My wife is in the military, as was I for the first part of my career, and a key aspect of the military lifestyle is frequent transfers. I’ve had the pleasure of living on both coasts of Canada, on the bald-assed prairies, and Ontario. In my wife’s nearly 29 year military career, we’ve moved more times than I can remember. Since 1992, we’ve bought homes in each of our postings, and now in 2012, we’re faced with another move, from the west coast back to central Canada. So once again, we go through the process of selling a house and trying to buy something else.
We’re moving out of our 7th house and into our 8th. That means this summer will be our 14th and 15th home transactions. In 20 years and 7 homes, we’ve learned some hard lessons. I thought I would record some thoughts, so others might either avoid some of our mistakes, or make them all again with the benefit of knowing they’re not alone.
Buying a house
Today it’s a lot easier to do basic home research than it was in 1992. You’ve got mouse-click access to active home listings across the country (in Canada, anyway… mls.ca is a first stop for us), google street view to take virtual walks around potential neighbourhoods, and tons of other on-line information.
You need to start with a basic idea of your minimum and desired components (number of bedrooms, bathrooms, square footage, yard, home type whether multi-unit or detached, etc etc). Realize that you will likely have to compromise on something, unless you buy land and build your own home to your plans. But these criteria will help you sift through the available listings.
The next thing (well, maybe this comes first, not sure if this is the chicken or the egg) is to decide on affordable price range. I’ll not go on at length about this, there are plenty of on-line calculators that will tell you what you can afford. But I will say that, as a general rule, banks are willing to loan you far more than you can really afford. If you borrow to the bank’s limit, you will be cash poor from mortgage payments, and you will end up paying down the principal on the mortgage very slowly. You’ll own a house, but you’ll live paycheck to paycheck and your investment will not grow like it should. So my best advice is, don’t borrow more than about half – maybe two thirds – what the bank will let you, if you can avoid it.
Perhaps equally important as basic home features and price, is location. The house by itself is not the home. The home is integrated into the neighbourhood, and the physical location has a significant effect on your lifestyle. You need to have a good internal conversation about what is important to you location-wise. Do you like privacy? Do you prefer a vibrant, mixed, noisier location, where you can walk everywhere? Do you need to be close to certain schools? Maybe health care facilities?
If you’ve thought through these three things fairly carefully, you’re ready to generate a list of possible homes, either on your own, scouring the internet, or with the assistance of a realtor. I’m in favour of working with a realtor, both for buying and selling, because, well, they know what the hell they’re doing, and you don’t. But some people prefer to go it alone. Your choice, but in my experience, it has always been well worth it. Of course you want to work with a GOOD realtor. There are duds out there. Shop around, contact at least three to interview, ask your friends for recommendations.
Once you have a list of possible homes, in the right price range, with most of the right features, in a handful of acceptable neighbourhoods, you are NOT quite ready to book viewings and start walking through. Before you walk into any homes, mark up a map with all the listings, and drive around all the neighbourhoods, looking at each house. In this drive by, you will eliminate some houses that have no street appeal to you. If you don’t like how it looks on drive by, don’t buy it. But beyond looking at the individual houses, have a careful look around the neighbourhoods. Is there a general sense of pride of ownership, or would you have neighbours with rusty beaters on the lawn? What’s traffic like? Are there local amenities, like parks, shops, etc? What’s your impression of street life… are there gang bangers on every corner, or kids on bikes and smiling folks strolling the streets?
Take a day to do a good, thorough drive, and shorten the list. NOW you are ready to book some showings. If you are working with a realtor, give them the list and get to it.
When looking through homes, you’ll need to decide what you like or don’t, and what is more or less important. The one thing I want to say, though, is be careful not to be fooled by clever staging. Some of the things we’ll talk about in selling the home can be deployed against you. In our first home purchase, we were very nearly fooled into spending $10K more than market value on a home we found very appealing, and SEEMED much bigger than it was. The sellers had staged it very well, with neutral, attractive, modern furniture and décor, and they had taken the time to de-clutter, tidy, clean. Some sellers will stage a house poorly, and you might be turned off a home because the owners are sloppy. Try to look through the home’s contents, whether very well or very poorly staged, and give the house a cold, hard look before deciding whether to offer or pass.
