River Realty Selling Guide - Getting Started
You’ve probably got a lot of questions as you consider moving to another home, beginning with the most important: Can we do it? Starting with the right agent can help you learn everything you need to make the decision.
In this topic area we’ll take you through the process of selecting an agent. Along the way you’ll learn how to find agent candidates and get a glimpse of the process involved in evaluating your home. We’ll define your tasks to answer the most important question. We’ll take a hard look at agent practices, discuss commissions and offer our best advice to help you decide on the right real estate professional.
Most homeowners do just that when they want to sell, or even when they’re just curious about the value of their home. They call an agent for a market evaluation, and often the selling process begins right there. But it’s rarely a quick process. Many good agents walking through a prospective seller’s home find the experience—well, sobering, as they see the uphill battle they face to make the house competitive in today’s market.
So when we say, “start with the agent” we hope you start many months, even years, before you really plan to sell. An experienced agent gets a perspective on the market that you, as a homeowner, can’t acquire—no matter how savvy you are. It’s simply that the agent actually works with the very people you hope to impress: prospective buyers for your house, and the agents who bring them to your door. The agent knows what features most buyers are looking for; what size and condition is acceptable; what expenditure will bring the best return, or make a sale possible in a tough market. The idea here is to get critical feedback long before going on the market, and before spending your money on improvements that may not improve your chances of sale. A good general example: bungalow sellers who’ve already drained the fix-up fund for white vinyl windows can get pretty unhappy when they discover that bungalow buyers want to see natural wood. Of course, this is generally true; and it may be obvious to you. But many improvement decisions specific to an individual house need to be carefully weighed with help from a professional.
Let’s say you have a small kitchen with three doorways, and a houseful of carpeting, and only $4000 to spend on the most important thing necessary to get your house sold. You can’t afford to both remodel the kitchen and refinish the floors. What to do? There is no general answer for this; no book, no website (not even ours!) can help. The answer depends on a lot of factors including size, location, price and condition of surrounding and competing homes, your floor plan—the list goes on. But it really boils down to this: how bad is the kitchen, really? You’ve used the kitchen for years; you may not like it (in fact it may be one of the reasons you want to sell) but you know how it works. So you must recuse yourself from the judgment. You need a buyer’s eyes, the trained ones on each side of the nose of a good real estate agent, to see if the kitchen is a stopper. No? Then get ready to sand those floors!
So, after parting the clouds for yet another grateful homeowner, let’s leave the kitchen in this long example and sum up: while we’ve stressed the importance of an agent’s input in making remodeling decisions, we know that most homeowners have, in fact, muddled through without us—often with good instincts and happy results. Of course we’re always glad whenever you call us; we’re ready to help you make critical decisions no matter how far you’ve already come.
Can we do it? That really is the question, and the answer doesn’t come all at once. Of course you need to find out the market value of your house, but that won’t give you all the information you need in order to make a decision to sell. You know what you owe on your home; and you hope to learn what your house preparation and selling costs might be, so you should be able to get an idea of the net proceeds range (note we said “range”) that you can use to buy your next home. You’ll need to talk to a mortgage banker to find out what size loan you could qualify for; and you still need to determine if your next dream home awaits you, safely inside your buying limits. Access to all this information passes through your trusty real estate agent: the one person who can focus your fix-up priorities and direct you to contractors and handy people; who can give you a reliable valuation of your house; who can refer you to inspectors and lenders; who can expose you to the marketplace you plan to enter as buyers. And somewhere in the middle of all this activity the agent has set in motion—presumably before you’ve made any dollar commitment—you’ll have the information you need to answer The Question.
We’ve quickly sketched the steps above in making a decision to sell; it’s obvious that if you start with a real estate agent you can tack a more efficient course toward your goal. But we don’t need to remind you that some agents are more qualified to help you than others. How do you find a good one?
Standard wisdom has it that you should interview at least three agents before making your choice. That may be good advice, particularly if you’re starting completely from scratch, unfamiliar with any agent candidate by past experience or reputation. But most people—being people—abandon the protocol as soon as they feel comfortable with the Realtor across the table. If that happens to be Realtor number one, then it behooves you to do some research to bring the best agent candidates into your home.
Homeowners already know at least one agent, in connection with the house they own now: the selling agent they worked with, and perhaps the listing agent. Those who have had a good experience may stop looking right there. But it may be worthwhile to pause first: if the agent who sold you the house works primarily with buyers and doesn’t list many homes, or doesn’t list homes in your neighborhood, you may want to do a little research. Some homeowners turn to the original listing agent in these cases, especially if the listing agent “farms” the area and keeps in touch with the neighborhood.
