Selling a house

[Brat]

I have a relative who is retired and contemplating selling his house. He has "location" but the house (which is small but sound) is about 80 years old.

I understand the value of the fee of the selling realtor. The value of a full fee to the listing realtor troubles me when for about $500 the home can be listed on MLS, a professional appraisal costs $400 and a realestate attorney (who should be involved in any case) costs about $1,000. Listing realtors out there sell me ....

In this neighborhood, where a developer can aquire adjoining properties, old houses are being replaced by town houses. I know the prices these town houses are selling for. Some time in my life I learned that the value of a home is 20% land, 80% improvements. It that true? If so I can estimate the value of the property to a developer.

 

[Beachbumz]

No, that is not true, it would vary greatly by location, size and age of house, etc. In your case it sounds like the land has the majority of the value vs the 80 year old house. I recently sold a property at the beach, the land was worth about $550K and the house 230K. I think it is a good idea to go with a cheaper listing agent or for sale by owner, but you may have to show the house yourself.

 

[John Galt]

Beachbumz is correct. That 20/80 rule of thumb is useless.

JG

 

[nwsteve]

the value of a home is 20% land, 80% improvements.  It that true?  If so I can estimate the value of the property to a developer.

Brat,
Not only is the 20-80 not a reliable rule, it is not unheard for a house actually reducing the land value (called cost to cure). Happens when the land's value, if vacant, is greater than with a house. Easiest example would be in a commercial situation where an older home requires removing in order to capture the commercial value. Or in a residential situation, house is poorly placed on lot which prevents a larger house/townhouse being built.
Also can happen if there are costs due to the house having "issues" (linking oil tank/hazarderous waste from earlier use (think home mechanic disposing of waste or meth lab.) etc.
nwsteve

 

[Brat]

I understand that there are costs in preparing a site (house tear-down, for example).  It is my recollection that when heated by oil the tank was in the basement, exposed.  It was removed years ago.  I do understand the hazardous materials risk, there are none.  The house would need to be removed for any other use.

I would like to know, for NEW spec construction, if there is a usual and customary relationship between land value and total value of a residential property in a city (with the usual services available and paid for) on a site with no grief (envornmental, soil stability, water, creepy neighbors).

 

[nwsteve]

Brat,
Real estate values are almost always very specific to 3 things--location, location, location
Relationships between land and house values vary between waterfront and say inner city lots.
Best way to get a feel for a land value is by comparable sales. Go on realtor.com and do a search for lots only.
Also you can go to County Records, and check actual sales of lots that have sold. Realtors have access to some historical data but generally only when property has been listed.
Really encourage avoiding getting caught with a rule of thumb on this one.
nwsteve

 

[Brat]

Thanks Steve.

My husband thinks that the relative will get more just selling as a residence and if a developer wants to rope in the neighbor to put together a package so be it.

Unimproved lots just don't exist in this neighborhood. Between the urban growth boundry, the best schools in the district, and the yuppy factor it is difficult to know what to expect. It is in one of those strange neighborhoods in the west where you are one block to a forrest that goes all the way to the Pacific and a 15 minute walk to the Pottery Barn, Starbucks or a few minutes more to Powells. I remember a cartoon in the New Yorker a while back where a bear was asking directions to Urban Outfitters... the artist must have been local.

 

[nwsteve]

Brat,
I would second your husband's approach.
The risk equation without a bit of experience in this arena can be a bit steep.
Any value differential that may be there for the combination can often be calibrated by the amount of effort that it takes to put such a deal together. If you are in the business doing it every day, it is one thing, trying to do it for a one time event, doubt you would like the final numbers.
nwsteve

 

[cute fuzzy bunny]

Brat -

With regards to your original question on realtor fees. I know there are some realtors around here that will paste me, but here goes.

10+ years ago a selling agent had to shoot photos, and develop hundreds of prints. They had to call other agent offices to let them know about the properties. They canvassed the neighborhood looking for neighbors with relatives that might want to buy. A lot of legwork had to be done.

Some new costs have cropped up to replace the old ones. Web sites have to be authored, online virtual tours made, etc.

However, a home can be listed on the MLS in a few minutes with a shot from a digital camera, and with little more done than that the property will probably sell just about as well.

Minimal service agencies will do a listing for a small flat fee or for ~1.5%, depending on the agency and your location. If money is tight, I think these work. The house I bought 18 months ago was listed by one of these agents. I wasnt swayed from buying it for that reason, nor did I have any trouble finding it all by myself on Realtor.Com and asking my agent to show it to me.

You can get full service from a regular agent for ~2%. We listed my wifes house this week with one of the largest agencies for 2% and we're getting multiple digital photos, a virtual tour, etc. I dont see anything we could get that we're not.

