Learn how to sell your home in the California real estate market:
There are many reasons you may need or want to sell your home: relocation for a new job, upgrading or downgrading home size, financial reasons, inheriting an unwanted property and more. Read below to find an overview of the steps it will take to sell your home in California to prepare you for the process ahead.
STEP 1: Assess Your Needs
Clearly define and prioritize the reasons for selling your home. While the “best possible sale price” might be at the top of the list for many people, other factors may come into play in particular situations such as how quickly the home can be sold, and whether or not you will be obligated to make repairs on the property. Try to be realistic in the assessment of your home and focus on the most important aspects of your situation.
STEP 2: Consult an Expert
Once you have a clear understanding of your expectations, it might be a good time to speak with a local licensed real estate professional. Almost all real estate agents are willing to meet with you and evaluate your property free of charge and with no obligation to sign a listing contract. It is in your best interest to meet with several different agents and ask them to run a comparative market analysis (COMP) on your property to help determine a potential sales price for your home. The agent will usually need to tour your home to get an idea of the condition of the property to make the most accurate evaluation. Be sure to ask the agent any questions you might have about the selling process, their office and marketing systems, and estimated fees, commissions and selling costs.
STEP 3: Set the Listing Price
After you have consulted with a few agents and received some “comps” on your property, it is time for you to make the final decision of how you want to price your home for the sale listing. The sales price of other homes in your area will help give you an idea of what your home is worth, but remember, every property is unique. Take into consideration the condition of your property (if any repairs need to be made), any usual elements that might effect the home value (easements, power lines, proximity to commercial zones, etc.), and the objective you set out at the beginning of the process.
To receive “top dollar” for your home, usually the home needs to be in excellent move-in condition. You may not have the time or money to make major or even minor repairs to your home, and that is ok. A property can be sold in any condition, even if it is falling down, but know that property defects will result in a lower sales price. Be realistic in your own assessment of your property and try to see it from a buyer’s perspective.
STEP 4: Listing Contract
While you are under no obligation to list your home with a real estate agent, many times it is in a seller’s best interest. Roughly 80% of homeowners who attempt a “for sale by owner” (FSBO) end up hiring a professional. Only licensed real estate agents have access to the multiple listing service (MLS) where they will post your property to be seen by all the other California real estate agents as well as syndicated on all the major consumer real estate sites such as Zillow.com, Realtor.com, etc. A real estate agent will charge a commission – a negotiable rate, usually 6% of the sale price – which is divided between the listing agent and the buyer’s agent at the close of escrow. You never pay anything to the listing agent up front, and the agent only gets paid when the house has been sold and escrow is closed. A listing agent will take care of the marketing of your property, showing the property to potential buyers, being an intermediary for negotiation, and will also help you navigate the legal process of the transfer of real property to help protect you from being sued for fraud or negligence due to improper filing, disclosures, or documentation. Selling a home is a legal transaction and must be handled correctly.
There are 3 types of listing contracts in California. The most common is the “exclusive right to sell” in which the agent will receive the agreed upon commission at the close of escrow when any buyer enters into escrow during the contractual period (unless specific buyers are exempted in the listing agreement). An “exclusive agency contract” means the agent will receive the agreed upon commission at the close of escrow unless the seller procures a buyer without the help of the agent. And finally, an “open listing” means whichever agent – either the listing agent or some other agent – procures the buyer will receive the agreed upon commission at the close of escrow. Speak with your agent about all of your options before signing a listing agreement.
STEP 5: Preparing the Home
Now that you are officially moving forward with the sale of your home, you will want to get it presentable for the potential buyers. This may mean making some repairs if that is within your budget, but mostly it means to de-clutter your living area! Think of staging your home like a model home. It should feel decorated and homey, but most importantly clean and organized. Try to limit the number of items on counters and shelves, and for things that are exposed, do your best to organize them attractively. This might be a good time to start packing some things that you don’t use often to get them out of the way and clear some space. While you want to avoid the home looking too sparse, an open and tidy living area will make the space seem larger and more inviting.
STEP 6: Listing Photos
First impressions are key! And a buyer’s first impression is usually from the photos they see on a property listing. Attractive and inviting photos will bring more buyers to your property and increase your odds of getting the best price and closing quickly. These days, most consumers have access to fairly sophisticated cameras – even most smart phones have decent digital cameras! In many cases your agent will be able to take acceptable photos of your home for your listing. In some cases, particularly when you are selling a “high-end” home or are expecting “top-dollar” for your listing, you will want to hire a professional real estate photographer to showcase your home as best as possible. Ask your agent about a professional photographer if you feel your home sale would benefit from it.
STEP 7: Showing your Home
When your for sale listing is “active” and has been posted on the mls, your agent will want to begin showing the property to potential buyers. If you or a tenant still occupies the home, it would be wise to arrange a showing schedule where you can allow the agent to have access to the property for showings on certain days and during certain hours to correspond with your schedule (or the tenant’s schedule). The agent will also likely want to setup a few open houses which are usually held on weekends. Try to keep your home as tidy as possible during showing times!
