Can’t swing that new house because you don’t have enough equity in the house you already own?
If you currently find yourself in this situation, don’t worry you’re not alone. Statistics show that just over 10% of all homeowners either owes what their house is worth on their existing mortgage or they’re underwater. This is not only a problem for twenty-five million homeowners across the nation, but it’s a problem for the real estate industry and the economy.
You see first time homebuyers are beginning to feel more comfortable entering the market and the high end market (over $1 million) has been showing strength for some time now, but the move-up market continues to lag behind. When you hear that there’s a lack of inventory, that’s because the move-up buyers aren’t moving.
So what’s the answer to fixing your equity problem?
As I see it, there are two options to consider before giving up or just depleting your savings to make it happen.
- Try selling your current home on your own and avoid the commission altogether.
- Hire a real estate agent/broker that understands your situation as well as the current economy and can offer solutions to the traditional 5%-6% commission.
Now I’ll be the first to tell you that selling your home on your own isn’t always the easiest thing to do and not everyone has the temperament or patience to do it, but it’s not impossible with the right game plan. In fact, a recently published report at Owners.com lists Philadelphia at number five on their top twenty FSBO markets across the country. See the article on HousingWire.com.
If you decide to give it a shot on your own, make sure that you’re well prepared. Price the house to sell, declutter and don’t take it personally. Not everyone is going to love your house, so don’t get offended or too emotional. Also, be prepared for every real estate agent who solicits your neighborhood to call or stop by and try to convince you that you can’t do it without them. Do your research by visiting online resources such as ClosingMonster.com where you'll find FSBO services and tips on marketing your home: For Sale By Owner: A Step by Step Guide to Selling Your Home.
The second alternative might be the answer if you’re not up to the challenge of selling the house on your own, but you need to keep the costs low to make the move possible.
If you have one house to sell and will be buying another using the same real estate agent, get them to discount their side of the commission. Now this suggestion is like kryptonite to real estate brokers and agents, but here in the real world it’s just considered smart business and we work with some savvy real estate professionals who do it all of the time.
We recently handled a closing for a couple selling their house who needed to bring $6,000 to the closing table in order to sell their house, because they had very little equity. They paid off their mortgage, paid the buyer’s agent a generous $7,625 commission and their portion of the real estate transfer tax. Their agent (the listing agent) did not take a commission. When the closing was over, I asked the agent if she was related to the sellers. She said no and when I asked why she wasn’t paid a commission, she explained that the young couple couldn’t afford it. They needed the money that she would have charged them in commission to purchase their next home or they would not have been able to move.
By waiving her portion of the commission they were able to sell their home and buy a $450,000 home. She went on to explain that she met this couple at an open-house where they told her that they didn’t think that they could move because they met with more than five other agents who suggested that in order to sell their existing house they would need to borrow money from family, their 401k or just wait until values increased. Not one of the agents could see the “big picture,” that by waiving one commission they would be rewarded with a larger commission on the buy side. Their agent earned a $12,000 commission and two new buyer referrals from her very appreciative customers.
Although many times people who aren’t very familiar with the process aren’t sure who to turn to for advice when it comes to real estate and mortgages. Your mom’s neighbor’s daughter who just passed her real estate exam might not be the answer. We believe that independent title insurance companies are a great resource for helping you put the right team in place. Because we are the coordinator of the entire transaction we have to be experts in all phases of the transaction. An experienced real estate or mortgage professional might close 3-6 transactions a month, while an experienced independent title/settlement company will close 60-100 transactions each month. We witness both the good and the bad and can provide you with a list of competent real estate professionals that are worth considering, and conversely tell you who to avoid.
Bottom line… If money is tight and selling your house on your own isn’t the right answer for you, there are other options. Studies say that everyone knows three to four real estate agents. Whether or not it’s one of the four, keep looking until you find the right one.