with the traditional 6% and hope you don’t question this in too much detail because its customary so let’s move pas this as quick as possible please…
Well seeing that it is your Home you are selling, we believe you should understand how the commission works and be open to utilizing the commission agreement in your favor to keep your equity if at all possible, There are many times we get buyers who approach us with out their own realtor and agree to purchase our clients home without a realtor representing them. Many times the buyer will tell us they feel its to their advantage to try to work directly with the Listing Agent instead of a Buyer Agent, maybe thinking if the Listing Agent is going to get the entire commission they will help them urge the Buyer to select them and not some other buyer who has an agent. Ethically this shouldn’t be the case, it should be to promote the best buyer but Agents are people after all and who wouldn’t want to enjoy more commission if they could right? With Logik, we are making the same commission no matter what so that isn’t a problem with us – we simply pass the savings on to you the seller.
Let’s recap..
Traditional Broker means you pay 6-7% no matter what when you sell your home.
Using Logik means you pay 3.5-4% or potentially only 1%!
