Sunday, January 27, 2008
Taking an active role in the selling process
We are certainly in what could be called a stalled market in southeastern Michigan. It could be called many other things and has been by sellers for the last couple of years, but we won’t go there. Let’s leave it at this – there are more houses on the market than there are buyers right now, so you have to do more to be competitive in this market. It is also a declining value market, which puts extra emphasis on price as the key element to selling.
I’ve talked here before about the things that you can and likely should do to improve the marketability of the house itself. Mini-makeovers and catching up on maintenance are two things. We’ve also discuss here the importance of properly pricing you house to the market. Here are 10 things that you, as a seller, should do as an active partner in the selling process itself to give yourself the best chance of selling quickly in this market:
1: Get a local agent. In a slow market there are relatively fewer buyers. It follows that to generate the most demand you want your property exposed to as many potential buyers as possible. Who do buyers contact when they want a house? Local agents. Figures from the National Association of Realtors® show that 85 percent of all buyers rely on real estate agents when buying a home while 80 percent rely on the Internet. Who posts real estate information on the Internet? Local real estate brokers. I’ve also advised and will repeat – get a full-time Realtor®, not one who works your needs in around the time demands of their day job.
2: Read the sale agreement for your area. Virtually all state real estate associations have a standardized real estate Purchase Agreement contract, most of which have become lengthy and complex. If you eventually sign one, when an offer comes in, then you're automatically agreeing to all unmodified terms and conditions; so read the entire standard agreement for your area, so you know what is being said. Look to see if there is something in the standard agreement that should be changed, removed or added for your specific case (see the EMD discussion point below). Ask your agent to provide a copy of the Purchase Agreement that the local Association of Realtors uses. You should take the time at the front-end of the process to read it and understand the terms and conditions. You don’t want to try to do that during the heat of negotiating and offer that has come in. There may be variations from real estate company to company, but by-and-large most of the companies in a state will use some variation of the form that has been created and accepted by the state’s real estate association (MAR in the case of Michigan). Since these are form agreements, anything not required by law can be changed with a suitable cross-out or addenda. For details, speak with your agent or your attorney. This is not to say that you won’t need to thoroughly read the Purchase Agreement document that you get later with an offer. You should always do that; but, at least you’ll have had time to think about the terms and conditions that you’ll likely see in the offer and maybe even be able to spot things that are different and may not be in your best interest.
3: Know the local marketplace. In terms of negotiation it's not good enough to know recorded sale prices because they frequently don't tell the whole story. For instance, two homes may both have recorded sale prices of $500,000. One may actually have sold for $500,000 while the other sold for $500,000 but the owner gave a 3 percent seller credit to the buyer for a new roof and appliances -- that's $15,000 off the top. Local agents who actually make sales know the details of recent transactions are thus are in the best position to provide negotiating advice.
4: Decide on your terms. You know your property will sell at some price point, but rather than a given price it's best to think of a home as a package of price and terms. For instance, in a slow market it may be better to pay a "seller contribution" to help buyers off-set closing costs than to lower the sale price. In many cases, the seller contribution may be smaller than a price reduction and much more attractive to buyers who need cash to close. In our local market offering 3% towards the purchasers closing costs and pre-paid items is not unusual. With the changes that are taking place in the market you should also look at offering FHA and VA options for mortgages, in addition to the standard Cash and Conventional Mortgage options. The FHA option will be especially important in the lower end of the market. The FHA requirements have changed and are now very reasonable, compared to a convention mortgage.
5: Reduce earnest money requirements. To make a contract work there's a need for a buyer deposit, the "consideration" necessary to bind a deal. If you're a seller you want the largest possible deposit, but in a slow market you may have to settle for less. Buyers, for their part, want to make the smallest possible deposit if only because a big deposit represents a huge psychological commitment. Requiring less earnest money deposit (EMD) may be appropriate if the buyer is pre-approved for a loan, the purchasers have a strong interest in the property and no better offer is in the picture. The primary rationale for big EMD’s used to be that this was money to potentially compensate the seller for taking the home off the market for some time, only to have the buyer back out for no good reason. In today’s market, with inspections required in the 7 days after acceptance of the offer, you’ll know fairly quickly if the buyer is going to back out. You might also use a technique that the banks do with foreclosure homes – accept less EMD, but make it non-refundable once the buyer accepts the inspection results and releases that contingency. That way, if the buyer runs into credit issues later and has to back out because of an inability to get a mortgage you get something for taking your house off the market.
6: Throw in stuff. Do you really want to move a swing set or a washer/dryer? In some cases it may be best to "reluctantly" part with such items, if only a buyer will make an offer. Pool tables are a favorite throw in item and a bear to move anyway. You should make up your mind ahead if you are willing to throw in things like the washer and dryer and discuss with your agent whether to offer them up-front or hold them back as a negotiating tool. Just be ready to commit them, if the buyer asks.
7: Make sure your agent updates the MLS photos and the photos on virtual tours and other Web sites. If it's February and your MLS photo shows a green yard with leafy trees surrounding your gleaming pool, then buyers can guess that the home has been for sale for a long, long time -- meaning the price and terms may be more negotiable that you’d like. You should go look at the various sites that your agent told you would have your home on them to see what the buyers are seeing.
8: Review the marketing plan that your agent showed you in the listing presentation. The marketing plan developed by your agent should be reviewed as often as necessary to assure that; one, it is being followed and; two, it is changed as necessary. However, don’t try to micro-manage the marketing process. If you trusted your agent enough to list with him/her, then let them do their jobs for the listing period that you signed up for. Asking for reports on things like Web site hits on your house or on the virtual tour will give you an idea how things are gong and give you a context within which to have a discussion with your agent. If your agent really hasn’t done any of the things that he/she promised have a sit-down meeting with him/her and find out why. If you’re not satisfied with the answer – fire him/her and find a new agent. You really don’t have to put up with a lackadaisical effort.
9: Visit open houses. It's always good to visit open houses to see the local competition. It's not easy to be objective, but is there something other owners are offering which might work for your property? Something you can make into a bargaining point? Maybe an offer to re-paint the living room in a color of the buyer's choice is not a bad idea. Keep in mind that this isn’t a home decorating idea tour, but a recon mission deep into competitive territory. Take notes after each house and compile them for discussion with your agent later.
10: Keep the big picture in mind. It's silly to worry about small costs and concessions when your core goal is to sell the home. I’ve seen sellers come within $1,500 on a $200,000 home sale and walk away. Once you get that close, a closing should be the next step – keep the negotiations alive. Don’t retaliate against what you might consider to be a petty request for a $500 concession for some small item by saying no and breaking off negotiations. You’ll only be hurting yourself. Buyers are asking for everything these days, because they know that there are likely 10 more houses just as good as yours out on the market. Once you have someone committed to the stage of having made and offer and engaged in the negotiation process, you need to do everything possible to bring the process to a close. This is the final area in which you need to show trust in your agent. The agent on the other side has done his/her homework and shown their client the comparables. Your agent may have his/her own list of comparables to justify the pricing advice that they are giving you. This is not the time to hold out for what you hoped the house was worth. It is the time to realize that the market (and likely both agents) is telling you what the house is worth today. If you’re going to ignore your own agent’s advice, then perhaps you need to step back and re-ask yourself if you really want to sell. If the answer is still yes (or maybe I have no choice) then, bite the bullet and negotiate in good faith, not based upon false hope.
All of these items assume that you are taking an active role in the selling process, which is a good idea; otherwise you reduce your role to just saying yea or nay to offers that may dribble in.