Selling your home is never really a picnic, even under the best of circumstances. But over the past few years, in this, shall we say, “difficult” market we’ve experienced, selling a home can be a nightmare of epic proportions. It’s tough out there, there is a lot of competition depending on what area you’re talking about, and buyers are walking around with money in their pockets and often want perfection in exchange for it. Whenever I take on a new listing, I like to prepare my clients for what lies ahead, especially if they are a first-time seller. There are several stages of a sale that have to go smoothly in order to actually get that transaction closed, and speedbumps in any of them can torpedo a deal if not handled properly.
There’s an old adage in real estate that when you put your home on the market, you actually have to sell it twice. The first sale is obviously to a qualified, ready, willing and able buyer. But then you have to “sell” it again to the appraiser sent by the buyer’s lender to appraise the value. Let’s say you, Mr. Seller, believe your home is worth $1 million. You can believe that with all your heart, but it doesn’t necessarily make it so. When you find that buyer and the house goes into escrow, you must be able to show the buyer’s lender—using comparable sales from the last three to six months—why your house is worth that much.
Unfortunately though, according to the National Association of Realtors, on almost 25 percent of all contracts on residential homes, either the contract fell though due to appraisal issues or the sale price of the home had to be adjusted downward to accommodate the lower appraisal value. Part of a good listing agent’s job is to be prepared to show an appraiser comparable sales that justify the sales price. When you are first meeting with your listing agent to discuss pricing, you should sit down together and review comparable sales in the area, so that you know ahead of time whether you are likely to encounter appraisal issues down the road. A buyer’s purchase contract will most likely have an appraisal contingency in it, stating that should the property fail to appraise at the agreed upon purchase price, the deal can be terminated at no cost to the buyer, leaving you, the seller, back at square one. Only now you have to tell potential buyers that the home did not appraise at the asking price.
The second of the three trickiest areas for closing a real estate transaction is the inspection process. You as the seller will be best served by disclosing everything you know about the property on the required forms you’ll fill out when you list the house. If you try to slip something past a buyer—say the basement floods when it rains—it will very likely come back and bite you in the butt in the form of a lawsuit. It’s not a bad idea to have the home inspected before listing it, or at least have minor issues fixed by the appropriate tradesman. Another old real estate adage? “When in doubt, disclose.” In other words, if you aren’t sure it’s relevant that the dog next door is left outside to bark and cry from midnight until 6 a.m., err on the side of caution.
When it comes time to negotiate for credits and repairs, be flexible. Though you might not want to give someone $12,000 in credits for the chimney that’s been declared a hazard by a chimney inspector, guess what? Now that you know about it, you’ll have to disclose it to the next buyer as well. It’s in everyone’s best interest to try to come to an agreement that works for everyone, and not lose sight of the big picture, which is that you want to sell the house, and the buyer wants the house.
The final hiccup that will keep you awake at night is buyer financing. Unfortunately, getting a loan isn’t as easy as it was back in the heyday of real estate, but things are getting better. Still though, it’s not unheard of for financing to fall through on a deal in the 11th hour, right before it’s supposed to be moving towards closing. I mentioned that there’s not much you can do about this once it happens, but there are steps you can take to help prevent it from happening in the first place. First, if you are dealing with multiple offers, know that the highest offer is not always the strongest offer. You should go with the offer that has the best chance of closing. A higher offer is meaningless if the buyer can’t close. Don’t be shy about having your agent speak with each buyer’s lender. Further, if you really want to cover your bases, require that potential buyers also get approved with a lender of yours or your agent’s choosing. That way, should their financing fall through, they can go straight to a lender who can (hopefully) get the deal closed.
Also, be sure that all potential buyers can provide proof that they have the funds necessary for their down payment and closing costs, and that they are readily available.
There are obviously many, many things that can derail a real estate transaction, but if you can make it though—or, better yet, prevent—all of these, you’ll have fought the battle successfully. If you’re thinking about selling a home, please call me for a free market analysis!
Jefferson Hendrick is an L.A.-based Realtor with Keller Williams. Contact him with questions, concerns and real estate inquiries at [email protected] or facebook.com/jeffersonhendrickrealtor.