Selling Your House For Dummies®
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Copyright © 2018 by Eric Tyson, Ray Brown, and John Wiley & Sons, Inc.
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Library of Congress Control Number: 2018931259
ISBN 978-1-119-43423-8 (pbk); ISBN 978-1-119-43431-3 (ebk); ISBN 978-1-119-43424-5 (ebk)
Copyright © 2018 Eric Tyson and Ray Brown
Welcome to Selling Your House For Dummies, the perfect companion to Home Buying Kit For Dummies, the #1 bestselling real estate book (that we also happened to write). If you’re like most people, your biggest investment is your house. Sell your house wisely and you not only save yourself loads of time, but you also pocket thousands — if not tens of thousands — of dollars more than you would otherwise. Making a big mistake in the sale of your house, on the other hand, can easily cost you additional weeks — perhaps even months — of work and headache, as well as half a year’s worth (or more) of your take-home income.
One of Ray’s treasures is a well-worn fortune cookie message that says, “A wise person knows everything. A shrewd person knows everyone.” We apply that same principle to house sales. Real estate is a team sport. In this book, we show you how to put together a winning team, and we alert you to key points to consider throughout your sale. Follow our advice and your house is as good as sold before the For Sale sign even goes up.
We don’t care whether you decide to sell your house or how much of the transaction you attempt to handle yourself. It’s not that we’re insensitive; we simply don’t have a vested interest in the sale of your house. What we do care very deeply about is that you make the best possible decisions for your situation. If those decisions mean staying in your current home instead of selling, or if they mean selling through a good local real estate agent, that’s terrific. We wrote this book to help you avoid making mistakes in your selling decisions and to ensure that you sell your house in the best way possible.
We’ve received great accolades for our Home Buying Kit For Dummies. Selling Your House For Dummies fills a void for house sellers: It’s a user-friendly book totally oriented to your needs as a seller.
If you’ve visited your local library or bought books on selling your home, you may be familiar with the shortcomings of most house-selling books. In writing this book, we attempt to avoid those shortcomings. Thus, we expect that you’ll find our book is
We’re not trying to scare you — quite the contrary. We just want to make it clear that, even though selling your house isn’t brain surgery, you can easily make mistakes, especially if you’re overconfident or do a poor job selecting people to work with in the transaction. When we wrote this book, we made a couple of assumptions about you:
Although you’re likely to hire some professionals to help you sell your house, you still need to educate yourself about all aspects of the transaction. Why?
Oscar Wilde said, “Experience is the name everyone gives to their mistakes.” We want to add a corollary to this observation: “Learning from other people’s mistakes is infinitely better than learning from your own.” Selling Your House For Dummies saves you money, time, and heartache — but only if you read it!
Just as you use tasty seasonings in your favorite recipes, we’ve sprinkled helpful icons throughout this book to draw attention to key points or to denote stuff that you can skip over.
This icon flags key strategies that can improve your real estate deal and, in some cases, save you mounds of moola. Think of these icons as pointing out little words of wisdom that we would whisper in your ear if we were close enough to do so.
Numerous booby traps await novices as well as experienced house sellers. This explosive symbol marks those mines and tells you how to sidestep them.
Occasionally, we suggest you do more research or homework. Don’t worry; we tell you exactly how to go about your investigation.
To ensure you don’t forget important points, this icon serves as your little reminder, like a string tied around your finger.
This icon marks stuff you don’t really have to know, but may come in handy at cocktail parties thrown by people in the real estate business.
In addition to the material in the print or e-book you’re reading right now, this book also comes with a free access-anywhere Cheat Sheet that can help you think about the best ways to get your house sold for top dollar. To get this Cheat Sheet, simply go to www.dummies.com and search for “Selling Your House For Dummies Cheat Sheet” in the Search box.
You don’t need to read this book cover to cover. But if you’re a beginner or you want to fully immerse yourself in the world of house selling, go for it! However, you may have a specific question or two today and want some other information tomorrow. No problem there, either. Selling Your House For Dummies is lighter on its feet and easier to use than other house-selling reference books. Use the table of contents or the index to speed your way toward what you need to know and get on with your life.
Part 1
IN THIS PART …
Consider whether or not you should sell your house.
Examine your personal finances regarding the selling decision.
Determine how much you’ll net from the transaction.
Understand your financing options.
Chapter 1
IN THIS CHAPTER
Making the choice: To sell or not to sell
Selling in weak and strong housing markets
Selling your house and moving can be an enjoyable (not to mention profitable) experience. Unfortunately, for most people, it isn’t. Selling a house not only introduces financial turmoil into most people’s lives but also causes them stress.
One goal of this book is to help you make the right decision about whether to sell your house. If you do decide to sell, we want to make sure you get as many dollars and as few upset stomachs from the sale as possible.
