Pricing the house for sale -- aarghhh!

[Caroline]

After 8 years of Northern California landlordship (with my sister and roommates as tenants), I've decided to 'git while the 'gittin's good and sell my rental property.  (1968 rancher - 4/2 -- 1500 sq ft.).  This is the first time I've ever sold a house. 

I hired a guy to fix the bathroom (licensed contractor, based on feedback from this site!!! -- Thanks guys!), and he wants to buy this "cosmetic fixer."

I've gone to zillow.com and estimated the price ($450-ish with improvements), viewed open homes in the neighborhood (average asking price around $450-ish), and am awaiting the assessor's report (due in 2 days). 

The only thing I have left to do is wrangle my ego to the ground and come up with a PROCESS for setting a price. 

Condition of the house:

1.  Original kitchen cabinets (new paint) updated stove, fridge, dishwasher, original tiles with BLACK!!! grout.  Tenant burned a pot ring in the formica counter - -needs new sink too.

2.  Original main bath -- avocado tub, newer (white) toilet, (white) pedestal sink, floor.  Same nasty tiles as kitchen, without the black grout, thank goodness!

3.  overgrown front and back yard (my sister fancies herself a gardner   

4.  New master bedroom shower (tiles, pan, door, faucets).

5.  Outside:  8 year roof, 4 year new outside paint, converted garage needs to be de-converted, old deck needs to go...  Backyard patio cover needs paint.

6.  Inside:  Needs new paint throughout, new carpet in bedrooms (ratty wood floors), carpet cleaning in "great room" and hallway...

7:  Heater - original -- no airconditioning.

 
My (first-time-seller) thoughts:

If I go the traditional way:

set the price around $445, pay 5-6% to the realtors
clean and repair it myself (est $10K in paint, flooring, materials to make it nice but that doesn't count my labor or management time), plus various closing costs, etc.
MAYBE come out with $400K before taxes and mortgage


If I go with this guy:

No costs for realtors, pest report, etc.
No hassles with workers, fixing things myself, etc.
Get it sold NOW before the market REALLY tanks, instead of waiting 2 months to fix or manage fixing in my spare time

Question to the wise people on this site: 

1.  How do I price this?  He deserves a profit for fixing it, but I am afraid to leave too much on the table because I want out fast and easy. 

2.  How much less will it cost a contractor to fix this place than it will cost me?  What's the logic or process here?

3.  How hard is it to round up another person willing to go without a realtor if I lose him?  Are these people roaming the world in large numbers?  ;-)

4.  I could just clean it and sell it as-is.  To my eyes it looks a bit old and tired.  But others in the neighborhood are about the same...  How much fixing up is too much?  Not enough?
 
Thoughts, suggestions, corrections, warnings on any part of this?

All are most welcome - and thanks again!
Caroline

 

[grumpy]

Caroline,

Is your fixit guy looking to live in the house or just fix it up and flip it? If he is planning to fix and resell then he is going to want a price from you that allows him to profit on the near term resale. If, on the other hand, he intends to live in the house, then the price need only reflect a reduction from the comparables that covers the repairs he will have to do to make it an attractive place to live. He can do the repairs much cheaper than you 'cause he doesn't have to pay anyone for the labor.

As a first cut, try to estimate what it would cost you to hire someone to do all the repairs you listed. If you did all of that then the house should sell at the high end of the price range for comparable houses sold recently ($450K-500K?). I would discount those costs by at least 50% to estimate what it would cost him to do the work himself. So start in the middle of that range and deduct his costs ($400k - $425K?).

How good a negotiator are you? You want to set an initial asking price that is higher than you think you can get. That leaves room for him to counter offer and you can then meet somewhere in the middle.

Sorry that this is all pretty obvious and vague.

Grumpy

 

[Michael Moore]

One thing to keep in mind is that if you try to get a contractor to fix the place up before YOU sell it, you may have the not-uncommon "where's the contractor been the last two weeks?" syndrome. Fixing it up might take you several months - will the market be as good then?

