This week’s article was contributed by John L. Bradfield, and originally appeared on his blog “This ‘n That”. John is a Real Estate professional with 20 years’ experience in this industry. He is based in Hermanus, the whale-watching capital of the world.
In fact many private sellers are home owners in financial trouble, and are hoping to avoid paying the agent’s fee in order to clear an outstanding mortgage loan without “paying in”.
The reality is that many of these homes end up as “distressed sales”, and are auctioned by the bank at greatly reduced prices.
Sadly, in many of these cases the result can mean even greater financial hardship for the unlucky owners. In some cases the shortfall translates into a long-standing debt that will represent a financial burden for many years to come.
Many of these unfortunate experiences come about because private sellers are misinformed about the role of estate agents and about what an experienced realtor can bring to the process. Without access to relevant data, private sellers sometimes begin by overpricing their homes — based on other overpriced homes in the same area. There are a few pitfalls to avoid. Here are seven of the most important reasons why private sellers should not sell their homes:
7. Lack of time
Selling a house involves a great deal of time. Someone must be on hand to handle all enquiries any day of the week, including weekends, to show the house, work with prospective buyers, and deal with paperwork. You may be working full-time or you could be relocating. You could find it difficult to devote the necessary time to selling your home. This can result in lost opportunities that may be scarce in the current market. A full-time estate agent can devote the necessary time to showing your home, dealing with prospective buyers, and taking care of the paperwork.
6. Lack of objectivity
From a purchaser’s perspective, an estate agent brings an air of objectivity to the sale. One of the reasons that private sellers may find it difficult to deal with potential buyers, is a lack of the required detachment. The private seller’s natural emotional involvement with the home can leave potential purchasers feeling awkward and inhibited while viewing. An estate agent can help to assess potential offers from an objective and expert perspective, offering professional and researched opinions to help overcome the purchaser’s objections in a reassuring way.
5. Lack of security
Private sellers are faced with the problem of giving out their personal information to strangers. As a private seller you will have no screen between you and a potential buyer or a potential scam artist who may be trying to trick you into gaining occupation of your home. Even worse, you may be faced with a criminal inside your home who could try to steal things while looking around, or perhaps “case” the property and security systems for a much bigger crime at a later date. Estate agents deal with potential buyers on an ongoing basis, can preserve your privacy, and can usually tell if something doesn’t feel right, thereby preventing potential problems of this kind.
4. Working with unqualified buyers
In the current market less than 50% of potential buyers will qualify for a home loan. It’s sometimes difficult for private sellers to ask the probing questions that are required to thoroughly check out the financial capabilities of potential buyers. Sometimes a buyer has not properly investigated how much cash is required upfront for the deposit and transfer fees, leading to a failed transaction. A professional estate agent is trained to do a proper assessment that can save time and expense down the line.
3. Paperwork and legalities
Apart from the need to achieve familiarity with sale agreements and other legal documents, private sellers are faced with liability issues when dealing with buyers one-on-one. Laws dealing with property sales have increased and become more complicated in recent times. The new Consumer Protection Act is the most recent example of these.
A professional realtor is trained to deal with these legalities and provides the seller with the security of knowing that these issues will be properly taken care of. When drawing up the Deed of Sale, certain details can be contentious. An experienced estate agent can recognise the pitfalls and traps in any given situation, and do the drafting of special clauses in such a way that both parties are protected from nasty surprises or disappointments later on.
2. Lack of exposure
Private sellers must carry the costs of advertising and marketing, whether they sell their homes or not. Most private sellers don’t have the knowledge or resources to create enough awareness, and for these reasons they will not have the ability to select the most effective advertising methods, and will not have access to a wide enough pool of potential buyers. However, a professional estate agent has access to an existing database of buyers, and to national and international referral and marketing channels.
1. Inexperience in negotiation
Possibly the most important aspect of selling a home involves the concept of price negotiation when an offer is received. The agent’s fee is percentage based, so the bigger the sale, the higher the fee. Typically, buyers approaching a private sale feel that the private seller’s saving in commission should accrue to them, and not to the private seller. A good estate agent is a trained negotiator and is skilled in the art of maximising the selling price of your home. For these reasons an estate agent will often achieve a higher net value than a private seller at the end of the day.