The reasons people want to sell their houses are almost as varied as the houses themselves. Here are some of the common, not-so-common, and downright bizarre reasons:
As you can see from this partial list, most of the reasons why people have a desire to sell their houses are based on wants, not needs. In the United States, we sometimes take for granted how economically fortunate we are.
You don’t need to move because your neighborhood is too noisy or because your house seems too small. You don’t need to move because the weather in your area isn’t nice enough. You don’t need to live on quieter, tree-lined streets.
All these features are things people desire or want, not things they need. And people who think they can afford to pay for such things usually get more of what they want. Sometimes, however, people spend money moving and, ironically, still don’t get what they want. The weather in the new locale may not be terrific, the neighbors may not be friendly and quiet, and the schools may not turn children into stellar students. You may move to get away from particular problems and then find yourself facing a new set of problems.
We’re certainly not going to tell you how and where to spend your money — that’s your choice. However, we definitely want you to make the most of your money. Unless you’re one of the few who has far more money than you can ever possibly spend, we suggest that you prioritize the demands on your money to accomplish your most important financial goals.
Nothing’s wrong with spending money to trade in one house for another, but before you set those wheels in motion, think about the impact of that kind of spending on other aspects of your life. The more you spend on housing, the less you’ll have for your other goals, such as saving for retirement or taking annual vacations, and the more time you may be forced to spend working.
Although spending your entire life in the first home you buy is an unlikely prospect, some people do end up living in the same home for 10, 20, even 30 or more years. Ray (humble coauthor of this book), for example, lived in his home nearly 30 years. Ray’s no fool; staying put must have its advantages.
If, like most prospective house sellers, you have a choice between staying put and selling, not selling has clear advantages. Selling your house and then buying another one takes a great deal of legwork and research time on your part. Whether you sell your house yourself or hire an agent, you’re going to be heavily involved in getting your house ready for sale and keeping it pristine while it’s on the market.
In addition to time, selling your house and buying another one can cost serious money. Between real estate commissions, loan fees, title insurance, transfer tax, and myriad other costs of selling your house and then buying another one, you can easily spend 15 percent or more of the value of the property that you’re selling (see the bar on the left in Figure 1-1).
Source: © John Wiley & Sons, Inc.
FIGURE 1-1: Trading homes can cost you big bucks.
Fifteen percent sounds like a lot, doesn’t it? Well, consider this: Unless you own your house free and clear of any mortgage debt, your transaction costs are going to gobble up an even larger percentage of the money you’ve invested in your home.
Check out this scenario: You’re thinking about selling your $240,000 house. If selling your house and buying another one costs you about 15 percent of the first house’s value, then you’re taking $36,000 out of your sale proceeds. However, if you happen to owe $180,000 on your mortgage, your equity in the home — the difference between the amount the house is worth ($240,000) and the amount you owe ($180,000) — is $60,000. Therefore, the $36,000 in transaction costs devours a huge 60 percent of your equity (see the bar on the right in Figure 1-1). Ouch!
Before spending that much of your hard-earned money, make sure you give careful thought and consideration to why you want to sell, the financial consequences of selling, and the alternatives to selling. In Chapters 2 and 3, we walk you through the personal financial issues that you need to weigh when contemplating the sale of your current house. But before we get to the numbers, consider the qualitative issues.
Whereas some people have clear and compelling reasons for selling their homes, others do so for the wrong reasons. You don’t want to make the financially painful mistake of selling if you don’t have to or can’t afford to.
The following sections offer reasons why you may be better off staying right where you are.
If you’re having difficulty making ends meet and you use high-interest consumer credit, such as credit cards or auto loans, to maintain your desired standard of living, you shouldn’t spend more money on housing. Even if you’re planning to trade your current house for one of comparable value, you may not be able to afford all the transaction costs of selling and buying.
Even if you aren’t a consumer-debt user and you’re saving a comfortable portion (10 percent or more) of your current earnings, don’t assume you can afford to trade up to a more expensive home. In addition to a higher mortgage payment, you may also face increased property taxes, insurance rates, and home maintenance costs.
A mortgage lender may be willing to finance a loan that enables you to trade up to a more expensive home, but qualifying for a loan doesn’t mean you can afford that home. Mortgage lenders use simplistic formulas, based primarily on your income, to determine the amount they’re willing to lend you. Mortgage lenders don’t know (or care) how far behind you are in saving for your retirement or how many children you must help with college costs or how much assistance you want or need to give to elderly parents.
Mortgage lenders are concerned about protecting their interests in the event that you default on your mortgage. As long as you meet a few minimal financial requirements (you make a sufficient down payment, and your housing expenses are less than a certain percentage of your income), the mortgage lenders can sell your loan with the backing of a government mortgage agency, effectively wiping their hands clean of you and your problems.
