Selling Your House For Dummies book cover

Selling Your House For Dummies

By: Eric Tyson and Ray Brown Published: 03-13-2018

Sell your house in any market

Whether you're selling your home yourself or using a realtor, this helpful guide offers all the information you need to make an otherwise-stressful undertaking go smoothly. In Selling Your House For Dummies, you'll find plain-English, easy-to-follow information on the latest mortgage application and approval processes, the hottest websites used in the house-selling process, and revised tax laws that affect the housing and real estate markets.

From the author team behind America's #1 bestselling real estate book, Home Buying Kit For Dummies, this book offers Eric Tyson and Ray Brown's time-tested advice, recommendations, and strategies for selling your house given current market conditions. From staging your home to utilizing technology to sell your house directly to home buyers, this trusted resource is packed with tips and ideas to make your home the most appealing house on the block.

  • Prepare your property for the best offer
  • Stage and market your house successfully
  • Negotiate and successfully close the sale
  • Make sense of contracts and forms used in the house-selling process

Get the tried-and-true advice that will help you sell your property!

Articles From Selling Your House For Dummies

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37 results
Answers to 10 Questions Home Buyers Often Ask

Article / Updated 03-30-2022

As a house seller, you should anticipate tough questions smart home buyers (or their agents) may ask you. Most sellers and their agents are quick to praise property features such as a remodeled kitchen, new roof, and swimming pool. That’s great, but what home buyers really want to know about are benefits — how house features translate into advantages for them. For example, that fancy kitchen may inspire more family meals, and a swimming pool becomes an entertainment center for healthy outdoor family activities during the lazy, hazy days of summer. Other types of benefits buyers may be looking for include quality schools, a low crime rate for safety and security, convenient nearby shopping, a hospitable neighborhood, and favorable fair market value (FMV) appreciation (showing the home is likely to be a profitable investment). You need to make sure you’re prepared to answer these potential questions in a manner that honestly represents your house without jeopardizing a potential sale. The best defense is a good offense. Sellers (and their listing agents) who are prepared should have nothing to fear from buyers who ask these questions. This list includes ten challenging questions you may be asked and some advice on how to handle them. What do you like best and least about living here? When someone asks you what you like the most and the least about living in your house, you don’t want to look like the proverbial deer in the headlights. Do your homework. Make a list of items you like about your house. Do another list of things you don’t like. On your “like” list, put things like waking up with the sun on your face, watching the moon rise while sitting on the back porch, family dinners in the kitchen, and playing board games by the fireplace — whatever you truly enjoy about your house. The “dislike” list is more difficult. On one hand, you don’t want to scare away buyers. Conversely, every property has flaws, and you want to be honest. Ray once owned a house he loved except when he had to do battle with poison oak. Maybe you don’t like navigating the driveway when it snows. Perhaps you hate the long central hallway or small kitchen or hot attic. Just because you dislike something about the property doesn’t mean the next buyer will. Folks in the market for a condo usually ask this question. They’re curious about the issues that don’t apply to a single-family detached home, such as a dictatorial condo homeowner’s association board of directors or a president who refuses to listen to condo owner opinions. Why are you selling this lovely house? When buyers ask you why you’re selling your house, they have a hidden agenda. They’re either probing your motivation for selling to see if they can exploit a weakness, or they’re looking for property flaws. If the buyer knows you’re under severe pressure to sell your property as soon as possible, that can weaken your negotiating position. (A few examples of deadline situations are things like buying a new home before you sell the old one, being transferred to a new job in another city, getting a divorce, and property foreclosure.) If you have a deadline and the buyers don’t, they may use that deadline against you. Therefore, never divulge your deadline. If you have a nice, unstressed reason for selling, candidly answer the question. “We’re selling because the house is too big for us since the kids moved out to start their own families” or “We’d like a bigger place because the kids need rooms of their own” are examples of answers that won’t get you in trouble. If, however, you’re going through the divorce from hell or are about to depart for Timbuktu tomorrow, just say, “My housing needs have changed” and change the topic. How much did you pay for this house? Some buyers may want to know the amount you paid for your house in order to discover how much room you have to negotiate on price and terms. In most states, the seller’s purchase price is recorded in the public records (and, thus, can generally be found online with a little hunting). But even in the few states that don’t record price information, the buyer’s agent can usually find out what you paid through the local Multiple Listing Service (MLS) or by other methods. A related question that buyers may ask you or your listing agent is “What is the current mortgage balance, and are there any other liens, such as a second mortgage, a home equity loan, or a mechanics’ lien?” The answer shows prospective buyers how much cash you need to pay off those secured obligations. This information can give prospective buyers a peek into your motivation or your ability to carry back a second loan if the buyer is seeking seller financing. Cost and fair market value are wildly different things. Cost is a measure of past expenditure. Fair market value is what a buyer will pay and a seller will accept for something given the item has had proper exposure to the market and neither the buyer nor the seller is under duress. Smart buyers know that what you paid for the house when you bought it has little or no bearing on its value today. You may have made extensive renovations. Certainly, internal and external market factors have changed since you acquired the property. Talking about what you paid for your house is as productive as discussing the price of tea in China. How did you establish the asking price? Some prospective home buyers may ask how you determined your asking price, usually because they suspect it is too high. Smart sellers base their asking price on facts established by a written comparable market analysis (CMA). You or your agent can respond to this question by telling buyers about other properties comparable to yours in size, age, location, and condition (comps) that are either currently on the market or have sold within the past six months. Comps are the best, most powerful indicators of FMV. Have you received inspection reports? Buyers may ask you when or if your house was inspected, and this question should be an easy one to answer. Obtain customary inspections before putting your property on the market. That step gives you time to decide whether you want to do the recommended repairs before you put your house on the market or sell the property “as is” and let the buyer make the repairs (often in return for a credit in escrow for the buyers). Always fully divulge any and all corrective work you’ve done recently. Dig out old invoices and receipts, which support your narrative, and remember to check for warranties that may be transferable to a buyer. Customary local inspections vary. Local realty agents can tell you which inspections are required or recommended in your area, such as for termites, radon, energy efficiency, building code compliance, and so on. Either you or your agent should have any recent inspection reports easily available for serious buyers to inspect. This process saves time and removes the fear some prospective buyers may have that you’re trying to hide something. May I see your written defect disclosure statement? If a prospective buyer asks to see your written defect disclosure statement, you should say, “Sure, here it is.” Sellers who don’t prepare a written disclosure form for serious prospective buyers to review before making a written purchase offer are waving a red flag that warns buyers you don’t have a savvy listing agent who insists on such defect disclosures at the time of signing the listing agreement or that you may be hiding something. Smart buyers understand some sellers may lie or “forget” to disclose a known property defect. If you have to ask whether to disclose something about your property or the immediate neighborhood, you’ve probably answered your own question. When in doubt, disclose. Most states now have laws or precedent court decisions requiring some form of written home defect disclosures. Even in the few states where there aren’t disclosure requirements, smart agents recommend that their sellers provide written house defect disclosures to prevent future lawsuits. Most agents now also recommend that home buyers obtain their own professional home inspection reports even if the seller already has provided one. Are there any neighborhood changes coming that may affect the home’s desirability? House sellers almost always know if any significant civic changes are under discussion, such as street widening, construction of a freeway, or a planned special assessment for civic improvements such as new sewers or streets. However, smart buyers will verify any planned improvements affecting the property at the local city hall or other government agency. Any of these changes would materially affect the property values. Therefore, you should disclose all recent and proposed changes in writing to prospective buyers. This info includes plans your neighbors may have to improve their property if such improvements affect your house’s views or your access to adjoining public areas. How many times in the last year have you called the police and why? When potential buyers ask about police calls and possible neighborhood nuisances, they’re trying to determine how safe and secure your house is. Answering this question is easy if you don’t have any problems of this nature. If, however, you do, you must disclose any and all such problems. This open-ended question covers many potential problems, which can affect a home’s desirability. These problems include barking dogs, noisy late-night parties, and troublesome neighbors. If the situation is continuing, make sure you disclose all issues to prospective buyers to prevent a future lawsuit for nondisclosure of a serious defect. A visit to the local police station, or its website, can reveal local crime statistics for the neighborhood. Also, this is usually the place to search public records for any registered child sex predators living nearby (called Megan’s Law). But home buyers shouldn’t expect sellers to know the neighborhood crime statistics, nor to know if a registered sex offender lives nearby. Responsible buyers are their own best investigators. What problems have you had with the house? This open-ended question is intended to bring out past problems, which may have been solved. But, even if you think you solved a problem, you should protect yourself by disclosing the problem and how and when it was repaired. Failure to do so can lead to an allegation of under-disclosure. A common example is the seller who has had a roof leak patched. The problem was solved, at least temporarily, so why disclose? Because the fact that there was a leak and repair speaks to the condition and/or quality of the roof. This disclosure may lead the buyer to have a roof inspection. If you can prove that the buyer knew the condition of the roof at the time escrow closed, you’re unlikely to hear from her when the time comes to replace the roof. This question has one major thing in common with many of the other questions in this chapter — a variation of queries about property inspection reports and defect disclosure forms. Buyers have many ways of probing for property defects. Answer this question by giving the buyer a copy of your written disclosure statement. What are the local public schools like? If prospective buyers have school-age children, they may ask this question first. Even if buyers don’t have children, the quality of the public schools has a strong effect on whether families with children want to move to your area, thus affecting buyer demand and future appreciation in market value. Presuming your school system’s test scores are good, you can provide the data yourself. Contact your local district or visit its website if your agent doesn’t have the data already. Just be careful not to imply that your house is within a particular boundary area for a particular school unless you’re 100 percent certain you’re correct!

