April 18, 2004, Sunday NY Times


Moving On: A Home Seller's Primer


SELLING a home is -- for the most part -- simpler than buying.

All sellers have to do is get through the often emotionally evocative decision to leave their home, find an assuring broker (or not), choose a worthy buyer, sign a legally sound pre-sale contract and get through the eventual closing.

Then move, if they haven't already.

And all that, real estate veterans say, is the less-complicated side of the equation.

''On the seller's side, fewer decisions need to be made,'' said Michael Schill, head of New York University Law School's Furman Center for Real Estate and Urban Policy. ''Basically, what the seller wants after the closing is a certified check and never to hear from the buyer again.''

And to be free of worries, the seller must, essentially, do two things. ''First, tell the truth so that you don't get sued for fraud, which could lead to a recision of the contract; you are required by law to be honest,'' Professor Schill said. ''Second, do everything necessary to get to the closing smoothly.''

The devil, of course, is in the details.

To 'FSBO' or Not to 'FSBO'

Your first decision is whether to sell the house yourself or to hire a broker. Selling by yourself is called ''FSBO'' (pronounced fizbo) -- for sale by owner. ''If you go FSBO,'' said Robert Campbell, a real estate finance professor at Hofstra University, ''the primary benefit is that you don't pay a broker's fee, and that's substantial'' -- traditionally 6 percent of the sale price.

But there are disadvantages to selling by yourself:

Pricing uncertainty. Brokers provide price information from recent ''comparable'' sales. When you sell the house yourself, it is possible to ask for too much, discouraging buyers, or too little, cheating yourself.

Time constraints. ''FSBO is time-consuming,'' Dr. Campbell said. ''You have to write advertisements, show the house, answer inquiries, screen people.''

Legal pitfalls. There are legal requirements that brokers usually handle, so you will probably need to hire a lawyer to do more than represent you at the closing. While various books, Web sites and services are available to guide you through a FSBO transaction, selling a home is a complex legal process.

Contract agreements have to be written. These include contingencies -- conditions under which either party can back out of the deal. Determining mortgage availability is one such contingency, because it dictates the ability of most buyers to close by a certain date. Another that can be crucial is under what circumstances defects found in the house -- most buyers hire an inspector to check the property for defects -- allow a potential buyer to back out of a deal.

New York and Connecticut, but not New Jersey, have laws requiring sellers to disclose property defects they know about. ''It's another form the broker usually does for you,'' Dr. Campbell said.

Matchmaking inefficiency. Brokers know how to screen for those buyers most likely to want the property, and be able to afford it. Bad screening can lead to serious wastes of time. In a FSBO deal, said Chris Mayer, director of the Milstein Center for Real Estate at Columbia University, sellers run the risk that they will ''only get buyers who are looking for a discount.'' Many buyers only want to look at houses through a broker because they don't have time to search for FSBO houses. ''And those are the best buyers,'' Dr. Mayer said, ''less patient, often from out of town, and, therefore, ready to pay higher prices.''

Despite these considerations, between 10 and 15 percent of home sales nationally are conducted on a FSBO basis, according to the National Association of Realtors. Some are sold to family members, others to friends or neighbors. In other cases, given the run-up in housing prices in recent decades, homeowners have made the calculation that saving a commission -- a typical 6 percent commission on a $500,000 home would be $30,000 -- is worth the effort.

Robert Irwin, author of ''Sell Your Home and Save Thousands on the Commission,'' (Wiley, 2004), pointed out that there are Web sites, including owners.com and fsbo.com, ''where, rather than buyers taking your phone number from the sign out front, they can go to your Web site and see photos of your home, a complete description, a list of comparable sales and the schools and crime statistics for the area.''

''So when they contact you,'' Mr. Wiley said, ''they are primed to see your house.''

Going for a Broker

There are a number of guideposts to follow in selecting a broker:

Find brokerage firms with experience in your neighborhood. ''In the suburbs, the simplest way is to look at 'for sale' signs,'' said Jonathan Miller, president of the Miller Samuel appraisal company. ''For apartments, look at Web presence and the classifieds.''

Interview at least three brokers. Get recommendations from friends. Follow your intuition. ''People must feel comfortable with their broker,'' said Pamela Liebman, chief executive of the Corcoran Group. If you have a bad feeling, don't sign an agreement.

