Understanding the Home Selling Process

Selling a home is a complex task, regardless of the current real estate market. Whether you're a first-time seller or not, you likely have many questions. Do I need a real estate agent? What does "closing" mean? How much paperwork will I have to complete? How can I get the best price for my home? How can I sell my current home and buy a new one simultaneously?

This article will answer all these questions and more, as we dive into what 'curb appeal' means and explain why an open house might not be as effective as you think.

There are two primary options for selling your home – with an agent or without one. Before we compare the pros and cons of each, let's go over some essential tips every seller should keep in mind.

Understanding your home's value and practicing patience are essential. Get your home appraised; it's an investment worth $250 to $500. In a strong market, the sale price could exceed the appraisal by 10 to 15 percent. In a slower market, the sale price may align with the appraisal value. We’ll delve into how to determine your asking price later in the article.

A home inspection is crucial for preventing issues during the sale. While the seller arranges the inspection, identifying problems through a pre-sale inspection gives you more control over handling them. If issues are found, it’s important to familiarize yourself with your state’s disclosure laws to avoid future legal challenges. These laws differ from state to state but generally require you to disclose, either verbally or in writing, any hazardous materials or major construction flaws. If you're uncertain about your responsibilities, consult a real estate agent, attorney, or your local housing authority.

Patience is critical in the selling process. Realtors often express concerns that homes can become 'stale' after being on the market for too long, which means they stop attracting buyer interest. However, a stale listing usually happens when the seller overprices their home. The opposite can also occur: in the rush to sell quickly or to move into a new home, a property can be undervalued.

If possible, aim to list your home for sale before purchasing a new one. Otherwise, you may find yourself managing two mortgages, which can be financially overwhelming. If you happen to find a house you want before selling your current one, you can inquire about a bridge loan with your lender. A bridge loan, if you have enough equity in your home, can help cover the down payment on a new home. Alternatively, a home equity loan may help you manage dual mortgage payments. For more details, check out our article How Home Equity Loans Work.

Now that we’ve reviewed the basics of selling a home, it’s time to explore a common dilemma: Should I hire a real estate agent?

Should I Hire a Real Estate Agent?

Although the internet has made it easier to sell your home independently, around 93 percent of home sales still involve a real estate agent in some capacity [ref]. Agents can work solo or be employed by a company that acts as the broker. The broker is the one who enters into the contract with the seller. Experienced agents typically receive the full commission, paying a fee to the broker, while newer agents might only receive 30 to 40 percent of the commission.

There are many advantages to hiring an agent, such as:

A crucial resource for real estate agents is the Multiple Listing Service (MLS), an extensive online database that is subscribed to by 900,000 agents. The MLS includes listings for approximately 90 percent of properties available for sale across the U.S. [ref]. Buyers can access this service for free at realtor.com. While only subscribing agents typically have the ability to list properties, in some instances, home sellers can pay a fee to have their property listed.

While there are numerous advantages to working with an agent, there are also some downsides. The most notable is the cost, as commissions can reach up to 6 percent of the home's sale price. However, many agents are open to negotiating their commission, especially in a strong housing market. Additionally, working with an agent requires a level of trust, as you’re placing one of your most valuable assets in their hands and essentially saying, 'Please assist me.' Letting go of any emotional ties to your property is also part of the process of selling.

If you’re thinking about hiring a real estate agent to assist with selling your home, you can choose between a full-service agent and a discount service. A full-service agent takes care of everything – preparing your home, conducting open houses, listing on the MLS, creating high-quality marketing materials, placing a sign in your yard, and sometimes hiring a professional photographer to capture images of your home.

A discount service provides fewer services, but what you receive varies depending on the company. The advantage is lower costs: discount brokers typically charge a commission between 2 percent and 4.5 percent. Some discount services will pre-screen buyers and list your property on the MLS. However, you will be responsible for showing your home to potential buyers, and buyer's agents may be less eager to show your property due to the reduced commission (as buyer and seller agents typically share the commission on a sale). Despite these challenges, this option may be worth it if you're hoping to save money while still getting a reasonable price for your home. For examples of discount brokers, you can explore ZipRealty and House Rebate.