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Potential Home 'For Sale By Owner' Advantages

Article / Updated 03-30-2022

Each home seller’s personal situation and motivation for selling is unique. The following discussion describes the most common reasons why sellers choose to sell without using an agent. You want to save money on commissions People who take the for sale by owner (FSBO) route often do so to avoid having to pay real estate agent commissions. The lion’s share of the expenses related to selling your house are typically real estate agent commissions, which can gobble a large portion of your house’s equity (that is, the difference between the market value of your house and outstanding mortgages). In most areas of the country, a 5 to 6 percent real estate brokerage commission is common. Thus, on a $250,000 house, the commission typically sets you back $12,500 to $15,000. You may already have a ready, willing, and able buyer If you spread the word that you’re planning to sell your house, you may turn up someone who’s financially able to buy and willing to pay you the amount that you feel your house is worth. Good for you. Why pay a full commission if you’ve already found a buyer? You’re in a good position to either negotiate a reduced commission with a real estate broker or hire an attorney to help you complete your transaction. Whether you’re contemplating selling your house with an agent or doing a FSBO, tell as many prospective buyers as possible that you’re interested in selling. Although most people don’t find a buyer for their house simply by getting the word out through their own network of friends and contacts, you won’t know whether you’ll be one of the fortunate few who successfully sell their houses this way unless you try. Before you start getting the word out, take these tips to heart: Make sure that selling your house is the correct course of action for you. Determine the fair market value of your property. Ensure that your house looks its absolute best. Hire a good real estate lawyer to review your house sale contract and other documents. You may know the house and neighborhood well You may know more about the strengths of your house and neighborhood than local real estate agents, especially if you’ve lived in an area for many years. You may be able to speak from personal experience about how child-friendly the neighborhood is and how terrific the local schools are. You can praise the virtues of nearby shopping, transportation, and entertainment. You can gush about your wonderful neighbors. And you can point with pride to all the improvements you’ve made to your house over the years. Be careful in praising your house and neighborhood. Even the most interested prospective buyer can get turned off if you’re overbearing or sound like a used car salesman. And, what you say about your property may cause you legal problems down the road. If you’re going to sell without a real estate agent, be sure to have a good real estate lawyer on your team to assist you with mandatory property transfer disclosures and to provide advice about what you should avoid saying about your house. Here's an actual example of legal problems caused by statements made (in this case by the real estate agent) to a prospective buyer. She was showing the back yard to a buyer and waived her arm expansively, stating, “This will all be yours.” Turns out the back fence was located 6 feet into the neighbor’s yard. Since “all they saw” during the showing was not theirs, they sued the agent for the lost 6 feet. You may be more motivated than an agent Your house and the money you have tied up in it are important to you. Some real estate agents, despite having dollar signs in their eyes in anticipation of the commissions they’ll earn if they sell your house, may be less than eager to invest sufficient time in promoting and showing your property. If you decide to use an agent to help you with your sale, exercise great care in choosing the right agent. Avoid overextended agents who juggle too many listings and clients to give your house sale the attention it deserves. You like challenges Some people don’t select the easier path. For example, instead of working for a corporation, you may be the type who starts your own business. Many small business owners say that the desire for a potentially higher income wasn’t the primary reason they started their own business. Some small business owners pursue this career path as a means of self-expression, to make a contribution to a particular field, or for the pleasure of working with and satisfying customers. For the same reasons, some people try to sell their houses by themselves. Although most FSBO sellers are eager to save commission dollars, a few do it for the challenge or because they want to apply skills they possess to selling their own house. You want to be in control Some folks just don’t like giving up control. If you’re the type of person who wants to be in charge, you may be unwilling to relinquish control to an agent. If you sell your house yourself, you can decide when and where to place ads for your house and exactly what features to emphasize. You may want to say when it is and isn’t okay to have strangers (interested buyers and their agents) strolling through your house. Perhaps you want to ensure that your cat or the family dog isn’t let out of the house by an agent who fails to notice your special showing instructions. Whatever the reason, for better or worse, you’re the boss with a FSBO. Your house may sell itself If the local real estate market is strong and good houses get multiple offers as soon as the For Sale sign goes up, you may feel that selling your wonderful house will be a snap. All things considered, FSBOs usually are more successful in a seller's market than a buyer's market.