The broker's agreement is not etched in stone. ''Most brokers want the standard 6 percent commission, but it's entirely negotiable,'' Professor Schill at N.Y.U. said, ''particularly if the broker is also representing you in buying a new home. In that case, he may get two commissions and you certainly can bargain for a lower commission.''

Dr. Campbell at Hofstra said: ''You can play brokers against one another. Higher-priced houses, let's say more than $700,000, you should be able to negotiate a reduced broker's fee. In Manhattan, that doesn't even sound like a lot, but the same principle applies. Lower-priced houses, it's more difficult.''

The term of the agreement should be long enough to allow the broker to make a sufficient sales effort, but not too long so you will be locked into a bad relationship. Three to six months is usual.

The agreement should specify a minimum level of effort by the broker; how many advertisements, open houses.

Be aware that the bottom line for you and your broker may diverge. For example, in a deal in which there are two brokerage concerns -- one representing the buyer and another the seller -- the agency representing you typically gets half of that 6 percent commission, with the individual agent receiving half of that. ''Brokers' incentives are for a quick sale, as opposed to getting the last, best dollar on your house,'' Dr. Mayer at Columbia said. ''So you need to be involved in pricing decisions, because you get 94 cents of the last dollar, and the selling broker only keeps 1 1/2 cents.''

The rest of the usual 6 percent commission goes to the brokerage firm and buyer's broker. ''If the seller's broker waits and gets you another $10,000,'' Dr. Mayer said, ''they collect only $150 of the $10,000. So their incentive is to do things quickly. That's why a seller needs to be involved in the pricing decision.''

When using a broker, make sure the house is included in the local multiple-listing service for maximum exposure and to encourage multiple bids.

After going on the market, wait at least through the first weekend before accepting an offer to make sure a number of buyers have seen your house.

The Right Price

Act like a buyer and look at homes for sale in your community. That is what actual buyers are going to do when deciding to bid on your home.

Ask at least three brokerage firms to provide market analyses of your neighborhood, including recent comparable sales.

In the suburbs, drive by every property listed in the broker's analysis. You want a sense of where your property falls within the current competition.

As a benchmark, compare prices per square foot. ''If a listing has a higher price per square foot than another of similar size,'' said Mr. Miller, the appraiser, ''the question is: Why?'' Is it the home's condition? A three-bedroom or a four-bedroom? The size and usability of the lot? A quiet street? A higher floor; better view? In a co-op or condo, are the maintenance charges higher (that would bring the value down)?

Check how long a ''comparable'' has been on the market; more than three months means it's probably overpriced. And make sure the comparables are recent. ''The price may have been agreed upon six or nine months earlier,'' Dr. Mayer said. ''Since prices have risen across the country by 5 to 10 percent in the last year, using old sale prices can cause people to underprice their houses.''

After finding a comfort level on your home's range of value, consider how much above that value your list price should be. The further your list price from your comfortable selling value, the longer it will likely take to sell. ''If you objectively think the house is worth $500,000 and decide to list at $750,000, rather than $550,000,'' Mr. Miller said, ''you increase your chances of selling at less than $500,000 because the listing will get stale and brokers will view you as a difficult seller and won't show the property as much.''

Be wary of brokers overestimating your home's price to lure you into hiring them, or underestimating the value to make a quick sale.

Taking a less conventional tack, Ms. Liebman at the Corcoran Group suggested: ''Intentionally underprice. If you create a buying frenzy, you will have the property that everybody will hate to lose.''

If you do not get an offer in the first two weeks, lower the price.

Sometimes the first buyer is the best buyer. ''They've been waiting, rushed over to see your house and are prepared to act quickly,'' Ms. Liebman said.

Most sellers are also imminent buyers. ''In many markets today there is very little inventory,'' Dr. Mayer pointed out. ''So just worrying about getting the highest price should be traded off against the difficulty of finding a house once you sell.''

First Impression Counts

''When you advertise an apartment, if you say it's in mint condition, mean it,'' Ms. Liebman said. ''Buyers feel misled when the condition of the home is exaggerated.''

Curb appeal is important. ''I've seen houses for sale where the grass is over your ankles and the weeds are higher than your knees,'' Dr. Campbell said. ''Hire a gardener.''

''Probably the best investment you can make,'' said Thomas McAteer, managing director of Cooper Square Realty in Manhattan, ''is $100 or so on a real good cleaning.''

Paint helps.

