What You Need To Know Before Selling Your Home
Choosing when to buy or sell a home is one of those crucial financial planning decisions that will have a lasting impact on your journey to financial independence. For many Americans, home equity remains the single largest asset on the personal net worth statement. The current homeownership rate in the U.S. is just under 64 percent. That is why it was good news for potential sellers to hear that existing home sales were up 5.9 percent in October from the previous year.
This was a positive surprise for the housing market. According to the National Association of Realtors, housing inventory went down slightly, which would normally be a positive sign for prospective sellers as this trend typically drives prices higher. But that news was tempered by rising interest rates that could impact future sales and purchasing power for potential buyers.
While it’s important to never try to time the stock market, it’s just as difficult to time the housing market. The millions of homeowners who purchased real estate prior to the housing bubble provide evidence of the inherent challenges of predicting future housing prices and economic conditions. Regardless of your current level of confidence in the housing market, there are many reasons that may prompt your desire to sell a home or investment property.
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Whether you are relocating for work, moving to a more desirable neighborhood, making room for a growing family, or downsizing you need to take steps to make sure that your house is ready to sell. The peak season for selling a home in most housing markets across the country is typically during the spring. However, there are some strategies that you can put into action to help sell your home regardless of the season or current economic conditions that are out of your control. Here are some tips and suggestions to help you get ready to sell your home or investment property:
Research your local housing market.
If you have lived in your current home for at least a couple of years, you most likely have a general idea of housing prices in your neighborhood and local economic conditions. It is still a good idea to do some additional homework and research housing activity in your area. One place to find local and regional housing statistics is through the National Association of REALTORS® on REALTOR.org.
Find out how many houses are currently on the market in your area and the average number of days they have been listed. It’s also helpful to look at comparable homes in your neighborhood to get a general idea of what the competition looks like. A comparable or “comp” home has similar features and is usually located within a close proximity to your home. Examining the number of bedrooms, bathrooms, lot size, and other features are important when seeking out comparable properties. If you really want to go the extra mile in reviewing comparable properties, visit open houses and search real estate websites that publish on the Multiple Listing Service (MLS).
Set a reasonable asking price. Pricing your home correctly from the start is extremely important. Avoid making emotional decisions or anchoring your listing price to the home’s previous value.
If you live in a “hot” market, there are more buyers than sellers and prices are likely being driven up by that demand. You can often price your house more aggressively as long as you stick within reasonable price limits. In a “cold” market, buyers tend to be more selective and pricing usually needs to be at or slightly below market value to attract an offer.
Interview real estate professionals and other potential team members. Do your homework if you decide to utilize the service of a real estate agent. It is suggested to interview 2-3 potential realtors to make sure you are choosing the best professional possible. You can use this guide to help you find the right questions to ask when talking with a real estate agent.
Other potential members of your professional team include a closing attorney, home inspector, photographer, landscaper, handyman, painter, and home stager. If you decide to go the DIY route, be sure to understand state laws regarding the sale of real estate. Some states require sellers to provide disclosure forms that obligate you to report any known facts about the property’s condition that may impact the value or the desirability to purchase the home.
Improve your home’s curb appeal. When it comes to buying a home, first impressions have a significant impact. While significant landscaping updates aren’t likely to play a major factor in a buyer’s decision making process, it does help to avoid anything that could detract from that positive first impression.
Get rid of the clutter. This step includes removing personalized photos, memorabilia, and other knickknacks. It often helps to get an independent, objective assessment of what should stay and what should go during the staging process. Major renovations aren’t usually necessary, but a fresh coat of paint and minor repairs can leave a potential buyer with a good first impression. It’s also helpful to have different pictures and furniture layouts available to provide buyers with a vision of how various spaces could be used in different ways to meet their lifestyle needs and desires.
Give your home as much social media exposure as possible. Realtor.com, Trulia, and Zillow are a few examples of real estate websites that expose your home to potential buyers. You may also find success in getting the word out about your desire to sell via social media sites. Many realtors use YouTube videos, Pinterest groups, and blogs to obtain potential buyer lists and market their services. Facebook is another potential site to help get the word out that you are in the process of selling.
Estimate the potential profit (or loss). Before you ever get to the point of reviewing a purchase offer, you should already evaluate potential gains or losses within your acceptable price range. The selling price will be reduced by the following items:
- Real estate sales commissions
- Fees paid at closing
- Title charges
- Government recording and transfer charges
- Any additional settlement charges
- Debt obligations related to paying off any existing mortgages
- Home repairs included in the sales contract or repair work completed prior to putting your house on the market.
- Preparation work to get your house ready for the market such as landscaping, painting, etc.
Understand current tax laws. Selling a home is a taxable event. The good news is that the IRS provides tax breaks for homeowners. The main requirement is that you generally must have used the house as your primary residence for 2 out of the previous 5 years. The current capital gains exclusion amount is $250,000 for single taxpayers and $500,000 for married couples that file jointly.
Capital gains are based on your home's selling price after subtracting any deductible closing costs, selling costs, and your tax basis in the property. Your cost basis on a primary residence is the original purchase price plus any related purchase expenses. Then you also add in the cost of capital improvements and subtract any depreciation and casualty losses or insurance payments. HomeGain provides a capital gains calculator to help calculate your profits. IRS Publication 551 provides additional information on determining the cost basis of assets.
Whether you are absolutely planning to sell your home within the next year or simply reviewing your options, it is important to have an exit strategy. Your home may be the location for countless memories (both good and bad). However, avoid letting emotions drive your selling decisions and incorporate some strategies into your financial plan that will help you get your house sold on your terms with confidence.