On the flip side, beware of paying less for a buyers agent. I offered 2% to buyers on the last house I sold and was surprised that we had few views. When I upped it to 2.5%, the floodgates opened. Its a real tribute to the real estate profession when your agent wont show you a nice property because they'll make less money on it if you buy that one. Message there is to find properties yourself where possible, dont count on your agent to find all of the ones you're interested in. The two properties I ended up deciding on werent brought to me by my agent, I found them myself. Both were sub 2.5% buyers agent listings. While the buyers agents have to do a lot more leg work - in some cases a LOT more leg work, being able to view properties with virtual tours and gather matching listings in a few moments makes their lives somewhat easier as well.

With our 2%/2.5% buyers/sellers commission rate, we're going to see about $7k extra in our pocket.

If you're wiggly about negotiating rates (which I doubt), some of the warehouse clubs like costco and sams club do deals with local agents. The standard fee structure is the same, but when the property closes the agent (buying or selling) kicks you back a percentage of their fee. I did this when buying my last home and I got $1000 back out of the deal.

 

[Brat]

Thanks TH. I found a discount broker in that community that charges 4.5% which includes 2.7% to the buyer's broker, MLS and realestate.com listings, and assistance negotiating a deal. The 'standard rate' in the community is 6%.

I recall when husband and I were shopping for a building lot 12 years ago. Realtors didn't 'find' the property we purchased but they did drag us around to see sites that were not as represented, for example a 'view' which was a peek-a-boo and then only in the winter.

Were I shopping today I would use MLS and realtor.com after I scoped out the neighborhoods.

 

[BUM]

Brat,

I'm probably like you in that my experience in buying/selling real estate is limited (bought 3 sold 2). Being a thickheaded DIYer I always bought FSBOs, but sold thru agents after trying to sell it myself for about a month.

Regardless, when selling, here is a valuable tip. Do the math. Find out your cost basis, realistic asking price, and selling costs. Run an example on a napkin or TurboTax including the capital gain taxes if any. Use the example(s) to help you decide on what price you'll take for the property and TELL NO ONE. When pressured by the agent or prospect, simply say, "submit all offers".

BUM

 

[Brat]

BUM, you have more experience than I with real estate. In our joint lifetimes my spouse and I have purchased two building lots and constructed our home.. and we are both on SS. Sold the one FSBO.

The prospective seller is my brother, who, IMHO, has a very high opinion of the value of the residence. He too has a lifetime experience of two homes, one of which he purchased from our parents. He thinks if you list it high you can always lower the price. I think that if you list is about 20% above the County 'true market value', tell everyone that you expect many offers higher, and are willing to wait for the best deal, it generates interest. He doesn't trust what realtors say as he thinks that many are more interested in selling fast than selling high. As the time approaches he may test the market via the neighborhood grapevine and see if buyers approach him.

 

[haha]

He doesn't trust what realtors say as he thinks that many are more interested in selling fast than selling high.

I would say he would be right 99% of time. I've sold RE and other things on commission. You are always afraid that your deal will disappear. Unless something is blatantly unethical the agent wants any sale the seller will go for in preferance to a smaller chance of a higher sale. And that is the good agents! It follows naturally from the human predisposition to avoid risk.

Mikey

 

[JOhn Galt]

Good post Mikey!
Deals that die; the nightmare of commissioned
salespeople.

JG

 

[Danny]

I have just received an offer for a house we're selling in Glendale, Ca.
Looks good, but not sure about some things.
Appreciate any help from more experienced sellers.
Was listed less than a week ago - wondering if should let some other offers come in.
Also, it is tenant occupied and the buyers haven't even had a look around yet.
The buyers have given my broker a letter from the mortgage outfit saying they are qualified for a 1st(80%) and a 2nd(20%) that would be more than the actual selling price.
They are financing 95% of the purchase.
They are offering $10,000 more than list, but they want $10,000 credit from us at closing.

The offer sheet has the following fees and cost responsibility - pretty much standard?:

Seller will pay for:
Wood destroying Pest inspection
Septic or private sewage system inspection
Natural hazard zone disclosure report
Smoke detector installation and/or water heater bracing
Compliance with any other minimum mandatory gov't retrofit standards, inspections and reports.

Buyer and seller will pay for their own escrow fee
Seller shall pay for owner's title insurance policy
Seller shall pay county, city HOA transfer tax or fee
Seller shall pay home warranty plan not to exceed $450

Thank you DanTien

 

[Nords]

Take the money and RUN!!!!!

 

[malakito]

Dan Tien,

I've only sold 2 houses of my own, but I'm widely read on the subject ;-)

My advice:

Negotiate hard on this deal and try to slow it down to allow other listings to come in. Ignore what your realtor's advice is; he or she is working for the sale, not for you.

