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Sellers Options Part 3: List With An Agent – Cost And Time
Joe: Hey, it’s Joe. This is the next seller option and that is they can list it with an agent. If they list it with an agent, I’m going to read through this document and it’ll help you understand what happens if someone lists their property with an agent. It’s also some dialog that will help them understand whether or not it makes sense for them to do it, what the pros are, what the cons – honestly, you’ve got to approach this whole situation with look, I want to do the best thing for you. Which, you know, if you understand all your options and you pick the best thing, that’s what I want you to do, whether it’s working with me or not.
Joe: Now, what I find is that we are the best option nine times out of ten. So, it’s just a matter of them getting their heads around what their options are so that they can decide to work with you.
Joe: All right, so listing the property for sale with a real estate agent. This is the conventional, tried and true way of selling a house. It’s the way I would personally sell my house if I wanted to get the most cash out at closing. And by the way it is how we get properties that we’ve bought and rehabbed. In the MLS, the Multiple Listing Service, it will be exposed to the most qualified cash buyers. There are some statistics to keep in mind.
Joe: These are national stats from the National Association of Realtors. Thirty-three percent of all homes listed do not sell. They become expired listings. Usually after six months on the market, the cost of selling a home with a realtor is going to be 6% to 7% of the sale price as the agent’s commission and this can sometimes be negotiated down but this is an average cost nationally.
Joe: You’re going to spend about 2% of the sale price on closing costs, 2% on repair costs and allowances, after the buyer does their inspections. Three percent discount from the asking price. Properties sell on average for 97% of asking price when they sell. And also another 0% to 3% for prorated taxes, especially if your taxes are paid in arrears in your area.
Joe: So, the cost of selling with an agent will be between 10% and 17% of the sale price of the property. So, if you’ve got $150K property, you’re looking at $15K usually, as a minimum, to sell that property and it could go up much higher than that. It also takes on average 75 to 90 days to sell a property on the market. Those are average days on the market nationally.
Joe: After it sells, it takes between 45 and 90 days to close with a conventional lender depending on the speed of the inspector, the appraiser, the underwriter and the funding. So the time to sell is usually between 120 and 180 day son average if you’re selling with a realtor on the MLS. And this is a national statistic.
Joe: Keep in mind some of these costs and some of the time can be reduced, but rarely do the costs drop below 10% of the sale price and the time below 60 to 90 days, now, even in a fast market.
Joe: Now, the pros to this process. This is the best way to get you the most money out of your property as far as cash goes as possible. It’s more certain than selling for sale by owner, and more likely to actually get to closing than a for sale by owner. When you close, the property is no longer in your name and you’re out of the deal forever. Many people think that they’re forced to sell their existing property in order to buy a new house. This isn’t true. The income of the house when you get a tenant will offset your debt so it will not affect what you qualify for. Also, there are some good low interest loans out there that don’t require a lot of down payment, so you could buy a house without getting all your equity out.
Joe: Some folks refinance their current house to pull out their equity and put it into their new house. But either way, the money you borrow is a wash. If you leave the money in the existing house, your new tenant pays you money that you can apply to your new house mortgage. Now, the down side is, it’s pretty expensive to sell it this way and it can still take a relatively long time to sell. Because of the cost this method of selling cuts into your accumulated equity dramatically. Usually the only ones making money on the sale of your home are the agents, the title company, and your attorneys. They come in, work for a few months, take as much of the equity, a big chunk of your equity that it took you years to accumulate.
Joe: If you need to move quickly, this may not be a good option for you. It may, it is also very uncertain and heavily depends on the local market. Remember, one-third of all houses that go on the market on the MLS do not sell.
Joe: Now, that’s a lot better than for sale by owners, which is 80% to 85% that don’t sell. But still, on the MLS, one-third, 33% do no sell.
Joe: This method also means that you can never make money on the house again. Although most people think they don’t want the headache of a long term investment property, it’s because they have never done the numbers and they haven’t thought of using a property manager who will do all the work for them. There are lots of ways to increase your net worth by owning a passive investment. Appreciation over time on the value, depreciation deductions on your taxes. Buy down on the mortgage note over time, and positive cash flow from the rental income. When you sell your property like this, you’ll never get those benefits.
Joe: So, the analysis is you need to make sure you have enough equity in your house to sell it. When you speak with a realtor, which is highly recommended, ask them to give you a net sheet. What you will net from the sale after expenses. Compare that net sheet with some of the costs listed above and see how it stacks up and make sure you aren’t being overcharged or that you aren’t getting all the facts when it comes to your expenses. If you don’t have enough equity in your home, you’ll have to come to closing with cash. Know what your best and worst case scenario might be and have that money set aside.
Joe: You also need to make sure you have enough time to get it sold. If you need to be out of the house and into your new place in a limited amount of time, this option could be a challenge. Also remember that you need to keep your house spotless for showings during the months that you’re selling it. Hopefully, you’ll get two to eight showings a week but they require that you vacate the house during the several hours that the showing is scheduled by your agent and other agents who have access to your home.
Joe: I would recommend this method to someone who isn’t interested in building their asset base and just wants to clean up their life, despite the cost. Sometimes you just want to move on, both physically and emotionally, and if you’re in a position financially to do so, you may want to go in this direction.
Joe: All right. So, this is the option that all for sale by owners have – not all of them. If they don’t have any equity in their property and they can’t come to closing with money, it becomes a challenge for them. But anybody who’s got equity in the property, they could go with a realtor rather than working with you and this is the pros and cons of doing that. Help them understand what those pros and cons are because there’s a lot of reasons for them to hold onto that property.
Joe: My philosophy is never sell your properties. Hold onto them. Let them build your position, especially if you’ve already got a mortgage on it.
Joe: Anyway. Hope that helps.