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Selling Your House For Dummies Cheat Sheet

Cheat Sheet / Updated 03-24-2022

When it’s time to sell your house, you need all the advice you can get. What you can expect from a Realtor, what you can — and should — research yourself, and what to do after the sale are all important bits of information you need to have. This Cheat Sheet has tips that will help you get ready to sell.

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When to Bring the Broker into Your Home Sale

Article / Updated 12-10-2021

When you select a real estate agent, your agent’s broker is part of the package. If your purchase rolls merrily along, you may never meet the broker. But if a truly nasty problem rears its ugly head, guess who you can turn to for a quick fix? Brokers are the invisible grease in problematic transactions. All states issue two markedly different types of real estate licenses: one for salespeople (agents) and one for brokers. Agents who have broker’s licenses must satisfy much more stringent educational and experience standards than agents with only a salesperson’s license. Your agent may have either type of license. Broker’s licensees have the option either to operate independently or to work for another broker. An agent who has a salesperson’s license, on the other hand, must work under a broker’s direct supervision, ensuring that you have access to the broker’s higher level of expertise if you need it. The broker’s image, good or bad, will be obvious from comments that you hear while checking agent references. You want the buyer, lender, and all other people involved in your transaction working with you because of your broker’s reputation, not in spite of it. You shouldn’t have to overcome guilt by association. If an agent’s references disparage the agent’s broker, dump the agent. Good brokers develop and maintain relationships with the people with whom their offices deal — other brokers, lenders, title officers, city officials, and the like. This reservoir of good will is yours to use if the going gets rough. Brokers with strong business relationships can work near-miracles for you in a crisis. House sales sometimes become highly emotional. If your life savings are on the line, you may lash out at other players. Someone must handle the resulting quarrels and misunderstandings. That someone is the broker. Because the broker participates directly or indirectly in every deal the office handles, your broker’s practical experience is directly related to the number of agents in the office. A broker who manages a 25-agent office, for example, gets 25 years of real estate experience per calendar year. Any broker who can survive five years of handling all the office’s gut-wrenching messes becomes a superb problem solver out of sheer necessity. Call your broker into the game if your agent is stymied by a tough problem or if you’re having problems with the agent. Everything an agent does or fails to do is ultimately the broker’s responsibility. After all, the broker’s job is to help make your problems go away.

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How to Select Your Property Inspector

