Selling your House: What You Need to Know
This information comes from our friends at Nolo Press. For more information or to order this book, visit Nolo's site at http://www.nolo.com.Buying or selling a house is a major undertaking. To do it right, you need to understand how houses are priced, financed and inspected; how to find and work with a real estate agent; how to protect your interests when negotiating a contract, and how legal transfer of ownership takes place. This section discusses some of the basic issues buyers and sellers need to know.
- Timing a House Sale and Setting the Price
- Working with Real Estate Agents
- Real Estate Offers and Contracts
- House Inspections and Seller Disclosures
- Tax Considerations of Selling a House
Timing a House Sale and Setting the Price
Savvy sellers understand the importance of timing their house sale and pricing it correctly.
1. What are the best and worst times to sell a house?
Too many people sell their house at the wrong time or are in too much of a hurry. Basically, you want to sell when there's the largest potential pool of buyers--causing prices to go up--something that occurs in the following situations :- Your area is considered especially attractive-- because of the schools, low crime rate, weather, proximity to major city or other factor such as employment opportunities.
- Mortgage interest rates are low.
- The economic climate of your region is healthy and people feel confident about the future.
- There's a jump in house buying activity as often occurs in spring.
2. What's the best way to price a house for sale?
The key thing is determining how much your property is actually worth on the market--called "appraising" a house's value. The most important factors that determine a house's value are recent sales prices of similar properties in the neighborhood ("comps").Real estate agents have access to sales data for the area ("comp books") and can give you a good estimate of what your house should sell for. Many real estate agents will offer this service free, in hopes that you will list your house with them. You can also hire a professional real estate appraiser to give you a documented opinion as to your house's value. Public record offices, such as county clerk or recorder's office, may also have information on recent house sales. And Consumer Reports now offers information by telephone on home sales.
Finally, asking prices of houses still on the market can also provide guidance (adjusting for the fact that asking prices are typically 10% or more over the market). To find out asking prices, go to open houses and check newspaper real estate classified ads.
Preparing A House for Sale
All states regulate and license real estate agents and brokers. While you may have different options as to the type of legal relationship you have with an agent or broker, normally, the seller pays the commission of the real estate salesperson who helps the buyer locate the seller's house. The commission is a percentage (typically 5% to 7%) of the sales price of the house. What this means is that a home buyer's agent or broker has a built-in conflict of interest: Unless you've agreed to pay the agent separately, she won't get paid until you buy a home, and the more you pay for a house, the bigger the agent's cut. In short, when you evaluate the suitability of a house, it's not wise to rely principally on the advice of a person with a significant financial stake in your buying it. You need to be knowledgeable about the house-buying process, your ideal affordable house and neighborhood, your financing needs and options, your legal rights and how to evaluate comparable prices.Working with Real Estate Agents
Most people use a real estate agent or broker when they buy or sell a house.
1. What's the best way to find and work with a real estate agent or broker?
Get recommendations from people who have purchased a house in the past few years and whose judgment you trust. Don't work with an agent you meet at an open house or who solicits you in other ways unless and until you thoroughly check the person out. The agent or broker you choose should be in the full-time business of selling real estate and have, ideally, at least the following five traits: integrity, business sophistication, experience with the type of services you need, knowledge of the area you want to live in and sensitivity to your tastes and needs.
2. Is it possible to sell a house without a real estate broker or agent?
Usually, yes. This is called a FSBO (pronounced "fizzbo")--For Sale By Owner. You must, however, be aware of the legal rules that govern real estate transfers in your state, such as who must sign the papers, who can conduct the actual transaction and what to do if and when "encumbrances" arise which slow down the transfer of ownership. You also need to be aware of any state-mandated disclosures as to the physical condition of your house. (See House Inspections and Seller Disclosures, below.) Check your state department of real estate for advice on FSBOs.
If you want to go it alone, be sure you have the time, energy and ability to handle all the details--from setting a realistic price to negotiating offers and closing the deal. Also, be aware that FSBOs are usually more feasible in hot or sellers' markets where there's more competition for homes, or when you're not in a hurry to sell.
3. Is there some middle ground when a seller can use a broker on a more limited (and less expensive) basis?
You might consider doing most of the work yourself--such as showing the house--and using a real estate broker's help with such crucial tasks as:- setting the price of your house
- advertising your home in the local multiple listing service (MLS) of homes for sale in the area, published by local boards of Realtors, or
- handling some of the more complicated paperwork when the house closes.
Real Estate Offers and Contracts
A legal offer must be in writing, delivered to the seller or his agent and contain specific financial and other terms so that if the seller says "yes," the deal can go through. The seller's acceptance, too, must be in writing.
1. When making an offer to buy a house, what's the best way to protect yourself from a deal that might not work out?
Real estate offers almost always contain contingencies-- events that must happen within a certain amount of time (such as 30 to 60 days) or else the deal won't become final. For example, you may want to make your offer contingent on your qualifying for financing, the house passing certain physical inspections or even your ability to sell your existing house first. Be aware, however, that the more contingencies you place in an offer, the less likely the seller is to accept it.2. Does a seller need to take the first offer that comes in?
Offers, even very attractive ones, are rarely accepted as written. More typically, the seller will respond with a written counter offer accepting some, even possibly most, of the offer term, but proposing certain changes. Most counter offers correspond to these provisions of an offer:- price--the seller wants more money
- occupancy--the seller needs more time to move out
- buyer's sale of current house--the seller doesn't want to wait for this to occur
- inspections--the seller wants the buyer to schedule them more quickly.