When you’ve found a home you love, if you’re working with a realtor, do NOT show them all your cards. The realtor is helping you, but at the end of the day they are working for themselves. Their primary motivation is to make a quick sale for the highest price possible. Quick means they get paid sooner. Highest price means they get paid more. So when a realtor is helping you buy, their personal motivation conflicts with yours… you want to get the “best” (lowest) possible price, they want to get the “best” (highest, fastest) possible sale. Honest realtors will still do their meet to try to meet your objectives, since a slightly lower price doesn’t have a huge effect on their commission, but just be a little cagey, and wary. Try to keep at least three homes as “favourites” you might offer on, even if you really only love one. This way the realtor can tell the selling realtor, honestly in his/her mind, you have other options, so you’re not seen as motivated buyers, and the sellers might be inclined to accept a bit lower offer.
There’s a lot of psychology involved in the purchase offer/counter-offer process. Some people will walk away from deals for the silliest tiny thing. Don’t insult anybody. If you’re going to “lowball” an offer, be prepared for them to maybe ignore you. Try not to impose snippy conditions in the offer, treat both realtors and the sellers the way you would like to be treated. You may pick up signs the sellers are motivated, and inclined to take a lower price. Absence of one set of clothes may signal a divorce, meaning the house needs to be disposed. If a house has been sitting on the market a long time, either the sellers are just fishing, not too serious, or they might be tired of the process, willing to settle. Your realtor should be able to help you here, but trust your gut as much as or more than him/her.
A clean offer will be accepted for a lower price than a conditional offer. By clean, I mean you haven’t made it conditional on financing, sale of your own place (nobody wants to give you that if they can avoid it), home inspection, etc. If you have the financial capacity, don’t make it conditional on financing. We’ve bought a house with a clean offer that was $10k lower than a competing conditional offer. If it’s an older house, you should probably make it conditional on home inspection, to protect yourself. Unless you’re in construction and can eyeball things carefully yourself.
Once you’ve got an accepted offer, and you’ve removed all the conditions, pretty much all the hard work is done. Make sure you have a good lawyer work with your realtor and your bank to arrange the financing, title registration, etc prior to closing, then take over the house, and turn it into a home!
Selling a house
The process of selling the house is markedly less complex, IMHO, than buying, but there are a number of important steps to take to maximize its value.
One of the first steps is to come up with a best guess of market value, and then decide an appropriate list price. But let’s come to that later, because there’s a lot of work that needs to come first…
If you want to get the most money out of your investment, you need to do some work to prepare it for sale, and this should be done BEFORE you ask someone to help you put a price to it, so they will see it in its best light.
First thing to do, which is VERY hard to do, is stop thinking about the house as your home, and think of it only as your most important investment. This is an important psychological step. You will need to divorce yourself from the idea of the home, and dress up the house. You are not trying to sell someone else your HOME… you are trying to sell someone else your HOUSE, so they can turn it into THEIR home.
Selling the house is about putting it into its best possible light for potential buyers to imagine themselves living there, with THEIR stuff in it. In order for people to see themselves living in your home, several things are very important:
– Depersonalize the house, as much as possible. Take down personal photos and replace them with neutral art, or nothing. Less clutter on the walls opens up the space, makes the room seem bigger. Your photos, particularly big “in your face” ones, make it hard for them to imagine THEIR family in the home
– Repair leaky faucets, loose doorknobs etc. Touch up paint.
– Re-paint any tired walls, and make sure all walls (and floors if possible) are neutral tones. You may love your black accent wall, puce den or hot pink girls’ bedroom, but non-neutral tones will put people off. The more they think they have to re-paint, the less inclined they’ll be to offer, or the lower price they’ll be willing to get to.