Other homeowners jump in the car and look for lawn signs: an agent with several For Sale signs obviously has local experience. Some sign shoppers are influenced by the number of signs any single company has, although there is little to be learned: a big company might have an impressive number of signs in a neighborhood, but no preeminence by any individual agent—careful scrutiny might show that the agent phone numbers are from all over the metro. This is less of a concern with small companies (like ours). Since a small company tends to concentrate listing efforts and sales activity near its office, local expertise is more easily gained and shared by agents at company meetings, tours and informal conversations.
Some would-be sellers meet an agent at an open house while doing a little premature scouting for their next home, and invite that agent to do a market evaluation for them. That’s fine if the open house is in your neighborhood; otherwise we don’t recommend this approach unless you can determine that the agent actually has experience in your area. The same applies to relatives and friends “in the business.” Your brother-in-law from Minnetonka, no matter how expert he is in the western suburbs, might well founder in south Minneapolis if he doesn’t know the differences between neighborhoods.
We’ve outlined most of the ways you can use to discover an agent candidate. We’ll add that you can call a company and ask for a referral; this is very common among owners who have been in their home for many years and really feel out of the game. They are most likely to call the largest companies that have peaked their awareness through television or other traditional big media. The effectiveness of this hit-or-miss approach is necessarily limited by the sales manager’s priorities as he/she seeks to balance out company referrals among many hungry agents: the homeowner may wind up ushering in a “greenhorn” who needs the practice! If you are able, it’s always best to do some research yourself to find suitable agent candidates.
After you’ve decided upon the agent candidate(s) the process of confirming your choice usually takes place over the course of two meetings. You’ve called, of course, to get a “market analysis” or ‘market evaluation,’ to find out the value of your home. Typically the agent will walk with you through the house, taking notes and pictures, learning as much as possible about your property and your plans. The agent may take this time to point out various components of your home as they relate to a possible sale: if the furnace is an old gravity unit, the agent may talk about the cost of removing it and putting in a new forced air unit, or point to a condition that needs work to comply with a municipal inspection requirement.
The agent will probably sit with you for a while to get to know you better and to answer some of your questions about the current market. At this time the agent may be asking you questions to see how far along you are in the process, and may refer you to several loan officers if you need one. The agent will want to know the size of your current mortgage and any other debt attached to the house in order to ascertain that “range” of proceeds when the probable sale value is known. You’ll be tempted to ask, “What is my house worth?” and, “How long will it take to sell?” but you’re not likely to get much satisfaction until the second meeting. The agent needs time to complete a market analysis of your home, and to structure a plan for house preparation and marketing if the work-up shows enough value to allow you to sell.
The market analysis (the “MA”) is critical to pricing your home. Theoretically performed just like the all-important “market approach” portion of a formal appraisal, the MA establishes the value of the “subject property” (your home) by comparing it to other houses (comparables, or “comps”) sold in your area over the past six months; these comparables (in the form of sold MLS listing sheets) should be approximately similar in style, square footage, features and floor plan. Differences in features are adjusted up or down in the subject property: if a comp has a fireplace, and your house doesn’t, then we might subtract $3500 from the proposed value of your property in relation to the already established value of the sold comp. Or we’d add $10,000 to your property for a double garage, when the comp only has a single garage. You can see how rigid adherence to this method can get very complicated and possibly misleading, particularly if the appraiser (or Realtor) hasn’t actually been inside the comparable homes. And if the 6-month sample is too small, comps sometimes have to be pulled from the past 12, or even 18 months, and adjusted for price differences in the older markets. Or pulled from a wider geographic area to stay within a more recent time frame. Sometimes a small two-story makes a better comp for a bungalow, if it sold just down the block, than a similar bungalow a mile away in a lower-priced neighborhood. These are just a fraction of the variables that can affect the accuracy of the MA: obviously establishing value is as much art as science, and it better be informed by a lot of common sense and experience—and integrity.
Agent # 1. You’ve waited impatiently (but politely) for several days to get an expert opinion of the value of your home. The veteran agent across the table wastes no time in giving you the information you seek. She spreads half a dozen MLS sold sheets across the table and points to them, one by one, to explain the choices made in determining the value of your home. The agent uses pictures from the comparable houses to illustrate differences or similarities to your home; perhaps she has been in some of them, or even sold some of them. The agent carefully and methodically leads you to an informed, realistic conclusion about your expected sale price. You may or may not like the number; but it feels like you’ve just heard an honest analysis that will help you to make your selling decision.