If you’re thinking about trading in your current house for another one, especially for a more expensive one, you absolutely, positively must consider the financial repercussions of changed housing expenses in addition to the costs of buying and selling. We cover these important issues in Chapters 2 and 3.
Everybody, at some point, leaps to conclusions based on faulty assumptions or incomplete research in virtually all aspects of his or her life. Peter, for example, was a single parent living with his son in a nice neighborhood in an urban environment. When his son started junior high school, Peter grew increasingly concerned with the possibility that his son would become involved with drugs, which seemed to be prevalent in their city.
Despite working in the city, Peter decided to move to an easygoing, suburban community about 45 minutes outside the city. Shortly after the move, Peter’s son got mixed up with drugs anyway — perhaps, in part, because the long daily commute meant Peter was around even less.
In addition to ignoring lifestyle issues (such as the length of his commute), Peter made a common human mistake — he assumed things were a particular way without getting the facts. The reality was that the suburban community to which Peter moved had as many problems with teenagers on drugs as the good neighborhoods in his former city.
Crime and safety make up another common realm where people have misconceptions. Some communities often make the evening news with graphic stories and film footage of crimes. Statistically, however, most crimes committed in a given city or town occur in fairly small geographic areas. Local police departments tabulate neighborhood crime rates. If you’re concerned about crime and safety, don’t guess; get the facts by contacting your local police department and asking them how to obtain the data.
Schools are another hot-button issue. In some areas, people make blanket statements condemning all public schools. They also insist that if you live in such-and-such town or city, you must send your children to private school if you want them to get a good education. The reality, as education experts (and good old-fashioned common sense) suggest, is that you can find good and bad public schools and good and bad private schools. You also need to evaluate if you’re spending too many hours working and commuting just so you can make expensive tuition payments. If that’s the case, you may not be able to spend adequate time with your children. The best possible teacher for your children is you.
Avoiding problems is another human tendency. That’s what Fred and Ethel tried to do. Much to their chagrin, Fred and Ethel discovered that their home had two not-so-visible but, unfortunately, costly-to-fix problems. The new roof they needed was going to cost big bucks because local ordinances required the removal of several layers of existing roofing material when a new roof was installed. Fred and Ethel also had recently found out that their house contained asbestos, a known carcinogen.
Rather than research and deal with these problems, Fred and Ethel decided that the easiest solution was to sell their house and buy another one in a nearby town where they thought they’d be happy. They then attempted to sell their home without disclosing these known defects — a major legal no-no, as we point out in Chapter 8 — but were tripped up by smart buyers who found out about the problems from inspectors they hired to check out the property.
Actually, the prospective buyers did Fred and Ethel two big favors:
When they realized that they couldn’t run from their home’s problems, Fred and Ethel, discussed in the preceding section, discovered how to get those problems fixed. You can address quite a number of possible shortcomings in your home less expensively than buying a new home.
If you think that home improvement projects are going to be too expensive, do some rough calculations to determine the cost of selling your current house and then buying another. Remember, you can easily spend 15 percent of the house’s value on all the transaction costs of selling and then buying again.
Instead of trading houses, why not spend those transaction dollars on improving the home you currently own? Do you hate the carpeting and paint job? Get new carpets and repaint. If your home is a tad too small, consider adding on a room or two. Just be careful not to turn your home into a castle if all the surrounding houses are shacks. Overimproving your property can be an expensive mistake. By overimproving, we mean that after the improvements to your house, you’ll own the most expensive house on the block, and you’ll have difficulty recouping the cost of the improvements in the form of a higher house sale price.
Some people are seduced by the seemingly better attributes of other houses on the market. If your house is small, larger ones seem more appealing. If you don’t like your carpeting, houses that have hardwood floors may attract you. However, as is true of long-term friends or spouses, you know your current home’s defects all too well because you’ve probably lived with them for years. Unless you’re incredibly observant, you surely didn’t know half of your home’s faults and shortcomings before you moved in. The same is true of new homes you may be lusting after.
Some problems and defects are more easily fixed and more worth fixing than others. When you’re deciding whether to fix problems or move away from them, consider these important issues:
What’s the payback? Some home remodeling projects may actually pay for or come close to paying for themselves. We’re not suggesting that you can have the work done for free. However, certain remodeling projects do increase your home’s value by enough to make up for most or even all the cost of the improvement(s).
Generally speaking, projects that increase the cosmetic appeal or usability of living space tend to be more financially worthwhile than projects that don’t. For example, consider painting and recarpeting a home versus fixing its foundation. The former projects are visible and, if done well, enhance a home’s value; the latter project doesn’t add to the visible appeal of the home or usability of living space. If, however, you must do foundation repairs or the house will collapse, spend your money on the foundation.
If you decide to stay put and renovate or improve your current home, you’re going to need to find a way to pay for all that work. In Chapter 4, we discuss the way to figure out the amount you can afford to spend improving and how to finance your improvements. If you head down the renovation path, don’t forget that contracting work often ends up costing more than you (and your contractor) originally expected.