STEP 8: Receiving Offers
If all goes well, you will begin receiving offers on your home! Offers submitted through a licensed real estate agent will all be written up on the standard California Association of Realtors (CAR) Purchase Agreement. This is a 10 page contract that details the terms of the sale and escrow instructions. Have your agent request proof of funds, a recent credit report, and a prequalification letter with every offer so you have the best chance of identifying the most suitable buyer. You will want to verify that the buyer has enough cash in the bank to cover the proposed down payment along with estimated closing costs, that they have decent credit and therefore a good chance of securing a loan, and that they have already been reviewed by a lending institution and have been pre-approved for a loan amount that will cover the purchase price.
STEP 9: Negotiation
It is not uncommon for a seller to negotiate the terms of a given purchase agreement. You can ask your agent to draw up a counter-offer to adjust terms such as the purchase price or the delegation of escrow fees, etc. Submitting a counter-offer does not bind either party to the contract; the contract is only binding once both parties have agreed on all terms. In some cases, counter-offers can go back and forth between the buyer and seller multiple times before an agreement is reached.
STEP 10: Open Escrow
Once both parties have come to an agreement about all the terms of the purchase contract, escrow can be opened with the signed contract and the buyer’s earnest money deposit (EMD). An earnest money deposit can be of any amount but is usually around $3,000-$10,000.
Escrow is a third party company, usually an escrow company or title company, which ensures the terms of both sides of the agreement are met. They will collect all the necessary paperwork, help with the filing, and make sure things stay on track.
STEP 11: Buyer’s Investigation Period
Unless modified in the purchase agreement, the buyer has 17 days to complete all investigations on the property. They will hire a licensed home inspector to perform a full inspection of the property to know if there are any defects in the plumbing, electrical wiring, roof, foundation, etc. If any major defects are uncovered during inspection period that would reduce the value of the home, the buyer can submit an addendum to either request the seller to repair the defect(s) or to request a discount off the purchase price of the property. The seller is not obligated to accept an addendum request, and negotiation may take place again. If the buyer and seller cannot come to an agreement, the contract and escrow may be cancelled and the buyer will be refunded his/her earnest money deposit.
STEP 12: Seller’s Disclosures
During the buyer’s investigation period, the seller is required to submit their own property disclosures to the buyer. Your real estate agent will have you fill out 2 property questionnaires, the transfer disclosure statement (TDS) and the seller property questionnaire (SPQ). These forms will ask you questions about the physical characteristics and condition of the property and if there are any known defects. It is important that you are honest about your knowledge and representation of the property. These are legally binding documents and the buyer can take legal action if misrepresentation is discovered. Your real estate agent will work with you to make sure the buyer receives all the required disclosures and property information.
STEP 13: Loan Contingency
If the buyer is purchasing the property with a loan, and unless modified in your purchase agreement, the buyer has 21 days to secure funding (loan) for the property. Sometimes things are uncovered during a lender’s financial investigation that may effect their willingness to grant a loan or the amount they are willing to loan. If, for some reason, the lender refuses the loan or will not lend enough for the purchase of a particular home, the contract and escrow may be cancelled during the 21-day loan contingency period and the buyer will be refunded his/her earnest money deposit.
Part of the lending institution’s evaluation requires an appraisal of the property. The appraisal should be ordered by the lending institution soon after opening escrow, and the report usually takes about 1 week (4-5 days) to receive. If the appraisal comes in below the purchase price the lender may reduce the loan amount, in which case the buyer would either have to make up the difference, negotiate a reduced purchase price with the seller, or cancel the contract and escrow within the 21 day loan contingency period to receive a refund of his/her earnest money deposit.
STEP 14: Title
Part of the escrow process is working with a title company which verifies that you are the owner of the property, have the right to transfer the property, and investigates if there are any liens on the property (mortgage, tax lien, mechanic’s lien, etc.). Either the seller or the buyer (according to the terms of the purchase agreement) will have to purchase a title insurance policy for the buyer which will protect the buyer from most claims in the case of fraud or miss-documentation of title.
STEP 15: Schedule Movers
After the buyer’s inspection and loan contingencies have been removed and you have a fairly solid closing date, it would be a good time to start planning your move. Call around to various moving companies to find the best rates, and schedule your move to be complete before the close of escrow. Unless otherwise agreed upon in the purchase contract, the buyer’s will receive keys and take possession of the property on or before 5pm on the day of closing. This means the house should be completely vacant and move-in ready by the close of escrow.
STEP 16: Cancel Utilities and Insurance
When you have clearance from escrow that the buyer’s loan is on track, the title report looks good, and you are heading toward the finish line, be sure to schedule the cancellation of your utilities, insurance, and any other services you have related to the property. You don’t want to continue paying for services after you have moved!
STEP 17: Close Escrow and Get Paid!
The escrow period in California is typically around 45 days, but may be shorter or longer depending on your situation. During that time, all the buyer’s investigations take place and seller disclosures about the property are shared. Title records are checked for errors, taxes and other claims must be settled, loan and title documents are signed and the buyer is allowed a final walk through to make sure the condition of the property has not changed. After all the necessary paperwork is signed and filed and escrow has closed, the new owners receive the keys and all net proceeds will be transferred to the seller.
It is always interesting to me to read or hear about the markets in other places, but when you get right down to it it always really depends on timing and luck in a lot of cases. This is nice little read though for anyone looking to sell or just interested in the market.
I prefer to sell my properties without using a real estate agent. It requires more due diligence, but potentially more profit.