– Clean, dust etc. Leave the home spotless every morning when you leave to the house can be viewed on short notice.
Eagle eyed readers will notice I wrote “declutter” more than once. This is the single most important thing you can do. Getting rid of clutter everywhere. Open up every room as much as possible. Knickknacks need to go in storage. Shelf-scape your bookshelves. Thin out your closets, especially walk in closets, Tidy cupboards, Declutter EVERYTHING, EVERYWHERE. This might take you 2-7 days, but it will earn you at least $10k on the sale price. You may need to borrow somebody’s basement, or rent a storage locker, but this is definitely worth it!
You may find the process of decluttering and neutralizing the house to be psychologically difficult, because it’s hard to hide your personal stuff that you love and forms an essential part of your home. This is where you need to remember you’re not selling your home, you’re selling your house. Put the stuff away lovingly for a couple months, you’ll get to bring it back out in the new home.
OK, once you’ve spent a week or two getting the house completely ready, NOW is time to set a price. You need to start with some basic research, to get an idea of what similar places (similar square footage, number of bedrooms and bathrooms, age, neighbourhood, etc) have sold for (you may need to ask a realtor for this data) and what comparable houses are currently listed for. Recent sales establish the market, and the other current listings are your competition.
When setting the price, you need to remember that fair market value has little or nothing to do with what you think you would like to get for the house. If the house is marketed effectively, it will sell for fair market value, whatever the market decides “fair” means.
You can get help deciding on price in a few ways. One way is to hire an appraiser. Probably cost 500 bucks, and it’s 500 bucks you probably don’t need to spend. Better way is to contact three different realtors and ask them each for a free market evaluation and marketing plan. They will look at recent sales and recent listings, and maybe consider other factors of importance to them, and they will suggest a list price. Take these three, weigh them against what you think, and come up with a number. If you’re going to list through a realtor, go with your gut on who impressed you most, then hold them to their promises.
Couple of points on pricing. It’s better to set a “fair” price, pretty close to what you think is a fair sale price, rather than reach for more. So if you think the house can probably sell for $375K, maybe list at $380-390, but not $425. If the price is too high, buyers will know this and you will get zero offers. In fact, buyers will quickly develop a finely tuned sense of value in your price range, because they will be looking at various comparable houses, something you can’t really do.
Other point on price is to recognize certain numbers are psychological thresholds. $405K is likely to weed out a bunch of buyers that might look at a $399K listing. The difference between $375K and $369K is, by contrast, numerically equal but inconsequential.
Once you’ve set the price and listed the house, most of the work is done, but you need to be diligent keeping the house in top notch shape, clean and tidy, the whole time it’s on the market, as showings can come up quite suddenly. If you’ve priced smartly, you’ll get lots of interest and should get offers fairly quickly. If you’ve been a bit greedy, you’ll get less action.
Open houses are a waste of time, less than 1 % of house sales happen that way. These are really just an opportunity for your realtor to find new clients. And for nosey neighbours to take a free tour of your house.
When you receive an offer, you enter a whole new psychological process. You should know that the first offer is almost always the best, so even if it’s not great, take it seriously. In a hot market, you might get multiple offers, and that’s a great problem to have. There are ways to optimize this situation, but I won’t dwell on the subject. If you have a single offer, it’s usually lower than asking, and may come with conditions. You can either accept it as is, ignore/reject it, or give them a counter-offer. In our experience, it’s fairly common to go through a few rounds of counter-offers, back and forth, in a bit of a tennis match with price, conditions, etc. Every offer will be different, and I can’t cover all the possibilities, but when selling, your realtor really IS in your corner, because bigger price = bigger commission. So ask their advice, but decide on your own how to respond.
Assuming a successful negotiation, now you’re done, just need to let the realtors, lawyers and banks take care of the finer details, congratulations on making a good sale!