Now that we’ve discussed the benefits and drawbacks of hiring an agent, let’s move on to the next step: finding the right agent for you.

How to Find a Real Estate Agent

It’s wise to look for an agent affiliated with the National Association of Realtors, as this guarantees they are held to a code of ethics. Ask friends, family, or colleagues who have worked with realtors for recommendations. Pay attention to local listings and how quickly homes are selling in your area. An agent familiar with your neighborhood and its market trends will provide you with the most relevant insights. Additionally, attending an open house will give you the opportunity to meet the agent in person and get a feel for their approach.

After finding an agent, resist the urge to sign a contract right away. Take the time to interview the agent and assess whether they’re the right fit for you. You want someone who is engaged and asks thoughtful questions about your home. Treat this meeting like a job interview, as it’s important to ensure that your agent is genuinely interested in helping you. Here are some good questions to ask when interviewing a prospective agent:

Request copies of the agency disclosure, listing agreement, and seller disclosures. Even if your agent initially states that they don’t negotiate commissions, most agents do, particularly if you're also purchasing a home through the same brokerage.

Before signing any contracts, have a lawyer review the agreement. You’ll need legal support during the closing process, so it’s best to involve an attorney early who can provide guidance throughout.

For Sale by Owner

While it's not common, it is possible to sell a house without an agent. With dedication and thorough research, you might save a significant amount, sometimes up to 7 percent [ref]. However, achieving those savings can be challenging and is highly dependent on the market, especially when brokers are reducing their rates.

In addition to potential savings, there are other advantages to selling your home on your own. You are the one most familiar with your home and can likely highlight its benefits and history more effectively than a broker who may be new to the property. Taking charge of the sale process also grants you complete control. You won’t have to worry about whether a broker is being truthful or be told how to manage your home.

However, you will face challenges such as limited exposure—without access to MLS or a broker’s network, you may struggle to reach a wide audience. Additionally, buyers typically feel more comfortable dealing with a broker. Be prepared to accept a potentially lower sale price than you would achieve through an agent.

Selling your home independently is time-consuming and can be stressful. You’ll need to create your own advertisements, schedule viewings, handle negotiations, and manage the booking of necessary services (inspector, lawyer, title company).

However, if you're up for the challenge, don't let these obstacles discourage you! It’s possible to save money, and acting as your own agent can be a rewarding experience. So keep reading for some helpful tips on selling your home independently.

Guidelines for Selling Your Home on Your Own

First and foremost, ensure that you're adhering to fair housing laws. Advertising is crucial next. Place ads in the classified section of local newspapers, and consider real estate publications or weekly inserts. Explore online platforms where you can list, such as For Sale by Owner or the National For Sale by Owner Network. Your advertisement should include essential details like the number of bedrooms, bathrooms, and special features. Phrases like 'below market price' or 'furnishings included' can also attract more interest.

While you're likely aiming to save money, investing in a professional wooden sign for your yard can truly pay off. A quality sign should cost between $100 and $200, depending on the company, though cheaper plastic options can be found for under $50. It’s a worthwhile investment. Position the sign in a visible spot in your front yard, ensuring that your phone number is clearly displayed. Including an information box with property details, such as a floor plan and features, along with the asking price, can help filter out buyers who aren’t serious.

Reach out to your network—friends, colleagues, bartenders, doctors, lawyers, and anyone else you know! Ask if they’re aware of anyone searching for a home. Not only can this help you find a buyer, but a referral from a friend can simplify the process.

Be cautious of brokers reaching out to you—they may offer a buyer, but allowing them to bring just one could make you responsible for paying their commission. You can have a lawyer draft a document confirming that you don’t have an exclusive contract with the agent, but are willing to offer them a fee if the home is sold to a buyer they referred. This fee typically ranges from 1% to 3% of the sale price, or half of the usual commission.

