Steps for selling your home: 1) find a buyer 2) take the money 3) hand over the keys. While those steps are included in selling your home, I think we all know how over-simplified that list is. Selling your home for top dollar is a process that can be mastered by the best real estate agents (I happened to know one ‘wink’). However, the more you know about the process, the more prepared you will be when it comes time to make decisions about your home.
So why “sell it twice?” Is there more than one buyer? Yes (in a way).
The majority of middle income homes are bought using financing. That means the buyers have to like the home, and the bank has to agree. Banks will order an appraisal to determine the fair market value of the home and compare that value to the agreed upon purchase price. Generally, the purchase price must be less than or equal to the appraised value. However, the lender might make exceptions depending on loan type, down payment, and buyer’s credit.
How an appraisal works (and doesn’t work):
“Comparable properties are properties that have a similar size, location, age, and condition”
An appraiser will research sold prices for comparable properties in order to determine a fair market value for your home. Comparable properties are properties that have a similar size, location, age, and condition. It is unlikely the appraiser will find multiple identical properties to yours that have sold in the last six months. So how does the appraiser deal with these discrepancies? Differences (number of bedrooms, bathrooms, garages, etc.) are adjusted up or down based on specific values for these features. For example, if all other things were equal, a home with one less bedroom than another home that had recently sold would be worth $10,000 less than the recently sold property.
Price per Square Foot – How appraisals do not work.
“…it is very misleading”
This topic is brought up all the time, and it is very misleading. Price per square foot seems like a good way to compare different properties, and it seems logical that properties in similar neighborhoods would scale up or down based on a common factor. This just is not true, and I will explain why. The bottom line is a home’s usefulness does not scale up significantly with square footage. A home with 2500 square feet is 25% bigger than a home with 2000 square feet. However, if they both have three bedrooms and two baths, the bigger home will not be worth 25% more. Buyers are paying for utility, and if the extra 500 square feet is spread out over each bedroom, bathroom, kitchen, or living room, the larger house is not significantly more useful in day to day life. If the house with 2500 square feet had another bedroom, now the usefulness, and therefore price, have gone up significantly. The square footage of the house is only part of the story in setting a value for the home.
“It has been my experience that buyers are rarely able (or willing) to make up the difference”
Now that we know the general workings of an appraisal, how does that factor into selling your home twice? When you are considering offers it is important to remember that the house must appraise for the sales price. If you were to accept an offer for your home that turned out to be higher than the appraised value, either the buyer would need to come up with the cash to make up the difference, or you would have to lower the price. It has been my experience that buyers are rarely able or willing to make up the difference and usually these deals fall through (after being off the market for three weeks).
How do you avoid these issues?
If you are in the situation of multiple offers, be wary of offers that are higher than the asking price. This is especially true if the buyers are paying a very small down payment. Buyers with large down payments and offers that are in line with what the property will appraise for are most desirable, because those offers will not leave you vulnerable to a price reduction towards the end of the sale. So remember, sell it twice. Once to the buyer and once to the bank.