Other than that I can't help as I haven't sold a house, but I've had to deal with some contractors.

cheers,
Michael

 

[Nords]

1.  How do I price this?  He deserves a profit for fixing it, but I am afraid to leave too much on the table because I want out fast and easy. 
2.  How much less will it cost a contractor to fix this place than it will cost me?  What's the logic or process here?
3.  How hard is it to round up another person willing to go without a realtor if I lose him?  Are these people roaming the world in large numbers?  ;-)
4.  I could just clean it and sell it as-is.  To my eyes it looks a bit old and tired.  But others in the neighborhood are about the same...  How much fixing up is too much?  Not enough?

You could try these approaches that have worked for others:
1. Pick an appraiser that the two of you can agree on, explain the situation to the appraiser, and set the price at his recommendation. The appraiser should be factoring in the cosmetic/damage issues.
2. It costs a contractor a lot less-- discounted materials, plenty of free labor & buddy barter, and no deadline urgency. You don't have the time, and you may not want the hassle.
3. They're all out there looking to flip houses like they see on A&E. Some of them are professionals who will give you a good price (expecting to share the savings of not paying realtor's commissions) while others are just blissfully ignorant.
4. Spouse and I prefer run-down houses with good bones that we can fix up to our décor & standards. However a lot of potential buyers seem to want the house so spiffy that they can move in with just a toothbrush. We don't pretend to understand that attitude but apparently they're in the majority. A realtor is going to want everything fixed up & modernized, as well as a couple thousand $$ worth of "staging" to sell a house that's ready to relaunch its next phase. (So to speak.)

 

[wabmester]

The contractor is looking to make a significant profit, so he's probably not the buyer you're looking for. But if you've got a good handle on comps and the cost of repairs, then give him a number and expect him to counter.

In the end, if you think fixing the place up and using a realtor would recoup the fixup costs and the realtor fees, then go the traditional route.

Another approach is to use a fixed-cost service that just gets you listed in the MLS (usually around $500). Offer buyer's agents the traditional 3%, but if you get a buyer who contacts you directly without an agent, then you don't owe any commission. (You'll probably want a lawyer to draw up the contract in that case.)

Don't worry about the market tanking. There's always that possibility, but you've got two things going for you: the summer is the best selling season, and people are betting that interest rates have topped out for a while.

 

[JPatrick]

Well they always say, interview 3 realtors before you decide.  Find a couple of realtors with lots of experience in your area.  Tell them you are considering selling and want to know their marketing plan and how much the place is worth.  Couch it in terms of I want to know what price (top) will get the place sold within XX days.  Do not tell them what price you were thinking of.  Try this with at least 2 good realtors and see where it leads you.  Remember, there's no obligation to ask. 

 

[kramer]

caroline,

quick reply -- a family member just met with realtors in the San Diego area to sell their house ($750K price range). the realtors' first offer was 2% for listing, and 2.5% to the buyer's agent for total of 4.5% commission. 4% if they complete both ends buy and sell. There are way too many realtors in California. market is a bit slower down in San Diego area.

My understanding is that under California law, if you get an appraisal, it must be disclosed to the purchaser. For this reason alone, the family member decided not to get one. it seems like a totally bogus law to me!

we pulled up lots of comps on on-line web sites. and actually what the realtors (they are a couple working together) estimated the worth seemed spot on. you have to be careful, because realtor will want to price it slightly below market to get faster sale.

it is way more advantageous to be listing agent than buyers agent. you are giving a gift to listing agent, so you can negotiate.

kramer

 

[kramer]

oh yeah, and zillow was way off on price estimate. be careful.

kramer

 

[Intuit]

Caroline,
Have you considered asking the contractor what he would offer? I'm sure he has an idea of what it is going to take to correct the problems. Just a thought. Good luck.

N2

 

[Caroline]

Thanks for the INVALUABLE help, y'all!  Hard to believe this forum is free!  ;-)

I've tried to get my poor brain around what I know and what you've told me -- as follows:

The appraisal came in at $443, 2k off zillow's estimate (it's a tract house, though, Kramer - your general warning on zillow is still valid!)

Houses in the area are still selling at or slightly more than the asking price.  Highest comparable (updated) sold for $468 last month.

Contractor has a VERY nice house already (not to mention the Cadillac Escalade he drives around in).  He's buying to flip, not inhabit.

If I sell the traditional way (realtor, etc.):

$443,000 --  appraised value, less
      4,430 -- 1% my realtor has agreed to
    13,290 --  3% for buyer's realtor
    15,000 -- everything else - -cleaning, title, etc.

