Savvy Real Estate Series – Part 1: Should you sell your house yourself?

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Many money management blogs will focus on ways to save money by doing little things over a long period of time – things like meal prep, not buying coffee every day, budgeting for the holidays, shopping around for savings etc. And while those things are certainly important, I think its also important to consider areas where you can save a LOT of money in a short amount of time.

One of those things is by selling your home yourself and not using an agent to avoid having to fork over the commission.

This is something I’ve now done several times –  I’ve sold two homes and leased/rent several properties without using an agent and each time I’ve managed to do better than realtors had told me I’d get. So I decided to make a series of posts on this topic. I’ll start with this one – helping you determine if selling your house yourself is something you should do – and I’ll follow it with tips on selling your house as well as how to choose the best agent, if you decide selling your house yourself isn’t for you.

Why you should always look into selling your house yourself

In most countries, real estate agents charge a commission – i.e. a percentage of the sale price of your home – as their compensation for selling your house. In Canada, the buying and selling agent will typically charge 2.5% each – or 5% total. In New Zealand (where I’m currently living), only the selling agents get commission, and its typically 4.5% + GST.

Now this can amount to be a HUGE chunk of change. The average home in Canada now sells for about $475,000. This means that when you sell your house, you will have to pay the realtors $23,750 in commissions alone . Also, if the house you sell is your primary home, this money would also be free from capital gains tax, so it would be ALL yours to use as you please. That money could be used to pay off debt, beef up savings or a down payment for another home (so you don’t have to get as high a mortgage). And that is just the average – this number gets higher the more you sell your home for.

This leads me to another reason – many agents are just not that good, and in my opinion don’t really earn that generous commission. But it doesn’t take an idiot to do the math above and realize that if they are able to sell just a few houses in a year, it can effectively replace a 50 week, 9-5 salary – for significantly less work.

Granted, realtors don’t get to keep the entire commission (some goes to the brokerage, overhead costs, taxes etc) but in a hot market like we are currently experiencing where houses often sell within days of being listed, for ridiculous sums of money and no conditions, its no wonder that the number of real-estate agents is at an all time high. In what other profession can you take a quick course, have no post-secondary education and be licensed to work within a year, getting paid upwards of $20,000 per sale? Its no wonder that in Toronto alone, the number of licensed agents has doubled over the past ten years. As a result, there are a ton of inexperienced agents out there that really don’t know what they are doing any more than you do.

Another main driver for me was the fact that selling your home is work to you regardless if you use an agent or not. In most cases, YOU have to clean/tidy your home before showings or open homes, YOU need to organize your family to be elsewhere when these showings take place, YOU need to pay for staging, YOU choose who to sell to and where to compromise and YOU have to pay for a lawyer to deal with the legal stuff.

You should also some market research to know what to expect what your home will sell for – sometimes agents will low-ball a house just so they can sell it faster. For every $10,000 the agent gets $500 extra – it might not be worth the extra effort to a realtor to market a house for $10,000 or $20,000 more for a few hundred dollars but to the seller, that is a lot of money, especially if that is what it is worth and could sell for. So whether or not you use an agent, YOU should still know approximately what your home is worth. In sum, a lot of it is on you anyway, so shouldn’t YOU get some compensation for that?

However, selling your house yourself is still work – don’t kid yourself – there is a reason that there is a whole profession dedicated to selling houses. So I’ve developed a guideline to follow for  when it would make sense to do it yourself.

When to sell your house yourself:

  • You have time and are flexible. This is one of the main reasons I do it myself. I am a work-at-home mom and I was available to show my house at any time, on any day of the week. I’ve even had people ring the doorbell and asking to have a look because they knew they’d be dealing with the seller directly anyway and I was able to show it. No need to worry about a busy agent showing another client’s house or personal time and potentially losing a sale.
  • In a seller’s market. This is when house prices are on the rise and supply of houses is low. Basically, the situation right now in many big cities like Toronto or Vancouver or Auckland. Buyers have to be less picky and can’t put as many (or any) conditions on purchase, which pretty much guarantees you the sale if your home is in the location they want.
  • Your house is in an excellent location. There is a reason that “location, location, location” is the dogma of real estate. If your house is in a good location, even if its the worst house on the block, it will sell. And in a market like this? It will pretty much sell itself and will sell very quickly.
  • You aren’t easily offended. Look, buying real estate is a big deal for most people, so purchasers will be critical (in order to not seem too keen, because its easy to criticize when its not your home, people have different tastes etc) and it may be hard to hear someone mutter about the hideous curtains/wall colour you lovingly chose, renovations you’ve done etc. You can’t let it discourage you.
  • You have some business savvy/confidence and be a bit of a risk taker. A home sale is a business transaction at the end of the day. You need to know how to market your home, stage it and understand the market well enough to be able to negotiate effectively (I will do a post on tips to sell your home soon).
  • You are and can afford to be patient. Selling your home yourself will probably take longer than with an agent. Selling agents may avoid showing your house to potential clients (since they don’t get any commission), buyers themselves may not want to deal without agents and in general you will not be able to reach the same number of potential buyers that an agent can. It can get discouraging when you put in all this effort to get it ready only to have no or little interest after your first open home. But if you are able to give it some time, selling yourself may be a good idea. Remember, you can only have one buyer at the end of the day and chances are that if you are in a sought after area, you will have no problem finding interested buyers.

That all said, there are times when I would recommend using an agent.

When to use an agent:

  • You are just too busy and don’t have the flexibility to show the home whenever a potential buyer is interested, it really is in your best interest to use an agent.
  • In a buyer’s market. This is when there may be an abundance of houses or the market has cooled off for whatever reason and a realtor will potentially be better able to reach  a bigger network of interested buyers and be better able to help you negotiate. This is where an experienced agent is key.
  • Your property is very unique or difficult to sell. The easiest houses to sell are those that appeal to a larger group of people – that also means they are pretty conventional and in popular locatoins. But if your property is very unique – for example, its a luxury property, or has some unique features, or is in a less than desirable location – a good agent that specializes in that type of real estate would be good to use to make sure you are getting the best price.
  • You are not a natural negotiator and/or don’t like conflict. There are some people who are born sales people or negotiators and there are some who aren’t. The latter are the people who will mess up selling their own home and will be the horror stories that realtors will tell potential clients with glee. Like I mentioned before, selling by yourself is work and its not as easy as it looks.
  • You need to sell ASAP. If you have to move quickly, I’d recommend using an agent for sure. My approach to selling on my own involves having a timeline of how long I am willing to list without an agent before giving in and getting an agent and still making the timeline I want to have my house sold. If you don’t have the luxury to wait it out selling yourself, don’t do it.

Convinced yet? If so, stay tuned for my next post which will include tips on how to sell your home yourself!

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Top 4 tips to be prepared for the worst

 

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I was chatting to my friend recently about a friend of hers who recently broke up with her long-term boyfriend.

“You know what she says one of the hardest things have been for her?” my friend asked me. “How much harder it is now for her financially. Now its not just that she is heartbroken, but she is heartbroken AND her living expenses pretty much doubled overnight.”

I’m not surprised at all. Whether or not your partner/spouse is the primary income earner or not, you are likely very dependent on their income to maintain your current lifestyle. And while I’m not suggesting that one should live so frugally that they could do without an income without breaking a sweat, I think that there are somethings that you should prepare for, especially when you are also a parent, if your spouse or partner died or became disabled.

Now, I’m not going to discuss how to prepare for a relationship breakdown or divorce in here – even though it was the inspiration for this post. I think there are ways to always be a bit prepared to be on your own, however not all marriages and relationships breakdown but EVERYONE dies at some point, so its good to be prepared for the sake of your family.

1. Get life insurance

If you are married or have children with someone, you AND your spouse NEED life and disability insurance. And not a ridiculous amount like I always seem to see on TV that would just barely cover the cost of a funeral, but a decent amount – at least enough to cover your mortgage and 10 years worth of other housing costs. Also, its better to get life insurance earlier rather than later – you will pay much lower premiums.