Agent # 2. You’ve fidgeted through a 15-minute flip chart presentation about the agent’s company; finally he hands you a programmed “market analysis,” the comps picked by computer from a list of houses that have sold in the area. He names a price range, and asks, “Should we get started right away?” Maybe you like the number better; but you don’t like the agent, and you don’t necessarily trust what he says.
Not hard to pick one of them, is it? Unfortunately, in real life meetings you’ll probably come across variations of the two, and your decision may be further complicated by the nagging question, “what IF I could get more money for my house?” Although some would-be sellers realize they have to turn back at this point, since the numbers simply do not add up, others want to find a Realtor who thinks they can get a better price.
In our discussion of the market analysis we spoke of the need for common sense and integrity, and this seems to be the best time to talk about an unfortunate agent practice called buying a listing. Three different agents are likely to arrive at three different prices when doing a market analysis, and of course it’s not lost on them that the highest valuation has a leg up in competition. Since comps can be pulled to justify a wide range of prices, who is to say who’s right? With all the “wiggle-room” available in pricing a unique product (no two existing houses are alike) it’s possible to propose and defend a price of $220,000, or even $240,000, on a home that should be accurately priced at $200,000. The idea is to secure the listing for 3 to 6 months, and persuade the seller to reduce the price over time until the home is finally positioned properly in the market. This was a much more common practice a few years ago, when rising prices helped cover the problem. During the housing recession few agents were eager to secure an overpriced listing, since even seemingly well-priced homes often had to undergo painful price reductions. Now that the market is improving, some agents are all too willing to paint a rosy picture (even unintentionally) that only serves their own purposes—while the extra months of market time is spirit-crushing to unsuspecting sellers, who started out with unrealistic expectations because they only heard what they wanted to hear. It's important to remember that prices are rising in 2014, but it will take years to get back to 2006 levels.
Although many homeowners ask about commissions at the first meeting, the second meeting is usually the time to “talk turkey.” The agent in some circumstances can reduce a big company’s stated commission, although usually only with manager approval. Smaller companies are generally much more flexible: at River Realty we allow our agents to make grown-up decisions that can affect your interests as clients. But, as any good agent should point out, that whopping 6% commission is eventually split between four parties: the listing agent /listing broker, and the selling agent /selling broker. Marketing expenses, maintenance and un-reimbursed seller costs all come from the listing agent’s pocket, plus the cost of listings that don’t pay back because they don’t sell—all these things are on the agent’s mind while contemplating your months-long selling project at a reduced commission.
A quick word about “discount” companies. As buyers, did you notice that the worst maintained and least appealing properties often displayed the lawn signs of discount brokers? For a gross profit of one percent the discount broker can afford to do little more than list your property on MLS and hope. A full-service real estate agent can do everything necessary to get your home to market standards and work continuously until it’s sold and closed. This is a difficult, responsible job; when it’s done well, you should expect to see more than the commission difference come back to you.
One final commission rant before we move on, from an “insider” standpoint. This has to do with the curious nature of the real estate business: structured as commission sales (think car sales) but providing a myriad of services from informal financial planning to contracting, negotiating, counseling and teaching, the agent’s total “product” (unlike the shiny new car) varies greatly according to the demands of the transaction and the agent’s ability. Most brokers in our area charge 6 percent; thus nearly all sellers pay the same cost for a Realtor’s services, no matter the quality or experience or track record of the agent. Is there another occupation on earth that allows you to hire the services of a 20-year seasoned professional for the same price as a rookie doing on-the-job training?
The second meeting is a further opportunity for you and the agent candidate to learn more about each other. You know the price opinion by now, but you want to know more about how the agent would sell your home, and what is needed to bring the home up to market standards. You should be asking about the agent’s track record in your area, and of course you should be looking very carefully at the comps used to justify the price opinion. As we’ve tried to show, it’s not always an easy choice when you invite several agents in for market evaluations; but when the agent who has sold dozens of homes in your neighborhood gives a market opinion, or makes a recommendation for preparation, you should listen. What if you simply like the less-experienced agent better, or believe that agent would work harder for you? Elsewhere on this website we recommend you look for certain qualities in a buyer’s agent: competence, ability to communicate directly and honestly, and willingness to answer your questions openly. In selling also, it comes down to, “who do you trust?” as you look for a guide to take you through a complicated and sometimes frustrating process. Our advice: ask the probing questions, and then trust your own instincts. You should be able to tell when an agent is really on your side, and capable of doing the job for you.