River Realty Selling Guide - Getting Ready
You’ve decided on an agent. Now comes the big push to get your house ready for market. You’ll start by entering into a listing agreement with your Realtor, who will then refer you to inspectors, contractors and handy people as needed. When the house is ready the agent will begin to prepare materials for marketing. Before listing on MLS the agent will confirm the offering price.
That’s the short version.
We aren’t going to go into great detail on the listing agreement itself. Essentially it gives the broker an exclusive right to sell your property—that means no other broker can share the listing, although all Minnesota licensed brokers are welcome to sell it—for a specified length of time, usually 3-6 months. The contract needs to specify starting and ending dates, must specify the listing price and terms, and spell out specific obligations of the seller and the listing broker. Here are a few of the most important aspects:
- Seller authorizes the broker to market the home exclusively, to place a sign on the lawn and put the listing on MLS.
- Seller agrees to cooperate with the broker to sell the property by providing all documentation necessary, and to maintain and insure the property during the listing period.
- Seller agrees to pay the broker’s commission when the property is sold; and otherwise agrees to pay a commission if an offer comes in at the stated price and terms.
- The Fair Housing Notice requires that the seller not discriminate against anyone due to his/her race, color, creed/religion, national origin, sex, marital status, public assistance, handicap, sexual orientation or family status.
- Seller elects at this time to arrange for closing services, or to have the broker arrange them. The listing company usually suggests a title company for closing.
- The Agency Representation section describes dual agency and offers sellers a chance to decline dual agency representation. We’ve never seen a seller do this, however, since it effectively eliminates all buyers represented by the listing agent’s company. We’ll discuss more on dual agency below.
Another form that sellers sign at the time of listing is called “Agency Relationships in Real Estate Transactions.” This is not a contract, but a state-required notice that describes the different agency relationships between client and broker, spelling out the broker’s fiduciary duties to clients under contract: loyalty, obedience, disclosure, confidentiality, reasonable care, and accounting. These so-named duties have specific legal definitions spelled out in the form; basically they require us, as agents, to treat you, as clients, fairly and ethically. Several defined agency relationships pertain to buyers and/or “customers,” but two will be of interest to you as sellers: Seller’s Broker and Dual Agency. As a Seller’s Broker the listing agent represents the seller and owes only the seller the fiduciary duties we just mentioned, but is still required to disclose to the buyer any material facts which could affect the buyer’s “use or enjoyment” of the property. Dual Agency occurs when a broker represents both buyer and seller in a transaction. This can happen when the listing agent and selling agent both work in the same company, or when a listing agent has a buyer under contract who makes an offer on that listing. Prohibited from acting exclusively for either party, the broker (or agent) cannot disclose confidential information about price, terms, or motivation unless given written permission. In all other respects, fiduciary duties to both parties remain the same as in the Seller’s Broker relationship; and again, dual agents must disclose any adverse material facts to the buyer.
Dual Agency got a black eye from a lawsuit back in the 1980’s involving a few agents at one of the Twin Cities’ largest companies who shared information about how low an offer a seller was really willing to take. Most of the public would probably not consider that a hanging offense (particularly since the seller was always free to say no to any offer), but fallout from the case resulted in the forms we use today to define agency responsibilities, and a lot more care within the industry to live up to them. An ethics course is a mandatory part of continuing education requirements for all Realtors—and just in case we forget, we’re required to repeat the course every two years. While there’s still a hangover of caution in the marketplace, we believe that, as a seller, you have no more to fear from a dual agency situation than any other: an unethical agent eager to make a sale would be as likely to disclose confidential information to an agent friend from another company as he would to someone in his own company. And an ethical agent will live up to his fiduciary responsibilities in dealing with agents from all companies, including his own. Lest we leave you with an impression that the world is equally divided between ethical and unethical agents: in our experience over 30-plus years, the number of times we have seen an intentional unauthorized disclosure of confidential information is zero—and very few instances where careless agent performance resulted in buyers learning more than they should know about sellers. Buyers are more likely to get inside information from neighbors or mutual acquaintances; particularly in tight-knit communities where turnover is low.
