Thinking of Selling? Think Finances
Winter Ways to Plan for the Active Spring Market
If you are contemplating selling your home and you have a choice about when that needs to happen, you probably realize that attempting to sell in the wintertime in New England may not be the best time to earn the best price for your property. Annual and seasonal markets affect estimated home values.
During our winter months, snowstorms complicate access for viewings and travel, many people are celebrating various holidays, and when it’s cold outside - it’s nobody’s favorite time to pack up and move.
Although winter months can be an excellent time for buyers to find an especially affordable deal; for sellers, winter can be the perfect time to start to think about selling during the busier spring market - especially when considering finances since tax preparation is on the horizon and many documents relevant to considering a home sale will be at your fingertips.
A bit of financial research now while it is convenient can help clarify the decision to sell and can make the process of selling work more smoothly when you are ready to list on the market.
KNOW YOUR EQUITY
One of the first things you will want to do is be sure your equity is sufficient to warrant a sale without losses. You will want to research home sales in your neighborhood over the past 3-6 months and correct for anticipated market changes in the next season.
Consult with a competent real estate agent who knows the local market and subscribes to the local Multiple Listing Service (MLS) with easy access to property sales records. An agent can prepare a complimentary, obligation-free, comparative market analysis (CMA) for your property that will give you a good idea of value range. Keep in mind, every agent completes CMAs a bit differently and results can vary. Ultimately, the market will determine your actual selling price. There are many factors to be considered in the creation of an accurate CMA. You want to do your best not to over price or under price your property.
Once you know a reasonable comparative price for your property, review your last mortgage loan statement or online account to find your loan balance amount. Subtract that amount from your price estimate and the result will be a starting baseline estimate of the equity you have earned in your property.
To figure your estimated Loan-to-Value (LTV) ratio, divide your current loan balance by your estimated property value. If you have a second mortgage or home equity line of credit, you will want to add that to your loan balance to calculate your Combined Loan-to-Value (CTLV) ratio.
(Combined) Loan Balance / Current Valuation = (C)LTV
Liens, second mortgages, improvements and updates, deferred maintenance, and other changes to your property all play a part in an official equity calculation.
When you have your estimate of your (C)LTV, you will know if you will be able to pay off any loans and incurred fees from your sale and have remaining sufficient down payment, as well as other transitional costs for a new residence in the price range and with the new mortgage terms you desire.
Consult with your lender or mortgage originator who can advise you and order an official appraisal of your property if you wish to pay for one. See TAKE NEW BUDGET INTO ACCOUNT and CLOSE BEFORE BUYING NEW below.CHECK YOUR CREDIT RATING
In most cases, a seller will also want to purchase a new property, so a few months before you decide to sell can be a good time to review your credit report so you have the time to pay down bills and fix any unanticipated issues like rogue errors.FIX BITS & BOBS
Calculate costs of any necessary updates or renovations and give yourself time to finish them or schedule them with a contractor so they can be completed without undue stress before listing your property. Minor repairs that are relatively easy for you to remedy can be disproportionately more discouraging to potential buyers.MAINTAIN SUFFICIENT INSURANCE COVERAGE
Confirm that your homeowners insurance coverage is adequate and increase coverage if necessary. Your property will experience a lot of foot traffic when potential buyers are viewing your home and you want to be sure you are properly protected.CONSIDER STORAGE
Consider the expense of purchasing a storage unit, if necessary, so you can clean and de-clutter your home. To make things even easier, you may wish to hire professional cleaners to help out when the time comes to show your property.TAKE NEW BUDGET INTO ACCOUNT
If you are planning to upgrade, downsize, or purchase another home elsewhere, be aware of the cost of new monthly expenses, including mortgage payments, taxes, utilities, and fees, and calculate those into your financial equation.
Even if you are downsizing from a single-family house to a condominium and you will be responsible for a lower monthly mortgage payment, condo association fees can increase your out-of-pocket monthly expenses. Consider down payments, lender fees, attorney fees, interest rates and other loan options.
