What it’s like to sell a house in a historic real estate market…
In my last article, I discussed what it’s like to buy a house in this crazy market. I likened the market more to a prison yard riot and used a prisoner getting shanked by another prisoner to draw a parallel between the relationship of competing buyers right now. If I were to continue with that metaphor, then the seller would be the prison warden/owner sitting in their big, bulletproof glass tower, watching the riot taking place below them, eating popcorn, and getting a foot massage.
So now, for the real perspective of a seller, and the considerations and possibilities they are likely facing in this craziness.
Since sellers are getting fat stacks in this market, I figured a quick tutorial on how to make it rain would be in order:
- Place the duckets, neatly stacked, in your non-dominant hand.
- Hold non-dominant, cheddar-bearing hand in a supine position (slightly cupped, palm facing the sky, forearm held at approximately a 35 degree, upward angle.)
- Be sure that your non-dominant fingertips are not blocking any of the bills on the top of that sweet stack of skrilla from moving outward, away from your body.
- Use your dominant hand to rapidly push/slide the Cabbage away from your body, making certain that you are slinging no more than one C-Note at a time (to increase your efficacy with this part of Step 4, it’s sometimes helpful to slightly dampen your dominant fingertips by allowing your tongue to place a moderate amount of saliva on them).
- As you do this, and all those OG Dead Presidents are falling from the sky, it’s best to maintain a stolid look of indifference throughout the whole process, to remind people that you’re one cold-blooded mofo. No cap.
- Optional: For extra effect, for each skrilla you dab on all them h8rs and in the following, sequential order, you might consider saying “dolla, dolla, bills, y’all.”
Ok. Now that we’ve got the boring, finance/business stuff out of the way. Let’s talk about some wacky real estate stuff! I would say, if you have not read the article I wrote for buyers in this market, I would recommend reading it first, as I will refer to it quite often throughout this article.
It’s a seller’s market. That is a massive understatement. It’s a seller’s dream market. Sellers get what they want, when they want, from whoever they want, in this market. Sounds great, right? Absolutely. It is wonderful. But it doesn’t mean that there are no considerations for a seller to ponder under the realm of risk mitigation. There is always a way to maximize your likelihood of success.
And that brings us to my first topic of conversation in this article:
Pitfalls of high offers and the terms they sometimes bring (and sometimes don’t bring).
If a buyer offers over list price, your first reaction is excitement. You finally feel like what you imagine the pretty person at the junior high dance felt like, with everyone bidding for your hand for the chance at an awkward, toe/soul-crushing dance that you would embarrassingly look back on from time to time. But remember that that is not the only point of consideration.
What should you look for with offers that come in over list price?
Well, first of all, the appraisal-related stuff.
The Red Flag…
Sometimes, a price over list price can throw up a red flag for the appraiser. They get to see the contract. Not just the MLS stuff. So if they see that the contract price is $6,000 over asking price, and the buyer is conveniently asking that the seller cover $6,000 in closing costs, what are they going to expect? They can’t say the value is something that it’s not, just because the buyer wants their closing costs covered on a house they’re purchasing with the bank’s money.
Second point of consideration: Are they waiving the appraisal contingency?
Because if not, and they’re not offering an appraisal gap, then they could offer $1 Billion for your house and it wouldn’t make a difference. That is because an appraisal contingency is there to limit the lender’s level of investment. It just happens to limit the buyer’s level of investment, by proxy. The buyer can tell you how much they’d pay for your house till they’re blue in the face. If they are not going to back it up with their own money, it’s all just empty promises.
So make sure if the offer is over list price, you have some further assurance that that number is going to stay over list price, regardless of the appraiser’s opinion of value. This can be done by having the buyer waive the appraisal contingency or offer an appraisal gap. Make sure the appraisal gap is high enough over list price that you would feel comfortable dropping to it from the contract price.