Article / Updated 12-10-2021

Finding house inspectors is usually quite easy. One good source of property inspectors is either online or printed phone directories under “Building Inspection Services” or “Home Inspection Services.” You can also ask friends and business associates who’ve either bought or sold a house recently for the names of their property inspectors. If you’re working with an agent, ask them to recommend several highly regarded inspectors. Using a well-known inspector with an excellent reputation increases your report’s credibility. The American Society of Home Inspectors (ASHI) is a professional association of independent property inspectors. ASHI membership doesn’t guarantee that the inspector is competent, but hiring a member of this organization increases the likelihood that you’ll be working with a qualified professional. You can’t buy your way into the ASHI by paying a fee. All ASHI-certified members must have performed at least 250 property inspections and must pass two written proficiency exams as a prerequisite of membership. ASHI members must also adhere to the ASHI standards of practice, continuing education requirements, and code of ethics. To find members in your area, call ASHI at (800) 743-ASHI (2744). In the interest of full disclosure, allow prospective buyers to review your inspection report prior to making an offer if they want. However, encourage buyers to get their own inspections. Even the best inspector occasionally misses defects. If the buyers rely solely on your report and find repair problems after the sale is complete, you don’t want them claiming that you intentionally gave them a faulty inspection report to mislead them about your house’s condition. Selecting the right property inspector Choosing the right inspector when selling your house takes a little effort. Interview several property inspectors before hiring one. The following questions can help you select the best inspector: Are you a full-time, professional property inspector? The only satisfactory answer is yes. How many houses do you personally inspect annually? Although the number of inspections varies from area to area, active inspectors usually average from 100 to 300 inspections per year. Be sure the inspector works primarily in the vicinity of your house and is familiar with local building regulations and codes as well as local problems (such as mud slides, earthquakes, floods, or tornadoes). Do you have any special certifications or licenses? Property inspectors generally have experience in some related field (such as construction, architecture, or engineering) or have worked as an electrician, plumber, or insurance-claim adjuster. This diversity brings extra depth to their inspections. Membership in the ASHI or other trade associations indicates at least a minimal knowledge of house-inspection procedures. Ask about the size of the inspector’s company and how long the company has been in business. What’s the scope of your premarketing inspection? Be certain that the inspection covers all of your house’s major structural and mechanical systems, inside and out, from foundation to roof. Anything less is unacceptable. Thoroughly inspecting a house or condominium of average size usually takes three to four hours. You probably won’t be invited to join the buyers when their property inspector goes through your property. That’s why it’s critically important that you (and your agent, if possible) tag along when your inspector does the premarketing inspection. Reading the best report ever written is no substitute for seeing defects with your own eyes and hearing your inspector’s commentary on the significant findings. Use this opportunity to question the inspector about a defect’s ramifications and explore corrective work alternatives. After completing the inspection, you understand why some defects cost megabucks to fix, and others are no big deal. Here are some questions to ask the inspector: Will your report include a cost estimate for you to do necessary corrective work? Trick question. If the inspector says yes, don’t use the inspector. Good property inspectors only do inspections. They don’t do repair work themselves or generate referral fees for themselves by sending work to their pals. A good inspector can, however, help you determine repair costs by giving you a list of reputable contractors, roofers, electricians, plumbers, and other tradespeople who can give you corrective work quotes. Generally, more than one way is possible to fix a defect. You must decide the best way to deal with a problem after you consult the appropriate repair people. What type of report will I receive? Verbal reports and boilerplate, checklist reports are usually worthless. You need a written, narrative-type report that provides a detailed description of your house’s mechanical and structural condition and clearly explains the implications of the findings in plain English. Get a sample report from each inspector you interview. The best way to find out if an inspector writes good reports is to read one and draw your own conclusion. Do you have errors-and-omissions (E & O) insurance? To err, unfortunately, is all too human. Even the best inspector misses a defect or two every now and then, which is why good property inspectors carry E & O insurance. If your inspector accidentally makes a mistake that costs you big bucks, E & O insurance can help ease your pain. May I call your recent customers for references? Good inspectors happily give you names and phone numbers for all of the satisfied customers you want. Bad inspectors, by definition, don’t have satisfied customers. Check at least three references per inspector. Ask references if, after the transaction was completed, major defects were discovered that the inspector missed. Also see if they’d hire the inspector again. How much will your inspection cost? A good inspection can cost anywhere from $350 to $800 depending on the property’s size, the inspection’s scope and degree of detail, and where the property is located — inspections cost least in the Midwest and South; they’re much more expensive in urban areas of New York and California. Beware of unrealistically low, “this week only” promotional fees offered by new inspectors just starting in the business. Don’t let inexperienced inspectors practice on you. See whether the premarketing inspection includes an additional consultation at a later date to discuss the report’s findings with buyers who make an offer to purchase your house. Because time is money, the inspector probably adds an extra charge for this service. The fee is worth every penny, though, if the property inspector’s explanation helps you negotiate a lower corrective work credit.

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How to Find a Good Real Estate Lawyer

Article / Updated 12-10-2021

Lawyers are like seat belts. You never know when you may need one. Your deal is rolling merrily along when out of nowhere — slam, bam, wham — you hit a legal pothole and end up in Sue City. The real estate purchase agreement you sign is a legally binding contract between you and the buyer. If you have any questions about the legality of your contract, get a lawyer on your team immediately. No one else on the team is qualified to give you legal advice. Suppose the buyer’s contract is presented to you at night or on a weekend when a lawyer isn’t readily available. Put a clause in the contract to stipulate that your acceptance is contingent upon review and approval of the contract by an attorney of your choice within five business days after you sign it. To determine whether you need a lawyer on your team, check out the following factors: If no agent is involved: For example, suppose you’re selling your house by yourself. If neither you nor the buyer has an agent, get a lawyer to prepare the contract, and have the lawyer do the work that an agent would normally handle. Eliminating the real estate agent doesn’t eliminate the disclosures, inspections, contingency removals, and other details involved in the house-selling process. The location of your property: In states such as California, lawyers rarely work on deals that only involve filling in the blanks on a standard, preprinted purchase agreement that’s been previously reviewed and approved by members of the state bar association. In other states, however, lawyers routinely do everything from preparing purchase contracts to closing the escrow. Your agent, if you’re working with one, knows the role lawyers play in your locale. The complexity of your transaction: You need a lawyer if you get into a complex financial or legal situation that can’t be covered by a standardized contract. For example, suppose you hold title as a tenant-in-common and are selling a partial interest in the property, or you want to structure the transaction as an intricate installment sale. Whatever. Unless your agent also is a lawyer, the agent isn’t qualified to do creative legal writing. If consulting an attorney helps you sleep at night: You may have the world’s easiest deal. Still, if you feel more comfortable having a lawyer review the contract, your peace of mind certainly is worth the cost of an hour or two of legal time. Choosing among lawyers If, for whatever reason, you decide you need a lawyer, interview several before making your selection. Real estate law, like medicine, is highly specialized. A corporate attorney or the lawyer who handled your neighbor’s divorce isn’t necessarily the best choice for your real estate team. Get a lawyer who specializes in residential real estate transactions. Good agents and brokers usually are excellent referral sources because they work with real estate lawyers all the time in their transactions. A lawyer working for you needs to have the following qualities in their favor: They are full-time lawyer and licensed to practice law in your state. They are local: Real estate law, like real estate brokerage, not only varies from state to state, but it also changes from area to area within the same state. Rent control laws, condominium conversion statutes, and zoning codes, for example, usually are formulated and adopted by city or county governing agencies. A good local lawyer knows these laws and has working relationships with people who administer them in your area. They have a realistic fee schedule: Lawyers’ fees vary widely. A good lawyer gives you an estimate of how much it costs to handle your situation. As with financial and tax advisors, the experience factor comes into play. Seasoned lawyers generally charge more than novice lawyers, but seasoned lawyers also may get more done in an hour than inexperienced lawyers can. A low fee is no bargain if the novice is learning on your nickel. And you may pay the consequences if the novice fails to handle your case properly. They have a good track record: If the lawyer you consult thinks your case may go to trial, find out whether that lawyer has courtroom experience or intends to refer you to another lawyer. (Some lawyers don’t do trial work.) Always ask about the lawyer’s track record of wins versus losses. What good is a lawyer with a great deal of trial experience if that lawyer never wins a case? They are a deal-maker or a deal-breaker (whichever is appropriate): Some lawyers are great at putting deals together. Others specialize in blowing them out of the water. Each skill is important. Depending on whether you want the lawyer to get you out of a deal so you can accept a better offer or need legal assistance to keep your deal together, be sure you have the right type of lawyer for your situation. If your lawyer’s only solution to every problem is a lawsuit, you may be in the clutches of a deal-breaker who wants to run up big legal fees. Find another lawyer! Speaks your language: A good lawyer explains your options clearly and concisely without resorting to incomprehensible legalese. Then they give you a risk assessment of your options to help you make a sound decision. For example, the lawyer may say that one course of action will take longer but will give you a 90 percent chance of success, whereas the faster option only gives you a 50/50 chance of prevailing. Working well with your lawyer Whoever said that an ounce of prevention is worth a pound of cure must’ve been thinking of lawyers. A two-hour preventative consultation with your lawyer is infinitely less expensive than a two-month trial. Good lawyers are excellent strategists. Given adequate lead time, they can structure nearly any deal to your advantage. Conversely, if you bring wonderful lawyers into the game after the deal is done, all they can do is damage control. The best defense is a good offense. Beware of the awe factor. People tend to hold lawyers in awe because their word is law. Disobey lawyers and you go to jail. Baloney. Don’t blindly follow your lawyer’s advice. If you don’t understand the advice or if you disagree with it, question it. You may be correct and the lawyer may be wrong. Lawyers are every bit as fallible as everyone else.