If this first buyer wants to pay $10K more for the house than you're asking, insist they pay any resulting increases in your costs because of this. For example, since your realtor commission is maybe 6%, make them pay you 6% of $10K.

Tenant occupied / buyers haven't looked around / 95% financing...all of this is a "don't care" to you.

Regarding all of the "seller pays for" vs. "buyer pays for" items, that's all just blowing smoke in your face. At the end of the day you'll walk away from the deal with $X in cash. Seller pays/buyer pays just moves $X up or down by a few hundred or thousand dollars. Focus on $X. Decide on what you think $X should be / is fair / represents a good deal and compare it to what you're getting offered.

good luck,

malakito

P.S. -- There's a chapter about real estate agents in the book "Freakonomics" which is a new book out. It basically says that the added benefit to the agent of waiting for a better deal is only 6% of the delta, which probably amounts to only a couple hundred bucks. But when realtors sell their own houses, they're more likely to hold out and get a substantially better deal.

 

[Nords]

Negotiate hard on this deal and try to slow it down to allow other listings to come in.  Ignore what your realtor's advice is; he or she is working for the sale, not for you.

You might want to consider what your cap gain would be as the offer stands now and how much more % you would get by the above approach. 5%? 10%?

How much harder are you willing to work for those higher offers? I don't mean slaving and sweating, I mean the hassle of offer/counteroffer negotiations, tenants, & Sunday open houses. Plus your realtor will be audibly pouty & fussy when they bring in an above-market offer and you just nod & smile to wait for more...

Or you could just take the money and RUN!!!!!

 

[justin]

All of the "seller pays for" vs. "buyer pays for" items are negotiable. Some are usually paid be the seller, others by the buyer, but all are negotiable. The custom of who pays what varies by region. It looks like the buyer is trying to stiff you though, based on what the customs are in my locality.

Plus your realtor will be audibly pouty & fussy when they bring in an above-market offer and you just nod & smile to wait for more...

I don't think this is an above market offer - $10k over asking with a $10k credit back to buyers, plus it looks like seller is paying almost all closing costs and transaction fees. Bottom line - if you think the offer is fair and accurately represents the value of the property, take it. If you think the property is worth more, hold out for more. The asking price should have been higher if you wanted more though.

 

[Nords]

I don't think this is an above market offer.

As far as the realtor is concerned, it is. Wait'll Dan gets the realtor's bill...

$100K house for sale, $110K offer taking back $10K, realtor's commission 6%-- I bet the realtor feels entitled to $6600 instead of $6000.

Of course there's a lot smaller percentage to argue about when the price is $800K and the offer is $810K taking back $10K. But I bet the realtor still wants that extra $600!

This is the hassle factor that goes with waiting for more offers, more open houses, more negotiations, and so on. A lot can change very quickly during the end game of an overheated market and the winter slump season is coming.

 

[Martha]

Feels to me like the buyer doesn't have much of any cash. Take the offer if you "clarify" with the realtor that the commission comes out of the net. No commision is paid on the cash back as nothing is going to you and if you can, no commission on the costs you are incurring.

In my area, custom says no commission on any cash back to the buyer.

Otherwise, take the money and run.

If you are in the mood to negotiate, put a cap on the amount of cash you have to pay to comply with inspection reports.

 

[MJ]

I have only owed 2 houses and am not familiar with this type of RE transaction, but outside of the realtor's possible higher commission, what benefit does the seller get in accepting $10k over the asking price if the seller is expected to credit back that $10k to the buyer.

 

[Nords]

if the seller is expected to credit back that $10k to the buyer. 

"Take back" refers to the buyer borrowing $10K from the seller and paying some attractive interest rate for a short-term loan. The seller "takes back" paper from the buyer.

Buyers that do this for such a small amount (I'm guessing the home is selling for at least $400K?) are often speculators and recent graduates of a Kiyosaki or Carlton Sheets "Make money quick!" real estate "seminar".

 

[Mr._johngalt]

"Take back" refers to the buyer borrowing $10K from the seller and paying some attractive interest rate for a short-term loan.  The seller "takes back" paper from the buyer.

Buyers that do this for such a small amount (I'm guessing the home is selling for at least $400K?) are often speculators and recent graduates of a Kiyosaki or Carlton Sheets "Make money quick!" real estate "seminar".

Carlton Sheets is a sharp guy. Never bought his program
(I know it all already) ........................But, I can tell you for dead
solid certain that he knows his RE, inside and out.

JG

 

[malakito]

Buyers that do this for such a small amount (I'm guessing the home is selling for at least $400K?) are often speculators and recent graduates of a Kiyosaki or Carlton Sheets "Make money quick!" real estate "seminar".

I can hear it now: "I bought a $400K home with nothing down and walked away with a check for $10K!"

malakito