Also, remember not to feel put out by a low appraisal. You’re likely selling your house for 25-40% more than you paid for it probably not too long ago. Averages increase slowly and the appraisers are just doing their job, using the information that is available to them. They care about market value. Not the emotionally-driven market price that you and your buyers have agreed upon.
Price isn’t everything…
A buyer can make an offer appealing without offering you a billion dollars over list price and the soul of their firstborn child. What if you stopped focusing on just that price, and realized that there’s a whole world of other terms you could negotiate? Stuff like, closing date/time/location. That could save you some money and time, by finding out if the buyer is flexible on all of that. You could negotiate an extended occupancy, to give you additional time to get closed on your next house and leisurely moved in. See the buyer article for liability-focused information on that.
You could ask for a portion, or all of the earnest money to be nonrefundable. That could make it less of a roll of the dice for you to accept an offer that has a decent price over list, but no waiving the appraisal contingency and no appraisal gap.
You could have the buyer waive some of their contingencies. See buyer article for a breakdown on contingencies.
Each contingency for a buyer is an obstacle for you. It sits between you and that closing table. So have them removed and maximize your possibility of actually closing.
Consider the finance type. Don’t just write someone off because they are getting a loan. There was a time, not so long ago, that pretty much everyone used a loan. Even if they didn’t need to. You’re most likely going to be doing the same thing once you sell your house. So instead of saying “CASH OR DIE,” how about you say, “Could you do a conventional loan?” These loans have lower property standards and appraisal requirements than government-insured loans and can make for a smoother transaction.
You might have picked up on a theme, as I go through this article. That is:
“BE NICE.”
I know you feel like Joaquin Phoenix in Gladiator, where he does the thumbs up/down dance. But remember, he SUCKED in that movie. You hated him. Well, I hope you did. I don’t want to consider the psychological implications involved with a person who liked his character the most in that movie.
Abraham Lincoln has a famous quote “If you want to test a man’s character, give them power.”
From Spiderman, “With great power comes great responsibility.”
I can probably quote a hundred different sources regarding this subject. But the point is, these buyers are going through hell right now. And they’re not going to win, most of the time. But a simple consideration and acknowledgment of their time and effort can make all the difference. Just a simple, “We loved your offer and appreciate your consideration of our house, but we’ve gone with a different offer. Thank you so much, again. Have a great day and we wish you the best of luck.”
I know I already provided a tutorial on how to make it rain, but I figured that in the spirit of redundancy, I would offer you a bit more advice on the use of your massively increased equity.
You are about to get a huge check at the closing of that house. You are going to feel like Floyd Mayweather walking around with a briefcase full of 8 figure watches. So, what do you do?
Well, consider the taxes, first. If you’re paying any taxes on it, it’s likely going to be capital gains. That is the form of taxes a homeowner pays on their equity. BUT, only if they have lived in it for less than a year, and if not, only if they make more than $250,000 if they are single, and $500,000 if they’re not single. So that means that most equity is tax-free. Don’t squander that.
Sometimes, a big fat down payment on your next house is not always the best use of your cash. If cash is king, then that would make equity a distant cousin to the king. Definitely in line for the throne. But not liquid enough to be considered the heir-apparent. No. Cash is king because it creates options for you. You might find a house you want to buy to turn into a short-term rental. Like, Air B&B or VRBO, short-term rental. You could buy bitcoin or dogecoin or whatever stupid digital currency they are hyping up right now. The point is, be intentional with your equity. Don’t just do what was prudent 50 years ago.
So, in summary, this market is incredible for sellers, and the economy as a whole. Everything I’ve said that implies I have a negative attitude toward this market or sellers is jest, founded in sympathy for my buyers. I would like to end it by saying that all markets are cyclical. What goes up, has always come down. If it hasn’t yet, that doesn’t mean it won’t. But if it never comes down, that would be the true making of history. I recommend assuming it will come down and making your decisions with that thought in mind. Hope for the best; plan for the worst. Ok, just wanted to end it on a happy note. Have a great day.
*This is not financial advice.*