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How to Form Your Real Estate Team

Article / Updated 12-10-2021

You don’t have to become an expert in property values, mortgages, tax and real estate law, title insurance, escrow, pest-control work, and construction techniques to play the house-selling game well. Instead, you can hire people who’ve already mastered the skills that you lack. House selling is a team sport. Your job is to lead and coach the team, not play every position. After you assemble a winning team, your players should give you solid advice so you can make brilliant decisions. If cost were no object, you’d hire every competent expert you could get your hands on. However, because you probably don’t have an unlimited budget, you need to determine which experts are absolutely necessary and which tasks you can handle yourself. In the following, we explain which experts generally are worth hiring and which ones you can pass on. Ultimately, of course, you’re the one who must determine how competent or challenged you feel with the various aspects of the house-selling process. Here’s an overview of the possible players on your team: Your favorite person: You are the most important player on your team. Sooner or later, another player is bound to drop the ball or fail to satisfy your needs. You have every right to politely, yet forcefully, insist that this person make things right. Remember that you hire the players on your team; they work for you. Bad players may see things the other way around — they want to believe that they’re in charge. They may attempt to manipulate you into acting in their best interests rather than yours. Don’t tolerate this behavior. You’re the boss — you can fire and hire. Real estate agent: Because the house you’re getting ready to sell is probably one of your largest investments, you want to protect your interests by having someone on your team who knows property values. Your agent’s primary mission is to accurately tell you what your house is worth and then negotiate on your behalf to sell it for top dollar. Real estate broker: All states issue two different real estate licenses: one for salespeople (agents) and one for brokers. Real estate brokers must satisfy more stringent educational and experience standards than agents. If your real estate agent isn’t an independent broker or the broker for a real estate office, a broker must supervise the agent. The broker is responsible for everything your agent does or fails to do within the course and scope of the duties of real estate sales professionals. In a crisis, your transaction’s success may depend on backup support from your agent’s broker. Property inspectors: Your house’s physical condition greatly affects its value. Smart buyers will insist on having your house thoroughly inspected from roof to foundation as a condition of the purchase. Don’t passively wait for buyers to give you a copy of their report. Get your house thoroughly inspected before putting it on the market so you know what to expect during any subsequent corrective-work negotiations with the buyer. Escrow officer: Mutual distrust is the underlying rule of many real estate deals. You and the buyer need a neutral third party, an escrow officer, to handle funds and paperwork related to the transaction without playing favorites. The escrow officer is the referee in the game of house selling. Financial and tax advisors: Before selling your house, make sure you understand how the sale (and the purchase of another home, if applicable) fits into your overall financial situation. Lawyer: Whether you need a lawyer on your team depends on three things: the complexity of your contract, the location of your house, and your personal comfort level. If you decide to sell your house without an agent, you definitely need a lawyer who specializes in real estate law on your team. The purchase agreement you sign to sell your house is a legally binding contract. If you have any questions about your contract’s legality, put a real estate lawyer on your team. Each player brings a different skill into the game. Assemble members of a great team, and they can guide you through any situation that may arise during your transaction. Keep in mind that good players serve as advisors — not decision-makers. Decision-making is your job. After all, it’s your money on the line.