$ 410,000 -- My net (SWAG!) before taxes and mortgage payoff

So...  $410,000 should be my negotiating "floor", right?  The price at which I'm indifferent between selling to the contractor or putting the house on the market.  (Exclusing hassle factors)


All I need to do now is to SWAG the contractor's "ceiling" - the highest price he can pay.

$ 468.000 -- sales price of updated comparable house (1/2 a block away), less...
     20,000 -- his "transactions costs" to buy and sell FSBO
     15,000 -- materials (at contractor rates - thanks Nords!)
      5,000 -- labor for his workers (best guess is they're "undocumented")
$ 428,000 -- His "ceiling" at which he does not make a profit (beyond labor, if he does the work)


So the price is somewhere between $410,000 and $428,000.  How'm I doing here?  Is there a flaw in the logic?  The numbers?
   
   
     
     

 

[justin]

Ask him what he's willing to pay for it. Then figure out what you are going to do. After he tells you, tell him that you're going to get an appraisal or talk to a realtor or something to see if it's close to what you could get out of it.

 

[Caroline]

I like your thinking, Justin -- so much so that I've tried it myself! I have asked him several times to name a figure he'd like to pay. He claims he doesn't have a figure in mind -- that's his story and he's sticking to it!

I did tell him I was getting an appraisal, though, and that I expected it to come in around $445. (vs) the $443 it actually appraised at.)

 

[AV8]

He claims he doesn't have a figure in mind -- that's his story and he's sticking to it!

So he's an experienced negotiater then and probably has done this at least a few times.  My Dad has always said the person that names their price first will often "lose" the deal unless they really know what they are doing.  Your potential buyer probably figured this out himself along the way and is waiting for you to speak first.  You name a price too high and he just walks away.  You undervalue the house and he scoops it up for a nice profit.  Somewhere in the middle and he ?

So....

I like your logical approach you did in the math above and think you probably came close to identifying your low and his high.  At some point you'll just have to take a best guess (which you probably are getting close too) and give him a figure.  As someone said above though, make sure your initial figure is above what you think he'd agree to and force him to counter into the acceptable range (i.e. if you think the most he'll pay is 428 based on his costs then start with 435-440 or something like that).  Oh, and don't underestimate that hassle factor.

Forgive me if that is all obvious, and good luck.

AV8

 

[MasterBlaster]

There's one more fine point. When you go through a broker (ie a real Estate office) there is some degree of protection from a lawsuit. They'll know what is ligit and what isn't. If something isn't quite right with the deal they'll let you know. Furthermore unless you do something yourself that is illegal the broker is there to help with legal resources.

99 % of the time there are no issues and you won't need this help. However there are those stories.

If you were to sell it yourself to your contractor and the deal goes sour and the lawsuits start flying... well then you are all alone in the world.

I suggest that you use a broker if nothing else but for that reason.

 

[wabmester]

I suggest that you use a broker if nothing else but for that reason.

Actually, this is probably the one case in which a lawyer is the less expensive option.

 

[MasterBlaster]

Wab:

In California, real estate transactions do not usually go through a lawyer.

Real Estate is usually transferred in escrow without (in general) the advice of a lawyer.

 

[wabmester]

In California, real estate transactions do not usually go through a lawyer.

Real Estate is usually transferred in escrow without (in general) the advice of a lawyer.

The same is true here in WA, but that's because realtors here use boilerplate contracts that have already been prepared by a lawyer.   If you're not using a realtor, you can generally find a real estate lawyer who can provide bullet-proof contracts and give you a sanity check on your terms.    The fixed fee a lawyer would charge is generally going to be much less than the percentage a realtor would want.

 

[youbet]

Caroline:

I would guess that unless the contractor feels he can make some significant profit flipping your house, he won't be interested. Why should he assume any risk at all for making a profit that only covers his labor unless business is so slow he can't keep himself and/or his employees busy. Think about it from his position. Why should he assume the risk of owning your house for a few months if the reward is minimal?

If he won't make an offer, tell him a price you'd be pleased with. If, at that price, he doesn't feel it's worth assuming the risk, he'll walk and so be it. You can then get on with putting your house on the market and selling it at a price the market dictates.