3. What is the house closing?
The final transfer of the house to the buyer. It occurs after both the seller and the buyer have met all the terms of the contract and the deed is recorded (see Deeds, below). Closing also refers to the time when the transfer will occur, such as "the closing on my house will happen on January 27 at 10:00 a.m."4. Do you need an attorney for the house closing?
This varies depending on state law and local custom. In some states, such as California, attorneys are not typically involved in residential property sales, and an escrow or title company handles the entire closing process. In many other states, particularly in the eastern part of the country, attorneys (for both buyer and seller) have a more active role in all parts of the house transaction, and handle all the details of offer contracts and house closings. Check with your state department of real estate or your real estate broker for advice.House Inspections and Seller Disclosures
Before you finalize your house purchase, you'll want to check out its condition.
1. What's the best way to assure you're buying a house in good shape?
In some states, buyers may have the advantage of a law that requires sellers to disclose considerable information about the condition of the house. But regardless of whether or not the seller provides disclosures, you should have the property inspected for defects or malfunctions in the building's structure such as the roof or windows.You should first conduct your own inspection. Ideally, you should do this before you make a formal written offer so that you can save yourself the trouble should you find serious problems.
In addition to inspecting the house yourself, hire a general contractor to inspect all major house systems, from top to bottom, including the roof, plumbing, electrical and heating systems and drainage. This will take two or three hours and cost you anywhere from $200 to $500 depending on the location, size, age and type of home. Accompany the inspector during the examination, so that you can learn more about the maintenance and preservation of the house and get answers to any questions you may have, including what problems are important and which are relatively minor. Depending on the property, you may want to arrange specialized inspections for pest damage, hazards from floods, earthquakes and other natural disasters, and environmental health hazards such as asbestos and lead.
Professional inspections should be done after your written purchase offer has been accepted by the seller (which should be contingent upon your approving the results of one or more inspections). Be sure you get a written report of all inspections.
If the house is in good shape, you can proceed, knowing that you're getting what you paid for. If inspections discover problems--such as an antiquated plumbing system or major termite problems--you can negotiate with the seller to have him pay for necessary repairs, or you can back out of the deal, assuming your contract is properly written to allow you to do so.
2. What are seller obligations to disclose problems about a house?
In most states, it is illegal to fraudulently conceal major physical defects in your property such as a basement that floods in heavy rains. And states are increasingly requiring sellers to take a pro-active role by making written disclosures on the condition of the property. California has the most stringent disclosure requirements. California sellers must give buyers a mandatory disclosure form listing such defects as a leaky roof, faulty plumbing, deaths that occurred within three years on the property, even the presence of neighborhood nuisances, such as a dog that barks every night, as well as potential hazards from floods, earthquakes, fires, environmental hazards and other problems.Generally, you are responsible for disclosing only information within your personal knowledge. While it's not usually required, many sellers hire a general contractor to inspect the property. The information will help you determine which items need repair or replacement and prepare any required disclosures. It is also useful in pricing your house and negotiating with prospective buyers.
Full disclosure of any property defects will also help protect you from legal problems from a buyer who seeks to rescind the sale or sues you for damages suffered because you carelessly or intentionally withheld important information about your property.
Check with your real estate broker or attorney or your state department of real estate for disclosures required in your state. Also, be aware that real estate brokers are increasingly requiring that sellers complete disclosure forms, regardless of whether or not it's legally required.
Sellers Must Disclose Lead-Based Paint and Hazards
- disclose all known lead-based paint and hazards in the house
- give buyers a pamphlet prepared by the U.S. Environmental Protection Agency (EPA) called Protect Your Family from Lead in Your Home.
- include certain warning language in the contract as well as signed statements from all parties verifying that all requirements were completed
- give buyers a ten-day opportunity to test the housing for lead.
For more information, contact the National Lead Information Center--by phone at (800) 424-LEAD, or check their website at http://www.nsc.org/ehc/lead.htm
Tax Considerations of Selling a House
Sellers need to be aware of several important tax consequences when selling a house.1. I'm selling my house and buying another. What are some of the most important tax considerations?
If you sell an owner-occupied house at a profit, and buy and occupy a more expensive one, you pay no tax on the profit (capital gains) now, assuming the sale of the first home and the purchase of the second one occur within 24 months of each other. You must however report the sale to the IRS on Form 2119, under Section 1034 of the Internal Revenue Code. If no broker is involved, you must report the sale on IRS Form 1099 B.This doesn't mean you'll never pay tax on your gain. You'll eventually owe a tax if you sell a house and don't buy one of equal or greater value--unless you are over 55 when the sale occurs, at which point you can shelter a profit of up to $125,000 (see Question 2, below). This delayed tax is often referred to as a "roll over" of gain on your income tax because it lets you roll over the gain on one home into the other. You can do it every time you sell a home and buy another within 24 months; but you are limited to using it only once every two years.
2. Are there are tax advantages to seniors who sell their home?
If you (or your spouse, if you are married) are over 55, and you sell one home and buy another of lesser value, federal tax law lets you exclude from your profit (capital gains) up to $125,000 if you lived in the house as your principal residence for any three of the past five years (the years need not be the last three, nor consecutive); you specifically elect to use the exclusion; and you (or your spouse) haven't used the exclusion before, even in a prior marriage.Note: There can also be tax advantages if you hold on to a house that has gone up in value until your death, since your inheritors will be allowed to treat the house as having its then current value for tax purposes. This means that if you paid $200,000 for a house, but it was worth $400,000 at your death, and your inheritors immediately sell it for this amount, they will owe no federal tax.