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How to Increase Your 'For Sale By Owner' Success

Article / Updated 12-10-2021

Selling a house without an agent is doable, but it’s considerably more challenging than it looks. If, after weighing the pros and cons of taking the "for sale by owner" route (FSBO), you decide to attempt to sell your house yourself, be sure to read our final words of wisdom. Educate yourself The things you don’t know generally are what get you into trouble. Even if you’re certain about selling your house sans agent, interview several good agents. Interviewing agents may reaffirm that you can handle the sale yourself, or the interviewing process may convince you that you’re better off hiring the best agent you contacted. You’ll probably pick up some helpful advice and information you can implement if you do decide to sell yourself. And, if your FSBO isn’t successful, you can always hire the best candidate after you’ve given "FSBOing" a shot. Either way, interviewing agents is well worth your time. Ensure that other team members are especially strong Without a real estate broker or agent on your team, making sure that your other players are the best they can be is all the more critical. Be especially careful to hire an excellent real estate lawyer. Cooperate with agents Because the vast majority of buyers work with agents, be sure to mention in your classified ads and listing statement that you “will cooperate with agents.” This statement tells local agents that you’re willing to pay them a commission if they procure the buyer who ultimately purchases your house. While some agents are comfortable selling FSBOs, you should consider that many agents currently working with buyers prefer to sell listed properties where they are guaranteed a commission by the listing broker. Financially qualify prospective buyers When someone makes an offer on your house, don’t take your property off the market until you’re sure the buyer is going to be able to swing the deal financially. Few buyers are wealthy enough to pay all cash for your house. Most folks need to qualify for a mortgage. Ideally, the buyers are preapproved for a loan with a conventional lender. As opposed to merely being prequalified — a quick financial once-over — preapproval means they’ve gone through a rigorous financial examination. If, however, the buyers are just starting to shop for a mortgage, inquire about their occupations, incomes, recurring debt, and the source of their down payment for the purchase. When the buyers apply for a mortgage, get their permission to contact the lender to find out the likelihood of loan approval. Watch out for buyers who make their offer to purchase your house subject to the sale of their own house first. This tactic, if handled improperly, can tie up your property and scare away other prospective buyers who are ready, willing, and able to buy immediately.

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Consolidating Your Home's Sale and Purchase

Article / Updated 12-10-2021

Suppose you don’t want to sell your house first and then buy a new one. Nor do you want to buy a new home before selling the old one. What then? You can use a third option to sell your old house and buy your dream home without terror, chaos, pain, or privation. Your best alternative is to consolidate the sale and purchase into a seamless whole. Determine your house’s current value The ultimate success or failure of your transaction depends on accurately determining your house’s present fair market value. Don’t kid yourself. This isn’t a place for wishful thinking. Overpricing is bad in any real estate market — in a weak market, overpricing is a sure prescription for disaster. You must be realistic when pricing your house, or the sale of your present property and the purchase of your new home may flounder. In a nutshell, you can either pay to have your house appraised or get a written opinion of its fair market value (called a comparable market analysis) from several real estate agents who fervently want to represent you during your sale. Check your buying power Buying power is a function of the amount of cash you put down on your new home and the size of the mortgage you get. Both numbers are easy to figure out. Here’s how: Calculate your cash position by subtracting the probable expenses of sale from your house’s estimated resale value. Have a lender evaluate your creditworthiness. Find out the size of the mortgage you can get based on current interest rates, your income, and the probable down payment you can make on a new home if your present house sells at its estimated resale value. If you’re nearly ready to sell your current house and buy another, now is a perfect time to get prequalified or, better yet, preapproved for a loan. Lenders can’t tell you how much money you can afford to borrow — just how much money they’re willing to loan you based on their assessment of your ability to repay the mortgage. Lenders don’t know or care about your other financial goals and objectives, such as providing for your retirement or socking away money to help your kids through college. Familiarize yourself with the market Harry S. Truman, our country’s 33rd president, was a renowned skeptic. He was fond of saying, “I’m from Missouri. You’ll have to show me.” Folks from the “show me” state don’t value silver-tongued talkers. They live by the doctrine that seeing is believing. When buying or selling houses, everyone needs to adopt Missouri’s principle. To properly educate yourself about property values, you must tour comparable houses. No amount of book smarts beats good old shoe leather and eyeballing. You have to wear two different hats during your property tours: Seller’s hat: A good comparable market analysis (CMA) prepared by a real estate agent to determine your house’s current value contains two lists. One documents houses comparable to yours in condition, size, age, and location (called comps) that have sold within the past six months. The other shows comps that are currently on the market. You probably won’t be able to get into properties that have already sold, but you should make a point of touring each comp currently on the market to verify your house’s resale value. If you’re working with an agent, have him or her tag along when you tour properties. As you walk through a house, ask the agent to point out similarities and differences between it and recently sold properties that you haven’t seen. This “show and tell” greatly speeds up your discovery process. After visiting a few comps, you start to see which houses are priced to sell and which houses are overpriced. Buyer’s hat: The house you intend to sell and the home