Visit the BetterBond website for more information about bonds and estate agents.
But now, just five years later, many economists believe that the housing market will be one of the primary drivers of growth in the US economy over the next couple of years.
Moody’s Analytics, for example, is forecasting somewhere between one million and two million housing “starts” this year, which it estimates will create more than one million new jobs.
“There’s a lot of pent-up demand for housing, and very little supply,” says Celia Chen, housing economist for Moody’s Analytics. “As demand continues to improve, home builders will have nothing to sell. They’ll have to build. And growth in building will mean adding not just construction jobs, but also manufacturing jobs to make the appliances and furniture needed in the new homes, which in turn drives up overall consumption.”
Meanwhile Joseph LaVorgna, chief US economist of Deutsche Bank, explains that one of the most significant indirect effects from a housing recovery is the “wealth effect” on consumers due to an increase in home prices. “Better home values can affect both consumer psychology on spending as well as their actual finances. Even small moves in home prices can have large effects on consumption, because housing comprises such a significant share of household assets.”
But is demand really rising enough to prompt the expected building starts, or drive up prices?
Well, according to the National Association of Realtors (NAR), the inventory of pre-owned homes for sale was at a seven-year low of 1,74-million in January. This represented a 4,2-month supply, down from a 4,4-month supply in December, and NAR chief economist Lawrence Yun says the reasons for the drop include slow and steady job gains, record-low mortgage rates and higher consumer confidence.
“The number of potential buyers who stayed on the sidelines accumulated during the recession, but they started entering the market again early last year as their financial ability and confidence steadily grew, along with home prices, and lower inventory levels now are encouraging multiple bids from buyers.”
In addition, many of the distressed homes that were adding to inventory have been absorbed in the past year by individual investors, private equity groups and hedge funds aiming to renovate them and rent them out – and hurrying to buy before prices really start to rise again.
Indeed, RealtyTrac, an online foreclosure marketplace, reported recently that distressed properties, which include foreclosures and short sales, accounted for 43% of all US pre-owned home sales last year. What is more, the prices of such sales were 2% up, on average, compared with 2011.
And speaking of prices, the latest Standard&Poor/ Case-Schiller Home Price Index shows a 6,8% year-on-year gain in December, while the latest Zillow market report indicates a national average home price increase of 0,7% in January – the 15th consecutive month of gain – and predicts a further 3,3% increase over the course of 2013.
Zillow puts the current national average home price in the US at $158 100. The boom-time peak, in April 2007, was $193 900.
Homeowners often ask their estate agents what pre-sale upgrades are likely to give them the best return on their investment, in the form of a higher sale price – and the answer, at the moment, is not a kitchen or bathroom makeover, but exterior updates that improve curb appeal.
This is the finding of the 2012/2013 Cost vs Value Report published by Remodeling magazine, which annually surveys thousands of agents and valuers before listing the 35 most cost-effective home improvement projects for home sellers.
Some of these don’t apply in SA because of the different home construction methods used, but many do, including the one right at the top of the list this year, which is front door replacement – preferably with a steel door. This, it is estimated, will deliver an 85,6% return on expenditure when the home is sold.
Also among the 10 most cost-effective midrange projects were several other exterior upgrades that would be applicable here, including the addition of a wooden deck to the entertainment area (estimated 77,3% return); the replacement of an old garage door with a new one (75,7%); the replacement of steel window-frames with wooden ones (73,3%), the replacement of steel window-frames with vinyl ones (71,2%) and the addition of a composite (non-wood) deck (67,5%).
A minor kitchen remodel, done right, can also bring a good return of around 75%, but both major kitchen and bathroom remodels will give sellers a return on their investment of less than 60%.
In short, the best bet for sellers in the current market is really to focus on improving the “first impression” of their properties. In addition, the magazine notes, the use of durable, low-maintenance materials in the suggested replacement projects appeals to homebuyers who are increasingly looking to reduce both the operational and maintenance costs of their homes.”