The recovering U.S. economy has many homeowners considering whether it's finally time to sell.
Making that decision requires a thorough overview of household finances, local economic conditions and lifestyle objectives. If your last real estate closing occurred more than a decade ago - before the 2006 housing bust - a little home-sale retraining might be in order.
Here are some steps to take for gathering information and assessing your readiness to sell.
Make sure you're not underwater. You may want to buy a new home, but can you afford to sell? The term "underwater" refers to the amount of money a seller owes on a house in excess of final sales proceeds. If what you owe on the home - including all selling costs due at closing - exceeds the agreed-upon sale price, then you will have to pay the difference out of pocket. If you're not in a situation where you absolutely have to sell now, you may want to wait until your financial circumstances and the real estate market improves.
Evaluate your finances. Before you sell, make sure you are ready to buy or rent. To keep your credit score high, pay bills on time, extinguish non-mortgage debt and make sure your credit reports are accurate before you sell. This is important even if you plan to rent after selling; landlords like clean credit reports and credit scores, too.
Consider the difference between "for sale by owner" vs. "for sale by broker." Homeowners are not required to hire a real estate broker to sell a home, though in some states owners may be required to hire an attorney to oversee the sale process. "For Sale by Owner" (FSBO) has become a common sight in many neighborhoods because savings on real estate commissions - commonly 5-6 percent of a home's sale price - can be substantial. Before you commit to selling a home yourself, consider what a licensed real estate broker could accomplish in your specific situation. Many experienced brokers have market knowledge and negotiating skills that could potentially get a better price for your property than you could given your time and expertise. Deciding which route to take shouldn't be an overnight decision. Check leading FSBO and broker sites and talk with knowledgeable friends, attorneys and real estate professionals before making a decision.
Locate construction records. Talking to a tax professional before a sale generally makes sense, particularly for homeowners who could see a substantial profit on their property. Single homeowners who realize a home sale profit over the tax-exempt limit of $250,000 (or married homeowners filing jointly who gain more than $500,000) could risk a steep federal and potential state tax bill. Construction-based improvements may potentially offset such gains. Check IRS Publication 523, which offers an extensive list of items that can be applied against over-the-limit gains on residential property. Note that repairs and regular maintenance are not the same things as construction, so check the list and consider confirming your totals with a qualified tax professional.
Think twice before spending on improvements. Not every home construction or renovation project pays off at sale time. Remodeling magazine's annual Cost vs. Value Report tracks both pricing and cost recovery at sale for leading remodeling projects all the way back to 2002. Separately, potential sellers might benefit from a licensed home inspector's review of any structural, mechanical or major appliance repair issues that should be addressed before spending on any cosmetic changes.
Don't forget moving costs. According to the American Moving and Storage Association, a leading industry trade group, the average professional interstate move of 1,220 miles costs an average $5,630; in state, the average moving cost is $1,170. After all the costs involved in selling a home, people can sometimes forget how much it costs to actually leave their home. Before putting a home on the market, evaluate all potential decisions related to a move.
Dump, donate, sell, stage. Many of us don't recognize the clutter we have in our homes. However, buyers do. Real estate professionals can offer valuable feedback on the overall condition and salability of a property, and removing clutter can make properties seem more spacious. This is called "staging," and gathering suggestions early from a qualified professional will help you decide what you're prepared to keep, store or get rid of before you open your home to potential buyers.
Bottom line: Thinking about selling your home? Make sure your finances are in shape before the "for sale" sign goes up.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney