For Sellers

Last updated 05-07-08

Your certificate of appreciation . . . and different ways to earn it!

Appreciation is something we all enjoy receiving. If you own a home, that appreciation can come in the form of dollar bills, and you have control over how many you will receive.

Most durable goods - cars or televisions for example - suffer a continual loss of value as they wear out. This loss of value is called depreciation. Houses, on the other hand, have traditionally grown in value over the years - a benefit called appreciation.

Actually, houses wear out too, but over a more extended period of time, perhaps fifty to seventy-five years. During that time, their value generally increases year by year due to a number of influences that are internally and externally caused. External factors, over which the homeowner has little control, include the rate of inflation, the abundance or scarcity of comparable housing in the local market, and the resulting buyer demand.

Regardless, a home may increase in value internally too, as the direct result of the homeowner's efforts. This is sometimes referred to as "sweat equity." By improving the condition of the home, its appeal to prospective buyers is also heightened, resulting in a higher final sales price.

Improvements may be major, such as a new roof and carpeting, or cosmetic, such as fresh paint and wallpaper. Give your home the attention it deserves. You'll receive appreciation in return.

"Do not pass Go" . . . and don't sell for half price!

Remember playing Monopoly, the real estate game? "Do not collect $200!" became a household phrase. Sometimes, towards the end of the game, you might even sell one of your properties to another player for half-price to raise some cash.

In real life, you would never accept half-price for your home - or would you? What if you owed $88,000 on a home you wanted to sell for $100,000? After inspecting your home, a prospective buyer offers to buy it at a discount of 6% off the asking price. Although you would like to receive your full asking price, you accept. You have just sold your house for half price! Here's why.

Giving a discount of 6% ($6,000), you are agreeing to sell for a price of $94,000. You still owe $88,000. That means you will receive $6,000 cash in hand at the closing rather than the $12,000 you had anticipated - half price!

Your equity - the difference between the sale price and what you owe - is what you receive at closing. It can easily slip through your fingers at the hands of a buyer who is good at negotiating.

Perhaps the most valuable role played by real estate agents is that of negotiator. When you list your home, you are empowering the agent to represent you in any negotiations that take place. Expect the best from your agent and reap the financial rewards.

Get the facts . . . and don't overdo it!

Has the time come to make some tough decisions? If you've outgrown your present home, there are two appropriate questions to ask yourself. Should I add on to my present home, giving me the needed extra room or amenities, and allowing me to stay where I am? Or, should I sell and purchase another home that already has the features and size desired?

If you are happy with your present location and surroundings, consider building an addition. This has obvious advantages, and one not-so-obvious disadvantage - "over-improvement."

Over-improving your home means two things - one, that you have spent more money for the improvement than you would get in return if the home were sold, and two, that by making the improvement, your home now has substantially more space, rooms or amenities than similar homes in your neighborhood. If that is the case, the ultimate value of your home may be held down by the smaller homes around you with fewer amenities.

In other words, by improving in ways not consistent with the existing homes in the neighborhood, the sale price of your home could ultimately be held down when you do sell. One way to make your final judgment is to ask a local real estate agent to suggest a fair sale price, both with and without the improvements. One invaluable service is the agent's knowledge of the neighborhood that may disclose other factors pertinent to making a wise decision.

Earnest money . . . it's serious business!

When you are ready to purchase your next home, how much will you offer as "earnest money" when you sign the agreement of sale? If you are a seller, how much earnest money should you require from buyers?

Before answering those questions, let's examine why an earnest money deposit is needed in the first place. An agreement to purchase real estate of any kind requires a written document detailing the terms of the purchase. This agreement becomes a legally binding contract once it is signed. One of the requirements is that "consideration" (money or other property) be paid in exchange for the property itself.

Since the seller is obligated to give good title to the property by signing the agreement, it becomes logical that the purchaser should show "good faith," or that they are in "earnest," by placing an advance or deposit on the purchase price. This is done upon signing the agreement of sale.

The actual amount is determined by the parties to the agreement. It is negotiated. It should be a substantial sum, serving as a "good faith" guarantee that the purchaser intends to complete the sale. At the same time, it need not be a prohibitive amount resulting in no agreement at all. It is also a wise move for a purchaser to offer more than expected if an offer to purchase is being made at a low price. This action indicates serious intent to the seller.

Above the bargain basement . . . and below the moon!

There are three important issues that must be addressed when you decide to sell your home. Do you know what they are, and which one is most important?

The three issues are price, condition of your home, and the marketing program designed to cause its sale. But no matter how attractive your home, and no matter how aggressive the marketing plan devised by your real estate company or agent, the home must be priced fairly or it will not sell.

Notice the use of the phrase “priced fairly." That word does not mean, "bargain priced," nor does it mean, "Shoot for the moon." It means exactly what Webster intended when he wrote, "within bounds, just, unbiased." Within bounds can be amplified to "not too high - not too low."

Unbiased has a special meaning when the sellers determine their own price without objective information about market activities in their neighborhood. Why? Because they are not "unbiased" observers. They are active participants in the pricing process.

The clearest definition presently available for the term "fair market value" is "That price at which a seller is willing to sell and a buyer is willing to purchase, both being fully informed and under no time pressured to act."

Pricing your home fairly is most critical to its successful sale. Take the time to explore objective pricing with your agent!