Proper pricing is crucial throughout this entire process. Overpricing your house can cause it to linger on the market, as mentioned before. And constantly lowering the price while it remains unsold damages your negotiating power and signals to potential buyers that you're unsure about your home’s value.

If you successfully find a buyer and agree on terms, congratulations! The closing process is very similar whether you're working with an agent or not. We’ll cover that in more detail later, but regardless, it’s advisable to hire a lawyer to draft the sale contract. Local laws can vary widely, and while some handbooks offer standard contracts, those may not be valid in your area.

Time to Sell Your House

Whether you’re working with a real estate agent or not, there are essential steps you should take when selling your property.

We've emphasized this before, but it’s one of the most critical aspects of selling your home, so it’s worth repeating: avoid overpricing. An appraisal can help, but ultimately, the market decides what your house is worth. Take into account the features of your home and the neighborhood—location, schools, weather, housing trends, special features, and local prices. If you're working with an agent, sharing this information will help them market your home effectively. It’s more harmful to set a price too high than too low. If you price it too low, you’ll likely receive multiple offers, which could drive the price up.

Get your house ready for the market by viewing it through a critical and objective lens. You might want to hire a professional cleaning service to scrub every surface, including carpets, appliances, and windows. Declutter the space to showcase the home’s true potential. Buyers should be able to see that the home has been meticulously maintained—piles of old newspapers or scattered toys can turn potential buyers away.

Does your home need a fresh coat of paint? Are any moldings, shutters, or trims in need of replacement? Neutral shades like off-white are recommended for interiors, and touching up peeling or cracked paint on the exterior can significantly boost curb appeal—the first impression buyers get when they see your home. Hide away trash cans and place some flowers in the front yard. Stand at the curb and ask yourself: Is this a home you’d want to visit if you were walking by?

Selecting the Best Offer

Your agent should have the ability to filter out buyers who are not financially qualified by evaluating their credit and debt history, income, employment stability, down payment capacity, and the estimated time required for closing (which should range from six to eight weeks).

While it is mandatory for your agent to present every offer to you, make sure they adhere to this by insisting on it. Include a clause in your contract that obligates them to report all offers.

Consider your personal financial situation. While you likely have an ideal price in mind, what is the minimum amount at which you're willing to accept? Do you need a particular sum for a down payment on a new home or for other obligations such as car payments? Don't forget to factor in the costs associated with selling, including the agent's commission (if applicable), closing fees, legal expenses, etc. Ensure these costs are considered in your calculations so you can have a clear understanding of your financial position when the sale concludes.

Closing the Sale of Your Home

Well done! You’ve found a buyer, settled on a price, and are ready to sell. The long journey is nearing its end, but now it’s time to close the deal. So, how do you proceed?

First, you'll need a title company. This company reviews the title deed, which is the legal document that confirms ownership of the property. They check for any potential issues, such as disputes over ownership or missing documentation. They also provide title insurance, which is typically issued to the buyer and protects against any issues related to the property’s title that may arise later.

Next, you'll require a lawyer, ideally one with expertise in real estate law. Hopefully, you've already made arrangements with one, especially if you've been working with a real estate agent. The lawyer will draft the contract of sale and help both you and the buyer finalize the details, such as which items from the home are included (e.g., appliances, furniture, fixtures), the down payment amount, the closing and possession dates, any sale conditions (like inspections), the terms of the mortgage, who pays for which closing costs, and of course, the sale price.

Your lawyer will make sure that the contract is fair and free from any hidden or deceptive terms. Additionally, they can provide advice regarding the tax consequences of selling your home. If you're making a profit from the sale, that's great, but be aware that the U.S. Government will take its share. However, your lawyer will inform you that you can typically exclude up to $250,000 in capital gains ($500,000 for married couples) if you've lived in your home for at least two of the past five years. If you've lived there for less than two years but are relocating due to a job change, health issues, or other special circumstances, you may still qualify for an exclusion.

Once the contract is signed, you're almost finished. The final steps involve finding some movers, handing over the keys, and ensuring you vacate the property by the agreed-upon possession date.

For additional guidance on selling a home and related matters, take a look at the useful links provided on the next page.