Once you have signed the listing agreement, your Realtor (we’ll make her a “she” in this section) can fully commit her resources and energy to your cause. She’ll help develop your timeline and focus your attention toward the many details that need attention before going on the market.
Apart from pricing, nothing is more critical to the sale of your house than the house itself. Duh, you say—but we state the obvious because everyday we see sellers ignoring the obvious. Let’s pick up the car sales analogy once again: would a dealer let a dirty car sit in his showroom, with doors that didn’t close properly and oil leaking onto the floor? Yet a random inspection of any six homes on the market is often like walking on to a “lemon lot” of gas leaks, water drips, putty falling out of sticking windows, floors that need refinishing, stairs that squeak, paint peeling, concrete splitting open, kitchens and baths that are functionally obsolete. Perhaps one of the six homes will look really well-maintained and “showroom ready.” Which one do you think will be the first to sell; or has the best chance of getting a price that will allow the sellers to move?
“Buyers are Liars”
We don’t mean to insult buyers with these words—we’re just quoting an old Realtor saying that rather ruefully expresses the frustrations of working with certain buyers: the ones who say, “Show us houses that need fixing, we want to build sweat equity!” only to turn away from perfectly good homes because the kitchen floor needs replacing, or the woodwork is painted. Of course some buyers can see past the rough spots, and can envision a great kitchen or a future built-in to add charm and function. But, sadly, most cannot: they need to literally see it before their eyes. Good listing agents, then, will push sellers to put it there. Of course there are limits of practicality: no matter how much a new kitchen is called for, most sellers just can’t swing the time and money needed (although we’ve seen some surprising remodels done on a small budget). Decorating, exterior painting, and general repair is a different matter, however—and it’s a shame to see sellers lose half the market because they didn’t know it was worth the effort.
About a dozen metro-area suburbs in addition to the cities of Minneapolis and St. Paul require an inspection of the property before you can go on the market. If you live in either of the big towns you’ll need a Truth-in-Sale-of-Housing inspection report, which costs around $200. The city-licensed inspector is required to walk through the entire home and garage with a checklist of about 100 items that compare the mechanical and material components in your house to current city codes. The report is limited to a visual checklist and is not technically extensive: the furnace won’t be inspected with instruments, for instance, as it would be in a full-blown buyer’s inspection. We won’t get into the maize of coded ratings here; suffice it to say that many of the homes in the city will have an abundance of items that are rated below current building codes. In St. Paul, the report is “disclosure only” requiring sellers to do nothing except install at least one hard-wired smoke detector if none currently exists.
Minneapolis takes a more active approach, requiring repair or replacement of certain items by the seller, or the buyer within 90 days after closing. The requirement is lifted if the house doesn’t sell. Most of these items are small and inexpensive; the city has compiled a list of common required repairs and your agent should be able to direct you in your own efforts, or find handy-people who specialize in these types of repair. Most sellers discover that it isn’t that hard to take care of the repair/replace items in advance of going on the market—and of course it’s an advantage if they have a clean report to hand to buyers. Once the repairs are made and the house re-inspected, the city will issue a Certificate of Approval to be given to the buyers. Unless it’s an “as-is” sale, city-required repairs rarely land in the lap of buyers to finish after closing, as the buyers’ agent will make sure they are negotiated in the terms of the offer.
The municipal inspection report, along with the state-mandated Seller’s Disclosure (more on this form later) will need to be displayed on premises when your home goes on the market.