you want to buy may be different — different neighborhoods, styles, sizes, ages, conditions, and prices. Your new home may not even be in the same city or state. You won’t, however, have to reinvent the wheel as a buyer because most principles of valuing property apply whether you’re a buyer or a seller. Smart buyers also use CMAs. Seeing is still believing, and nothing beats touring property currently on the market so you know what’s available when the time is right. Pick up a copy of Home Buying Kit For Dummies (Wiley). Take action Now you’re ready to start the action phase — selling your old house and buying a new one. Timing is critical. If you structure your transactions properly from inception, you’ll be in firm control of the process instead of the process controlling you. Putting your house on the market First things first. Let the world know that your house is for sale. You must, however, continue looking at any new comps that come on the market after yours as well as other new homes being offered for sale. The market constantly changes. New property becomes available. Houses currently on the market sell. A good real estate agent can keep you posted regarding important changes that may affect your situation. Push your hands deeply into your pockets whenever you tour prospective dream homes. Untimely dreams have a way of turning into nightmares. As long as your hands are safely out of harm’s way, you can’t sign any purchase offers. Don’t make an offer to purchase your next home yet, for the following reasons: Your asking price may be too high. Even though you try your best to price your property to sell, you may inadvertently overprice it. You know that you’ve overpriced your property if purchase offers fail to appear. Because the amount you can afford to spend for your next home probably depends on the amount you net from the sale of your current house, knowing how much money you’ll have available may be critical. If your budget provides little wiggle room and you’re forced to reduce your asking price, you can simply make a commensurate adjustment in the amount you eventually pay for your new home. You aren’t a real buyer until you have a solid contract on the house you’re selling. For now, trust us; any offer you make on a new home that depends on first selling your present house (if your house isn’t in contract yet) won’t be taken seriously. Real sellers refuse to tie up their property indefinitely while you attempt to sell your house. Structuring your terms of sale Concentrate on one extremely important aspect of the deal you make — structuring your terms of sale to provide enough time to purchase your new home. You shouldn’t need a ton of time because you’re already familiar with prospective new homes currently on the market, and you’re probably either preapproved or, at least, prequalified for a mortgage. Here’s how you can give yourself the time you need to make a well-planned and executed purchase: Schedule close of escrow on your old house to occur 30 days after the buyers remove all their conditions of purchase and increase their deposit. Buyers may take three or four weeks to remove the two most common conditions of nearly all house purchases — mortgage approval and property inspections. Getting loan approval usually takes somewhat longer than completing the various property inspections. Thirty days is your magic number, because lenders normally won’t hold their loan commitment more than 30 days after they approve a mortgage. Some lenders may be willing to hold mortgage commitments more than 30 days. One quick call to the buyers’ loan officer is necessary to determine the lender’s policy on this issue. If, for example, the buyers’ lender guarantees a loan commitment 45 days after the loan is approved, schedule your close of escrow accordingly. The more time you give yourself to close your other transaction, the better. You can get even more time by putting a “rent-back” clause in your counteroffer to the buyers’ purchase offer. This clause lets you rent your house back from the buyers after escrow closes. It can buy you an extra month or two (or more) if the buyers agree to a rent-back. Sellers usually pay rent equal to their buyers’ actual cost for principle, interest, taxes, and insurance. For example, if the buyers pay $1,500 a month for mortgage payments plus their prorated property tax and insurance payments, that amount is your rent.Although the rent may be more than you currently pay to live in your house, the amount is probably less than it would cost you to move into a motel for a month or two and much more convenient. Sellers are wise to prepare a formal lease agreement that covers the rent-back. No standard rent-back clause exists. Check with your real estate agent or a lawyer to determine how rent-backs are best handled where you live. Timing the offer to buy your new home You may be tempted to rush out and make an offer on your dream home while the ink is still drying on the contract you just signed to sell your present house. Don’t. Give yourself time to shake out deal-killing glitches in your sale before you make any offers on a new home. Don’t present an offer to buy your next home until the contract on your present house resembles the Rock of Gibraltar. If you want the sellers of your new home to treat your offer with respect, delay making an offer until your buyers remove all their conditions of purchase and increase their deposit on the house you’re selling. Until you know the buyers’ mortgage is approved and you resolve questions related to handling corrective work discovered during the property inspections, your contract is as solid as a bowl of pudding. You may think that we’re overly cautious when we urge you to wait until the contract for the sale of your house is rock solid before making an offer to buy your new home. The real estate gods can be cruel and fickle. Make the offer to purchase your new home subject to the sale of your present house. This step protects you from being forced to buy a second home. Your offer should specify that if the escrow for the sale of your house doesn’t close within the time specified in your contract of sale, you have the right to cancel the contract to purchase the new property. If for some utterly unforeseen reason the sale of your house falls apart, at least you can get out of the contract to buy the new home. Combining a 30-day close of escrow with a two-month rent-back clause gives you a three-month comfort zone in which to close the purchase of your new home. Ideally, you can simultaneously close the sale of your present house and the purchase of your new home. If you can’t, however, then sell before you buy. You’ll sleep better.