Kitchens and bathrooms have a major impact on price. Clean the tiles and, if necessary, regrout them. If your countertop is chipped, a new countertop can make a kitchen seem renovated without spending a lot.

It is a common mistake, however, to make extensive improvements -- new kitchens, bathrooms, wall-to-wall carpeting. Deals have been scotched because of improvements and decor not to the buyer's taste. ''Realtors aren't feng shui specialists, nor should they be,'' Mr. McAteer said.

The roof must not leak! ''Internal stains are deadly to the deal,'' Dr. Campbell said. ''It doesn't matter if you've fixed the leak, you don't want the stain there. It raises doubts.''

Anything moldy or smelly can kill the deal. ''Stop smoking,'' Professor Schill said -- at least for a while before the showings. ''Some buyers will smell it and no longer want to purchase.''

Make sure pet smells are eliminated. ''Baking some cookies before a showing is not a bad idea,'' Mr. McAteer said.

In a smaller home, oversized furniture crowds out buyers. Well-placed mirrors can create a sense of spaciousness.

''Declutter your home, if there is such a word,'' Ms. Liebman said, and depersonalize it. ''That great picture your 4-year-old brought home from school may be cute, but take it down,'' she said. ''Buyers like to visualize their own lives in the home.''

Declutter, yes, but never show an empty house; it tells buyers you are desperate.

Hire Your Own Inspector

Most sellers leave it to the buyer to hire an inspector to find defects. Colin Albert, president of Aces Home Inspection Services in Brooklyn and an official of the American Society of Home Inspectors, suggests that the seller hire an inspector and then eliminate defects before going on the market. ''The more items you correct, the fewer the buyer's inspector will find,'' Mr. Albert said. ''You may have an old boiler. So when a buyer's inspector comes and questions the boiler's life expectancy, you can show a document that you had it checked and it doesn't have to be replaced right now.''

Once the seller has the house inspected, the price can take into account the cost of repairs.

The cost of an inspection for an average house should be $300 to $600, Mr. Albert said. ''If it's a mansion, could be $1,000.''

The Right Buyer

These days, with inventory in the New York area quite constricted, the seller is usually in a commanding position. ''So putting a property on the market means your issues are less related to attracting buyers than with maximizing the price,'' said Keith Gumbinger, vice president of HSH Associates, a mortgage research company in Pompton Plains, N.J., ''and, of course, making the transaction go as smoothly as possible.''

Besides the highest price, your greatest concern should be whether the buyer is assured of financing. You may choose to only look at bids from buyers who have been preapproved; those who have started the mortgage process and received a preapproval letter from a lender establishing how large a loan they will get.

Make sure that you get a significant deposit; this will give the buyer an incentive to go through with the deal. A typical deposit is 10 percent of the sale price.

Because you are likely in the driver's seat, you can discern which offer carries the least number of contingencies and which bidder is most likely to mesh with your move-out strategy.

You will have to decide how to deal with repairs and improvements. ''For example, a buyer makes a bid with a preapproval, but the bid is contingent on the home passing certain inspections: whether the septic system is operating, the roof leaks,'' Mr. Gumbinger said. ''You may say, 'It's as is and that's it.' Or you may negotiate whether you are going to pay for repairs, or 'I'll take a bit off the price,' or 'I'm not going to do that; do you want the deal or not?' ''

The Board Hurdle

The process becomes more complicated for a co-op or a condo.

''There is an inviolate rule of thumb for co-op and condo board application packages,'' said Stuart M. Saft, chairman of the Council of New York Cooperatives and Condominiums. ''Boards will not review a buyer's application or interview the candidate until all of the application's requirements are met, all its questions answered.''

Because of substantial price increases in recent years, co-op boards have become very concerned about the creditworthiness of potential buyers and, especially, of anyone financing a substantial part of the purchase price. Make sure the numbers add up.

Since it can take two to three months for buyers to organize their packages and be interviewed by the board, sellers might want to accept a slightly lower price from someone not financing the deal.

Many condo boards now require buyer screening as stringent as co-op boards, so condo sellers should also be concerned about the creditworthiness of potential buyers.

The contract of sale should contain a representation that the buyer has been advised of the board's requirements and rules. For instance, if the building does not allow dogs or, perhaps, subletting, the contract should spell that out.

Obtain a copy of the last financial statement of the co-op or condo corporation, and if there is anything unusual about it, or about the building's operations, inform the buyer.