Contact your mortgage originator who can confirm the new home value you can comfortably afford.CLOSE BEFORE BUYING NEW
If you can, be prepared to close on your sale first, then take your time to find and buy a new property that is right for you. That may entail leasing a temporary living or storage unit.
Although it is possible to include a contingency of finding suitable housing in your listing, that will deter many potential, well-qualified buyers who want to make good offers to close and move into your property as soon as possible. If the loan for your new purchase is contingent upon the sale of your current property, having your home under agreement before you make an offer on a new property, will also make you a more desirable buyer and make it more likely another seller will accept your offer in this competitive market.CALCULATE AGENCY FEES
Keep in mind that as seller, you will be responsible for the real estate agency commission, which is negotiable, and include that in your expenses. Ask me about our 3% commission for in-house sales!CHOOSE AN ATTORNEY
Contact a competent attorney if you don’t already work with one. Inform your attorney that you are considering selling your property and request relevant advice to protect your best interest.
ADDITIONAL CONDOMINIUM CONSIDERATIONS
(for both sellers and buyers)RULES & REGS
Know your condominium’s Home Owners Association (HOA) rules and regulations. There may be restrictions on ownership, leasing, pets, etc.DEEDED OR ASSIGNED
Know what spaces like parking and storage are included with your property and whether they are deeded or assigned.HOA DOCS & FINANCIALS
Be sure your HOA’s documents are complete and up-to-date, including deposits in your HOA’s reserve account. Many, if not most, buyer’s lenders require that at least 10 percent of your HOA’s annual budget be deposited annually in the reserve account.
There are too many unfortunate occasions when, inadequate record-keeping practices (HOA meeting minutes, annual budget, fee and repair accounts), incomplete or incorrect association documents (master deed, unit deed, declaration of trust, by-laws, master insurance policy, annual budget/reserve bank account statements), inability to supply such documents in a timely manner, and insufficient reserve funds have caused unnecessary anxiety and panic to rectify or actually cost a qualified buyer a mortgage commitment and prevented closing on a sale.
Be sure that you are ready on your end to accept a great offer and make it through to closing without having to start over at the last moment due to unanticipated association issues.FEES & ASSESSMENTS
Know and be prepared to disclose all fees (monthly, move-in/out, etc.), what they include, and any current or proposed special assessments and their additional costs.OWNER OCCUPANCY RATIO
Know and be sure your condo association maintains the owner-occupancy ratio of the units in your condominium association. Most lenders will follow Federal Housing Administration (FHA) guidelines and require that dependent upon certain conditions at least 30%-50% owner occupancy without requiring higher down payment percentages and/or higher interest rates – or failing to commit to any loan at all.
A low owner-occupancy ratio can be considered a financial risk to a lender because a landlord may not be as invested in maintaining ownership of a business property as an owner who makes that property his/her home. When condo owners default on their mortgage payments and fees, the entire association suffers and has to cover more costs.
Lenders do not want to be involved in the potential domino effect of loss in such a situation and cash buyers will be concerned about resale options. That can limit your potential pool of qualified buyers and therefore, the competitive selling price of your home.
Once you have considered all the important financial aspects and have decided to sell your property, you can begin the process of making your home market-ready. That includes all of the fun work of cleaning and making minor repairs, improving curb appeal, and possible staging – but those are subjects for another post!
PROFESSIONAL PHOTOGRAPHS
On that note, and also a sometimes a financial consideration, when you decide to sell and are choosing a listing agency, be sure the one you choose provides professional quality listing photos or be prepared to provide them yourself.
Most buyers today are searching online listings and it is critical that your property is presented as attractively as possible. You need clear, bright, clean, high-resolution images to entice buyers to actually visit your property.
At Griffin Properties, Inc., we provide complete real estate services, including professional photography.