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How to Find Creditworthy Buyers for Your Home

Article / Updated 12-10-2021

After you determine that you have spare cash to invest or lend, and you’re looking for taxable interest income, the hard work comes: putting on your detective hat and assessing the merits of lending your money to a prospective buyer who’s more than likely a complete stranger. So how do you, someone who isn’t a mortgage lender by profession, become a savvy credit analyst? Perhaps you’ve heard the expression, “Imitation is the sincerest form of flattery.” Well, do what bankers do when deciding whether to lend someone money. The first thing a lender does in an evaluation of the creditworthiness of a prospective borrower is to bury the person in paperwork. As a lender, you absolutely, positively must gather financial facts from the borrower. You can’t accurately assess the risk of lending money to a buyer, even one whom you’ve known personally for a number of years, without going through the information-gathering exercise in this section. Only agree to make a loan to the buyer of the property when they're able to make at least a 20 percent down payment. Bankers normally require a down payment of that size for good reason: If the borrower defaults and the banker is forced to hold a foreclosure sale, the down payment provides a cushion against the expenses of sale and possible losses in property value if real estate prices have declined since the loan was made. If the buyer falls on hard times at the same time real estate prices go into the tank, you may find yourself in the unfortunate position of repossessing a house that’s worth less than the amount the borrower owes on it. So, what documents should you request and what information should you look for? The loan application The best way we know to get data from a prospective borrower is to have them complete the Uniform Residential Loan Application, also known as Form 1003, which mortgage lenders almost always use. You can obtain one of these forms through mortgage lenders or mortgage brokers. If, because no profit is in it for them, they’re unwilling to send you a form for your personal use, you can pose as a prospective borrower and have them mail you their standard application package. You can also find the forms online for free. (Please note that the sample form here is the 2019 version.) After you receive the completed application from the borrower, be sure it’s completely filled out. Ask for explanations for unanswered questions. The following list explains how to evaluate the information in various parts of the form: Borrower information: In this section, the borrowers tell you about themselves. If the borrower hasn’t lived in their most recent housing situation for at least two years, be sure they also list their prior residence. If the borrower was renting in their recent housing situation(s), request a letter from the buyer’s landlord to verify that rent was paid on time. Alternatively, ask for both sides of canceled checks or checking account statements covering the most recent 12-month period, showing timely rental payments. If the person moved frequently in recent years, check with more than the most recent landlord. Borrowers who’ve had trouble paying rent on time may well have trouble making regular mortgage payments. Ask for explanations of any red flags you find. Employment information: Even more important than a borrower’s recent housing record is the employment record. Here, you’re again looking for stability as well as an adequate income to make housing payments. If the borrower hasn’t been in the most recent position for at least two years, ask the person to list prior employment to cover the past two years. The borrower also lists their monthly income from the current job in this section of the application. Monthly income and income from other sources: In this important section, the borrower details monthly employment income as well as income from bank, brokerage, and mutual fund investments. In addition to income from bank accounts, stocks, bonds, or mutual funds, a borrower may have income from real estate rental properties. For most people, obviously, employment provides the lion’s share of their income. The buyer’s expected monthly housing expenses (which include the mortgage payment, property taxes, and insurance) should be compared against (divided by) the borrower’s gross (before-tax) monthly income. Most mortgage lenders require that a homebuyer’s monthly expenses do not exceed about 33 percent of the homebuyer’s monthly income; we think that’s a good ratio for you to work with as well. However, like a good banker, you don’t want to be rigid. If someone’s proposed monthly housing expenses come in at 34 percent or 35 percent of her monthly income and the borrower has a good job, large down payment, solid references, and so on, then you may decide to go ahead and make the loan, especially if the deal gets your house sold. Assets and liabilities: The borrower should also tell you about their personal assets and liabilities. (The next section lets the borrower do the same for other real estate if he owns any.) The mortgage application form divides the buyer’s assets between those that are liquid, and therefore available for a down payment or closing costs (for example, savings and money market account balances outside retirement accounts), and those that aren’t so liquid (retirement account investments or real estate). In the liabilities section, the borrower should detail any and all outstanding loans or debts. Be wary of lending to someone who carries a great deal of high-interest consumer debt (such as credit cards or auto loans). If the borrower has the cash available to pay off consumer debts before closing, have them pay those balances. Type of mortgage and terms of loan: Asking the borrower to fill in these sections isn’t vital; the legal loan document that you both sign later contains information on the terms of the loan — the loan amount, interest rate, length of the loan, and the loan type (fixed-rate or adjustable-rate). Loan and property information: Although you know the borrower is obviously buying, you may not know whether they're going to use the property as a primary or secondary residence or as an investment property. If the buyer intends to rent the property for investment purposes, your loan is riskier, and you should charge a higher interest rate than you’d charge an “owner-occupied” buyer. Verify the source of the buyer’s down payment and closing costs to ensure this money isn’t yet another loan that may handicap the buyer’s ability to repay the money you’re lending them. The down payment and closing costs should come from the buyer’s personal savings. Ask to see the last several months of the buyer’s bank and investment account statements to verify that the funds have been in the accounts during that time and didn’t arrive there recently as a loan, for example, from a relative. Declarations: In this section, the borrower should disclose any past financial or legal problems: foreclosures, bankruptcies, and so on. If the borrower answers any of these questions in the affirmative, ask for a detailed written explanation. Documentation, documentation, documentation If you borrow from a lender, the staff asks that you provide a raft of financial documents. If you’re the lender, you need to ask for the pile of papers, too. You may rightfully wonder why you need more paperwork after the buyer completes a detailed loan application. Unfortunately, some people lie. Even though you may think you have the most financially stable, honest, and creditworthy buyers nibbling on your house-for-sale fishing line, don’t start reeling them in yet. You need to get the additional paperwork to prove and substantiate the borrower’s financial status. Pay stubs, tax returns, and bank and investment-account statements document the borrower’s income and assets. Just because someone tells you on an application form that he’s earning $5,000 per month doesn’t prove that they really are. When verifying the information supplied on the mortgage application, ask the prospective borrower for the following documents: Federal income tax returns and W-2s for the past two years Original pay stubs for the past month or two (if the borrower is self-employed, request a year-to-date income statement and balance sheet) Award letter and copy of the most recent check if the borrower receives pension, Social Security, or disability income Past three months of account statements for money to be used for down payment, as well as copies of all other investment accounts (including retirement accounts) Most recent statement for all outstanding loans Divorce or separation papers if the borrower pays or receives alimony or child support You also should obtain, at the borrower’s expense, a copy of their credit report(s) to check credit history and to ensure that you’re aware of all outstanding debts. The larger consumer credit reporting agencies include Experian, TransUnion, and Equifax. Even when you request and receive all this documentation, some buyers still can falsify information, which is committing perjury and fraud. For example, some people, particularly those who are self-employed, may make up phony income tax returns with inflated incomes. Borrower problems As you may know from your own personal experience, some people don’t have perfect financial and credit histories. In some cases, a prospective borrower may have enough problems for you to reject the application. In other situations, however, the problems may be minor and can be overcome by taking some simple steps and precautions. Here are common problems likely to crop up with prospective borrowers, and our best advice on how to deal with each situation: Income appears too low to support monthly housing costs: The best way to protect your interests if you’re considering lending to someone who’s stretching (in terms of monthly income) to afford your house is to ask for a larger down payment. As we discuss in the next section, you can charge a higher rate of interest for lending to someone who’s a greater credit risk. Another strategy is having the borrower get a cosigner, such as a parent. Past credit problems: Just because someone has nicks on her credit report doesn’t mean you should immediately reject the loan application. Credit reporting agencies and creditors who report information to the agencies sometimes make mistakes. Someone who has a small number of infrequent late payments shouldn’t be as big a concern as someone who has reneged on a loan. Ask the borrower for a detailed explanation of any problems you see on the report and use your common sense to determine whether that person is simply human or irresponsible with credit. In the latter case, you may suggest that the borrower enlist a cosigner. Outstanding consumer debt: If the borrower has the cash available to pay off the debt, have him or her do so as a condition of making the loan. If the borrower lacks the cash to pay off consumer debt and lacks a 20-percent down payment, you’re probably better off not making the loan, unless the buyer’s income provides a great deal of breathing room. If you’re on the fence, consider having the borrower get a cosigner.

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