Your broker should examine the buyer's application carefully before it is submitted to the board. ''Everyone complains about how long the process takes,'' Mr. Saft said, ''but more time is lost because of incomplete applications than anything else.''

Among the ironclad rules for applications: Make sure the buyer really knows the people listed as references. Approvals have been denied for even smaller fabrications. And make sure the application does not contain a photograph of the applicants, which could lead to a suit for discrimination if the buyer is rejected.

In order to close, a co-op seller must return the apartment's original stock certificate and proprietary lease to the corporation. If the apartment has been financed, the seller's lender will likely have the stock certificate and lease in its possession.

Legal Considerations

Sellers as well as buyers need a lawyer. ''A lawyer will make sure the contract is binding, and will protect you from doing things that could get you into trouble down the road,'' Professor Schill said.

The first thing your lawyer will do is confirm that you are the true owner. ''It may be an elderly brother and sister who lived in the house or the co-op, and one passes on,'' said Roger Pierro Jr., a real estate lawyer in Queens. ''It may be that the survivor did not inherit the deceased owner's share.'' If it's a house or a condo, your lawyer will want to see the deed; for a co-op, you must produce the stock certificate and proprietary lease.

Your lawyer must determine the status of your debt on the property. If your mortgage has been paid off, you must produce the Satisfaction of Mortgage, a legal document received from your lender. It must be recorded by the buyer's title company before or at the closing. For a co-op loan, the document is called a UCC-3 Termination Statement.

If you are selling a house, your lawyer will ask if you've made structural modifications: extensions, a garage conversion. That is because the certificate of occupancy on file with your locality must accurately reflect the house's current structure. Otherwise, closing may be delayed while you are forced to hire an architect to legalize the modification and update the certificate of occupancy. ''The C. of O. should have been updated at the time of the modification,'' Mr. Pierro said. ''If it wasn't, doing it now can be costly when you're looking to sell.''

Similar problems can arise if you don't have certificates for structural work, like plumbing or rewiring, registered with the local government.

If you make a mistake in the contract of sale with respect to a representation about the property and the buyer finds out about the mistake before closing and the mistake is material -- meaning significant -- the buyer will not be required to close the deal.

Stipulate in the contract that the buyer cannot receive damages against you as a remedy in case, for some unforeseen reason, you are unable to convey the property. ''The only remedy that the buyer should be able to get,'' Professor Schill said, ''is a return of the deposit or a ruling by a court that the seller must go through with the transaction because he breached the contract.''

Pay attention to the tax consequences of the sale. ''Typically,'' Professor Schill said, ''a couple who have used a home as their primary residence for two of the previous five years is able to exclude from their income taxes $500,000 of capital gains. So it is important to make sure before you sell your property that you meet these requirements: two years and primary residence.''

The Moving Do-si-do

Spring is traditionally considered the best time to sell, in part because the closing can occur in time for the new school year. ''The worst times to try and sell are summer and around Christmas, when people have other things on their minds,'' Professor Schill said.

You need an exit strategy. Are you buying another home? Moving out of state? The contract must be timed to your moving plan. Normally, deals take 60 to 90 days from contract to closing. With co-ops it may take longer, because of the board approval.

With inventory limited these days, Dr. Mayer said, ''Sellers might be better served to think about buying first, realizing that selling in this market is sometimes easier than buying.''

Dr. Campbell pointed out, however, ''If you buy before you sell, you may have to pay interest on two mortgages for some period of time; or, you may have difficulty getting the mortgage on your new house because the old house hasn't been sold yet.'' You can protect yourself by getting a bridge loan, usually from a commercial bank -- that is, a loan that ends as soon as the long-term mortgage on your new home begins.

Sometimes the ability to meet the move-in needs of your buyer can make or break the deal.

On the other hand, if you ask the person selling you your new house to wait until you close on your old house, it may be more difficult to negotiate with that seller.

A note of caution from Dr. Campbell: ''It is dangerous to allow the buyer to move into your house prior to closing. If for any reason the closing doesn't happen, this fellow becomes the camel who sticks his head in the tent and says, 'Can I just get my head out of the rain?' And before you know it, it's his neck, his shoulders and the camel is filling up the tent while you're sleeping in the rain.''

Published: 04 - 18 - 2004 , Late Edition - Final , Section 11 , Column 2 , Page