Consider a Pre-Sale Home Inspection
Here’s a chance for you to get more than “buyer’s eyes”—it’s your chance to get “buyer’s inspector’s eyes.” As you know, the eventual buyer for your home will be getting a full home inspection. Many sellers are caught completely off guard by discoveries made during the buyer’s inspection (it’s much more thorough than the city inspection), and find themselves thrown into a second round of tough negotiations to keep the sale alive. By getting an inspection yourself before the sale you eliminate nearly all chance of being surprised, and your report becomes useful as a detailed work list in getting the house ready for sale. A pre-inspected house with many items already corrected gives you a huge edge in the marketplace: buyers and their agents are more comfortable making an offer when already fully informed of existing conditions. In some states where this is a more common practice, buyers may opt to skip their own inspection and rely on the seller’s inspection report. We discourage selling agents from suggesting this, however, since you—our client—are better protected if the buyers have their own inspector to blame in case of a problem after the sale. The inspection costs about $350, a small percentage of your overall selling costs; yet it could make you or save you thousands by putting you above the competition. In all honesty, sellers in Minnesota rarely get their own inspection—but we invite you to get ahead of the curve.
Your agent will help you to prioritize your efforts in getting the house ready. We can’t address needs that are specific to a given house, but generally speaking, fix-up money is well spent on the following, in order of importance:
- Removing carpeting and refinishing the hardwood floors.
- Minor kitchen remodel (cabinets, countertops, sink).
- Installing shower in bath if none exists.
- Replace older gravity furnace with new forced air unit
- Replace roof if it looks bad and is over 20 years old (you’ll have to do it anyway as the result of the buyer’s inspection, and doing it now will help sell the house).
- Drain tile basement if it’s chronically wet.
Projects that usually take less money but just as important:
- Clean the basement until it squeaks, including floor joists, water heater, furnace, laundry. Make sure basement is well-lit. Paint floor if already painted, or if it’s unsightly.
- Interior painting and decorating. Unless you are a color expert, rely on your agent for suggestions.
- Exterior painting and repair.
- Repair all gas and water leaks.
- Repair any hazardous electrical conditions.
- Have furnace cleaned and certified.
Even if willing, few sellers can do everything needed to make their home perfect, but if you do as much as you can you’ll have a much easier time on the market. Naturally, you’ll need to clear the basement and many things from the rooms above in order to complete various jobs, and to look good on the market. Your agent should help you decide what to take out. Sometimes you can get away with storing the overload in the garage, but that isn’t completely satisfactory as it just detracts from the garage. Remember, buyers need to actually see the spaces clear—many have a hard time visualizing. Storage lockers aren’t that expensive and they solve the problem completely.
When you’ve done all you can (bear) to get the house ready, your agent will look everything over and make arrangements for final decorating and staging. Agents in some upscale markets use the services of staging companies that supply everything from the tiniest knick-knacks to huge sectional living room suites in an effort to give the house that “model home” feel. In our world, however, your agent might bring a dozen items such as pictures, an accent table and a few lamps, perhaps a rug or two to highlight a color scheme. Scale is as important as color in wooing buyers: if your couch is just too large for your circa 1927 living room (a situation all too common these days due to the annoyingly persistent popularity of oversized furniture) then a good listing agent will urge you to store it someplace off premises. The idea behind all this concerted fakery is to make your home appear so perfectly refined that, for just a moment, you forget yourself and wonder: what superior, intelligent beings live in this place? Now your house is ready to go on the market!
At this time your agent will arrange to have photos taken, or will take them herself, for the eventual MLS listing, sales brochures, website and possible newspaper exposure. Lots of time and effort should be spent in getting the pictures just right; busy buyers (and their agents) rely on photos to narrow down a list of candidates for showings. You’ll get a chance to see the finished materials before going on the market to verify listed data about square footage, room sizes and other material facts.
Your agent will help you fill out the state-mandated Seller’s Property Disclosure Statement, which is intended to disclose any material fact that could adversely affect the buyer’s “use or enjoyment” of the property. You’re probably familiar with this form already, as you read the previous owner’s Disclosure when you bought the property. It’s grown some over the years—up to nine pages now—to address the ever-changing adverse material facts of the typical modern home, such as possible meth labs and on-site human remains!
