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Financial Learning Center


Selling Real Estate

For Sale by Owner

As we've discussed, selling the home yourself will help you avoid real estate commissions. Chances are the buyer knows this and will expect an equivalent reduction in selling price. When the dust settles, you may be no better off than you would have been by letting an agent do the legwork for you. Nevertheless, if you feel you can still come out ahead, here are some steps you can take to make your experience more successful:

  • Have an appraisal done of the property if comparables are not available.
  • Get your home in shape and looking pretty. See the section Appearances Count checklist for ideas.
  • Consider engaging an attorney to assist you early in the process.
  • Visit an office supply store. Pick up qualification forms. Prospective buyers should complete the form so you can evaluate their financial qualifications.
  • Contact your local credit bureau. You'll need to run credit checks on your prospective buyers. It is important to have that procedure in place when you need to do it quickly.
  • Gather documentation you know will be requested such as utility bills, condo association bylaws, etc. Prepare an informational fact sheet about your home (for details, see the section Steps Before the Listing).
  • Consider holding an open house.
  • Design and construct your "For Sale" sign. Make sure local ordinances allow posting it.
  • Get a direction sheet ready.
  • Get your advertising plan together. If you're having trouble composing an ad, your newspaper staff can probably lend a hand.
  • Realize that your home must be in a constant state of readiness. People browsing the neighborhood will call asking for a tour after seeing your sign.

IMPORTANT NOTE: When showing the home, stay with the prospective buyer throughout the touring process. If possible, for security purposes, arrange your showings when someone else, such as a spouse, will be present with you.

Mortgage Debt Ratios

Since you will be pre-qualifying prospective buyers for financial suitability, it is useful to understand the ratios lenders use to screen mortgage applicants:

  1. Their total monthly mortgage payment should be no more than 28% to 36% of their gross monthly household income.
  2. Their total monthly payments on all debt, including their potential mortgage, car payment, and credit card installment debt, should not exceed 36% to 42% of their gross monthly income.

Full Disclosure Issues

If you're selling your home yourself, you need to be aware of your legal liability for full disclosure. Keeping silent on a material defect in your home, about which you have knowledge, can cost you plenty. Buyers, upon discovery of your omission, could sue you for damages. The definition of what is a material defect can be subjective. For example, you may not consider an occasional flooded basement a material defect, whereas your buyer might.

To protect yourself, consider hiring a home inspector to go through your home and issue a report. While normally this is a buyer expense (they'll probably have their own done anyway), it may be worth spending a few extra dollars to document the true condition of the house at the time of sale. Plan on spending about $300 to $500 for the service now to avoid headaches in the future.
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