How intrusive will the work be? As you surely know, money isn’t everything. Six months into a home remodeling project that moves you out of your bedroom, spreads sawdust all over your kitchen table, and has you wanting to flee the country, the “payback” on the project doesn’t seem so important anymore. In addition to costing more than most parties expect, contracting work almost always takes longer than everyone expects.
Ask yourself and others who’ve endured similar projects: How much will this project disrupt my life? Your contract with the contractor should include financial penalties for not finishing on time.
Some problems or shortcomings of your current house simply can’t be fixed. If you’re tired of shoveling snow in the winter and dripping sweat in the summer, you’re not going to be able to change your local weather. If crime is indeed a big problem, you aren’t going to be able to cut your area’s crime rate anytime soon. Moving may be the best solution.
If you’re in a situation where you really need to sell, as opposed to wanting to sell, by all means put your house on the market. And if you want to sell, and can afford to do so, you should go for it as well. The following sections offer some solid reasons for selling.
Your desire to sell your current house and buy another one may be driven by a force as frivolous as sheer boredom. But if you can afford to sell and buy again, and you know what you’re getting into, why not?
Now, defining afford is important. By afford, we mean that you’ve identified your personal and financial goals and you’ve calculated that the cost of trading houses won’t compromise those goals.
Everyone has unique goals, but if you’re like most people, you probably don’t want to spend the rest of your life working full time. To retire or semi-retire, you’re going to need to save quite a bit of money during your working years. If you haven’t yet crunched any numbers to see where you stand in terms of retirement saving, postpone major real estate decisions until you explore your financial future. In Chapter 2, we walk you through the important retirement planning considerations in selling your house, and in Chapter 3, we show you how to calculate the economics of selling and moving.
Some people find that at particular points in their lives they need to move to take advantage of a career opportunity. For example, if you want to be involved with technology companies, certain regions of the country offer far greater opportunities than others.
When you lack employment, paying bills is difficult, especially the costs involved in home ownership. If you’ve lost your job or your employer demands that you relocate to keep your job, you may feel a real need to move, especially in a sluggish economy.
Moving for a better job (or simply for a job) is a fine thing to do. However, some people fool themselves into believing that a higher-paying job or a move to an area with lower housing costs will put them on an easier financial street. As we discuss in Chapter 3, you must consider all the costs of living in a new area versus your current area before deciding that moving to a new community is financially wise.
And, although we don’t pretend to be career counselors, we want you to consider that you may be overlooking opportunities right in your own backyard. Just because your employer offers you a better job to get you to relocate doesn’t mean you can’t bargain for a promotion and stay put geographically. Likewise, during an economic slowdown, if your employer says you must relocate or face downsizing, explore other employment options in your area, especially if you want to stay in the local area.
Sometimes, people fall on difficult financial times because of an unexpected event. Check out these two scenarios:
After Ryan graduated from college, he landed a good marketing job and seemed financially secure. So he bought a home. After a few years in the home, Ryan discovered that he had a chronic medical problem.
Ultimately, Ryan decided to go into a lower-stress job and work part time. As a result, his income significantly decreased while his medical expenses increased. He no longer could afford his home. It made sense for Ryan to sell his house and move into lower-cost housing that better addressed his reduced mobility.
In addition to unexpected events, some people simply live beyond their means and can’t keep their heads above the financial water of large mortgage payments and associated housing costs. Sometimes people get bogged down with additional consumer debt because they stretched themselves too much when buying their home.
Selling your house and moving to a lower-cost housing option may be just what the financial doctor ordered. On the other hand, if you can bring your spending under control and pay off those consumer debts, maybe you can afford to remain in your present home. Be sure you’re being honest with yourself and realistic about your ability to accomplish your goals given your continuing housing expenses (see Chapter 2 for more information).
If you decide to call it quits on the full-time working life, you may find yourself with more house than you need or you may want to move to a less costly area. Instead of trading up, you may consider trading down.
You can free up some of the cash you’ve tied up in your current house and use that money to help finance your retirement by moving to a less expensive home. If you’re otherwise happy where you’re currently living, don’t think you must trade down to a less expensive home simply to tap the equity in your current property. As we discuss in Chapter 2, you can tap your home’s equity through other methods, such as taking out a reverse mortgage.
As with other financial decisions, choosing to sell or buy a home isn’t only about money. Human emotions and memories can be just as powerful and just as real factors to consider.
If your spouse or child has passed away, you divorced, or your house was badly burglarized, the property may be a constant source of bad feelings. Although selling your house and moving won’t make your troubles go away, being in a new home in a different area or neighborhood may help you get on with your life and not dwell excessively on your recent unpleasant experiences. Just be sure to temper your emotions with a realistic look at your financial situation.