I think you are excessively focused on this one potential buyer.

 

[Caroline]

Forgive me if that is all obvious, and good luck.

Nothing is obvious to the newbie, AV8 -- ALL suggestions are most welcome! 

As to your comment, youbet -- I'm a little surprised by it but I'm giving it serious consideration.  I'm a strategic planner in real life, and DO tend to overthink things (maybe even your comment!    ) But seriously, what I'm thinking of as "due diligence" sometimes veers into "analysis paralysis."

I migth be focused on this guy because I'm being stampeded by the "gloom and doom" housing bubble talk in the media (and on this board, btw!)  Also, I'd like a quick and easy sale -- my day job is heating up, etc. etc.

Finally, I may be getting greedy at the chance to eliminate realtor commissions. I hadn't thought of it until this guy appeared -- no reason to obsessively focus on it now.

Psychology seems to be 90% of the issue in most of these cases, methinks.

I'll say again, though -- you folks are the best -- thanks so much!
Caroline

 

[scrinch]

I agree with AV8. Don't underestimate the hassle factor. And Hassle is joined at the hip with its siblings Time and Cost. I sold my father's house (in northern California) after he passed away a couple of years ago. A neighbor wanted the house, so we found an appraiser, agreed upon his appraisal for the price, and paid a local title company $1000 to take care of all the paperwork for us. Believe me, there is a lot of paperwork, so get someone who understands it all to help! If you come to an agreement with the contractor, make sure up front that this is an as-is sale. Don't let him agree to a price and then start squeezing you for roof, dry rot, etc. AS-IS!

 

[PJ03]

Here’s my take,
I’m a builder and investor; I buy and flip properties like this one once or twice a year.
If I feel that the property is worth $450K-$460K (Fixed up) at todays value my discounted price would be in the $350K to $380K range based on what you said it needed to rehab it. You may be in for a shock by his offer.

If this guy is a pro, he will be going in low and most likely will walk if the price is above the $380K mark. I think in the end you will do better getting a realtor and going for the best deal you can get. Best of luck with it.

 

[LEX]

The last post was right on point. You are the prey and the so called contractor has you in his sights. Post the property as is on craigslist and test the market for free. Give this guy some competition. Do this for a few weeks before you list with a parasite that will skim 5% for putting the place on the MLS data base.

 

[mathjak107]

i didnt use a lawyer either and almost got totaly screwed up at closing....ill never not use a lawyer,its worth it....we were selling the house,,,,all was set to go...we had inheirited the house about 10 years prior from my wifes mom and had been living there ever since.....well the buyers title company asked to see the will....oh my they said ,we cant accept this ,theres a word missing from the will.the word is "only"....the will said and to my daughter beth i leave the house,,,it didnt say only daughter................closing was stopped.i had to pay all the other lawyers for the day as well as expenses for the buyer as they couldnt move in...and we had to reschedule after relatives signed certain affidavits.........
i learned my lesson about being cheap

 

[SolidA]

Hmm... I have used realtors to BUY houses, but when I have SOLD houses here in Minnesota, I have used a "For Sale By Owner" company whose sole purpose is to get my house on the MLS site and take care of all the headaches/hassles/paperwork. It was worth every penny, (usually between $1000 for just doing the paperwork at closing and 1% for the whole kit and kaboodle) and the houses I have sold went within 1 day to 30 days (but I fixed them up and staged them myself). My point being, that if you have access to something like this in California (DH is from California - went to Pepperdine) it might solve your issue of Realtor fees vs. headaches. Just a thought, as it has worked for me!

 

[bearkeley]

It sounds like you have a good Idea of what comprable houses are selling for in your area. Ask the plumber to pay you that minus how much you plan to spend on fixining the house to get ready to sell and half the commission.

One thing we recently did was use a discount realtor that only listed the house in MLS for us. We then put a combo loxbox on the house and gave the combo to the buyers agents that called us.

The house was vacant so we didn't worry too much about giving out the combo. We paid $170 for the MLS service and 2% to the buyers agent. She drafted the contract of sale and handeled the closing.

Using the plumber should be mutually beneficial to you both or else just sell the house in the market.

Good luck and don't forget to run turbotax to make sure the capital gain doesn't send you into the AMT. If it does make sure to set aside enough cash to pay the tax bill.