Dozens of questions range from general real estate information, such as title evidence and easements, to specifics about each appliance in the house. Your realtor will help you answer the questions (it usually takes about 20 minutes), but you are required to fill in the information yourself. It’s important to answer all the questions as truthfully as you can: the Seller’s Disclosure is critical to the case of every buyer who seeks redress after the sale. If you get 2 inches of standing water in the basement every spring, don’t call it “seepage.”
A copy of the Seller’s Disclosure, along with a copy of the Truth-in-Sale-of-Housing report (if you live in Minneapolis or St. Paul) needs to be available on premises while your home is on the market.
You may already know that the sale of real estate revolves on three major factors: location, condition, and price. Since you cannot change your location, you only have control of the other two. By now, if your agent has done her job, and you’ve done yours (at least up to the limits of exhaustion) then condition is no longer an adjustable factor. This leaves price as the critical remaining factor to adjust your value to the marketplace. Buyers will ignore the Taj Mahal if it’s overpriced; but line up by the dozen for a ramshackle foreclosure they see as a bargain.
When you first met with your agent she performed a market analysis. That may have been weeks or months ago; we imagine your house has undergone a life-changing transformation in that time (think Extreme Makeover without the tears...not that your house was such a dog before!). And of course, the market is always changing. Perhaps the latest sold comparables will encourage you and your agent to try for a higher price than you could have expected earlier—or perhaps your hopes will be diminished by a few recent prices that are lower. At any rate, your agent should carefully update her market evaluation at this time and share the results with you.
Another tool we often use in final pricing is feedback from office tours. Your agent will want others in her office to tour your home to give price opinions and staging suggestions. These price opinions are off-the-cuff and sometimes can vary widely, but a group of opinions from “players” can be very helpful—and encouraging, if they trend upwards.
It’s sometimes helpful to look at homes currently on the market in your anticipated price range, especially if there is a dearth of actual sold comparables. But be aware that unsold houses are likely to sell below their current asking price—how much lower, and when, are still unanswered questions. Your agent can view these homes as an opportunity to see where you might stand in the current inventory at a given price, but she understands that a given price is always subject to reduction.
Thus armed with all the information available, and having reconciled your desires with your agent’s best advice, you agree on a final market price. Sellers who still want to try for a higher price need to be aware that it will take longer to sell; and extra time on a declining market (these days, 4th quarter declines) can possibly result in a lower selling price than they could have gotten by starting out lower. If you want a faster sale you need to price for an advantageous position in the marketplace and should always try to be in the top three homes at any given price. If you aren’t among the three top candidates for any buyer to consider, your home probably will languish on the market—until you lower your price to find easier competition.
Your agent likely provided you an estimate of proceeds—the net sheet—when you first did the paperwork for listing; but at the time of final pricing an adjustment may be necessary. The net sheet lists nearly 20 possible charges that you may incur during the transaction. At first glance you may feel like a baker in a mobster-run neighborhood, with all the bullies lining up for their “taste,” but you’ll soon accept (just like the baker) that this is how the world turns.
First in line, of course, is your mustache-twirling lender who will extort you to pay off your mortgage balance. Then you’ll see the government muggings for real estate taxes, special assessments and state deed tax; followed by the title company pilferings for abstract updating, recording fees and closing fees. Then you’ll notice the line called Buyer’s Closing Costs. What’s this, the buyer gets to hold you up, too? These days, it’s entirely possible—your agent should plug in a number here of 2.5% of your projected sale price. More on this later when we talk about negotiation. And, of course, our own eye-popping Realtor fee will fairly leap from the page and cause you to forget all we’ve done for you, all the hard work and sacrifice. That’s OK, we forgive you!
All these expenses are subtracted from the projected sale price to arrive at your bottom line: your total estimated net proceeds. Most net sheets have two columns, to show how the bottom line could differ at two different sale prices. Hope for the higher one; but be the realist baker and make your plans based on lower expectations.