As a side note, I’d also caution against buying mortgage life insurance that your mortgage broker or banker will try to sell you when you get approved for your mortgage. All that will be covered is the mortgage BALANCE, not the amount you originally borrowed. The premiums are usually higher than regular term life insurance but they stay the same even as your mortgage balance decreases. So if you are paying $30 per month when you get your $300,000 mortgage, its still going to be $30 per month when your mortgage balance is $250,000. Also, because often the bank employees selling the mortgage insurance aren’t licensed, they may not recommend the correct type of insurance and the insurance company has the right to decide that you are NOT eligible, EVEN after you’ve been paying your insurance for years.

Please contact a licensed life insurance broker to discuss the right options for you.

2. Make/update your will

I’ll admit it – we only finally got around to making a will after my second son was born, over six years after getting married. We just kept putting it off and my husband just did NOT want to talk about it and told me to handle it and he would just sign it. But getting the will done was a huge weight off my shoulders.

I get it – there is something incredibly morbid about drafting a will – but we need to face the fact that we are ALL going to die at some point. And as parents, we need to make that our children will be taken care of as best as possible if the worst were to happen and that it is OUR version of what is best,and not what someone else’s version of best, is what is done.

Picking someone to be your child(ren)’s guardian is important. Don’t put that burden on your families to have to decide (or worse, fight over). Also, making a will forces you to think about how you want your children raised over the long term and how YOU would spend your money on them. For example, you may want money left for your children to be used for private school tuition or saved for university but unless you have a will that expressly states so, your children’s guardian may decide that the best use of your money is to use it for travelling around the world. It makes you think about how you want your children to inherit (everything at 18? Some at 25?) and picking trustees and executors (if you die before your children are adults, wouldn’t you want to make sure there is someone you trust and who is smart to manage their money until they are ready?).

Its also just good to make sure you and your spouse are on the same page about what you want for your children – because realistically, its more likely that you and your spouse will die at different times (as opposed to a tragic accident killing you both at the same time). For example, I’m Catholic and it is important to me that my children are raised Catholic and attend Catholic school. My husband isn’t Catholic but he knows this is important to me and promised to continue to raise our boys Catholic if something were to happen to me.

An added benefit to making a will is it gets you to list all those assets and organize your finances in one place.

If you already have a will, it’s good to update it every few years, especially after any new children are born, you obtain a valuable asset or something happens to your appointed guardians/trustees.

3. Have an income back up plan

One of the greatest things about our house is that we have a basement apartment in it – and its a huge comfort to know that if we really need to, we can always rent it out. I think every family could do with a back up income plan – whether its an asset that can be rented (like a basement apartment or cottage) or a skill that can be put to use. This is especially important for families that have a stay-at-home parent – that parent should try to either continue with some sort of education in the field they were in before choosing to stay at home or take courses in something that interests them so that if they do suddenly need to re-enter the workforce, they will be somewhat prepared. This is good too if the stay-at-home parent simply decides they want to return to work or if the working parent can’t for whatever reason (due to job loss, illness etc).

4. Have an emergency fund – and make sure you BOTH have access to it

You should already be contributing to an emergency fund through your budget, but I wanted to reinforce the importance of one in this post too. While in theory you may be covered for all costs of losing a loved one through insurance and wills etc, sometimes the process of getting your hands on those funds may take a while – especially as you or whoever will have to navigate through it all while dealing with grief.

That is why you AND your spouse (or someone you trust if you are a single parent) NEED to have easy access to your emergency fund – money there to help you through those tough days and weeks. Make sure the account is joint and you both know how to access it.

Hopefully these plans never have to be put to the  test or at least, not before your children are grown and able to care for themselves. But I truly believe that the test of whether or not someone is a good parent isn’t excelling at the easy things – like kissing away boo-boos or serving up made from scratch organic meals or buying thoughtful presents. Its also doing the hard and unpleasant things – like taking your kids to get their shots, disciplining bad behavior and drafting plans of what to do if you or your spouse die.