For Sale by Owner in Californiaby George Devine, Robin Leonard (Editor), Linda Allison (Illustrator)
Using a broker to sell your home can cost you up to six percent of the selling price—in other words, if you sell your house for $400,000, you can lose up to $24,000.
Using a broker to sell your home can cost you up to six percent of the selling price—in other words, if you sell your house for $400,000, you can lose up to $24,000.
But you’ll save that money if you sell the house yourself—and it’s not hard to do!
Thoroughly revised and scrupulously researched, For Sale By Owner in California takes you step by step through the entire selling process, from putting the house on the market to transferring the title. Even if you choose to use an agent, this book is a great way to prepare yourself for the home-selling process. Learn how to:
*pick the best time to sell
*prepare your house for sale
*advertise widely and inexpensively
*sell while you’re buying another house
*set the sale price
*screen buyers for financial feasibility
*make all disclosures required by law
*negotiate with potential buyers
*handle multiple offers
*complete the escrow process
The 7th edition of For Sale By Owner in California reflects the most recent changes in the housing market and federal and state laws. It also provides all the forms you need, including:
*offer and counteroffer
*second mortgage note
All forms come with complete instructions for filling them out.
A note to those outside California: Even though For Sale By Owner in California provides state-specific forms and information for Californians, there’s plenty of material in the book that can help home sellers in the other 49 states as well. Don’t sell your home without it!
About the Author:
George Devine is a licensed real estate broker and a widely respected educator in the real estate field. He holds a B.A. from the University of San Francisco, and an M.A. from Marquette University, and has pursued additional studies at San Francisco State University, Seton Hall University and other academic shrines. Currently, he teaches real estate at the McLaren School of Business at the University of San Francisco, where he was named the Outstanding Adjunct Professor in 1991. For several years, George wrote the popular Real Estate Handbook column in the weekly Real Estate Guide section of the San Francisco Progress. He is the author of For Sale By Owner and co-author of How to Buy a House in California.
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Read an Excerpt
Before running to put your house on the market, let me suggest that you take the time to research the pros and cons of selling your house right now. You may conclude that now isn't the right time and that you'd be better off delaying your house sale, at least for a little while. You will rarely hear a real estate agent say this, of course, because brokers earn their commissions only when a house changes hands. Just the same, if brokers spoke frankly, most would tell you that too many people sell their homes for too little money because they sell at the wrong time or are in too much of a hurry.
Plan the Timing of Your Sale
Put bluntly, there are times when it's unwise to put a house on the real estate market. Why? Because sometimes the market is flat and getting a fair price is extremely difficult. I've seen hundreds of houses sell for considerably less than they would have had they been sold a year or two earlier or later. Indeed, in recent years, with fast changes in interest rates and consumer confidence, a few months one way or the other can mean a difference of thousands of dollars in the price of a house.
My point is simple. When it comes to selling your house, you are in the driver's seat, if you really want to be. By planning properly, you can choose a good time to sell, set a fair price and wait until you get it. Unfortunately, the reverse is also true: If you don't take the time to really understand how the real estate market works, you can lose a bundle.
Why Sell Your House?
People have many reasons for wanting to sell their house:
Job change. You can't -- or don't want to -- commute to your new job from your old house.
Personal status or lifestyle change. You get married or divorced, move in with someone (or someone moves in with you), you have a new child, your daughter leaves for college, your spouse dies, your health argues against continuing to live in a house with stairs or in a city with very cold weather, or you've always wanted to try living in Hawaii.
Investment or lifestyle upgrade. You're selling your existing home to move up to a nicer one. Your old house isn't that bad, but now you can afford something you like more -- because it's bigger, closer to work, in a better neighborhood or school district; has a pool; is a better investment; or provides something else that's important to you.
Financial needs. You can't afford the mortgage payments. This doesn't necessarily mean you're headed for foreclosure or bankruptcy, but it does mean that an unreasonable share of your income is going towards housing payments, and you have other priorities -- like paying your other bills and having cash to spare, taking trips or helping your children go through college or buy homes of their own. You'd like to live in a place that costs you less per month, or where the cash you take out of selling a more expensive one can make a real difference in the quality of your life.
While some reasons are more urgent than others, many situations clearly fit into "the sale can wait if it needs to" category. This doesn't mean your family isn't cramped since the new baby was born or that it might be better for your health or pocketbook to move. But it does mean that selling your house next week, or even next month, isn't essential if by doing so you are not likely to get the best price. Also, remember that it's often unwise to make major moves or decisions within at least a year or so of a serious emotional shock -- for example, a sudden death in the family, divorce or job loss -- providing the move can possibly be avoided or deferred.
Another way to think about time pressure when it comes to selling a house is to follow one of the basic axioms of the real estate business: A seller who is under abnormal pressure to act almost always accepts too little. If all considerations are equal, here's some advice on whether to sell your house now or wait.
The Best and Worst Times to Sell a House
Below are several situations that can help you determine the best and worst times to sell your house. You may think most of this is obvious, but I urge you to slow down and think it through. Large numbers of otherwise intelligent people make serious errors when it comes to timing the sale of their houses.
1. When mortgage interest rates are low, the pool of potential buyers goes up. This is especially true because many people have been priced out of the market in the past because of high interest rates and have been anxiously awaiting their drop. Thus, even a relatively small decrease in interest rates may mean a huge increase in the number of people who qualify to buy your house. (See Chapter 8 for more on qualifying a buyer.)
2. When the economic climate of your region is healthy, a lot of people feel confident about the future and the pool of potential buyers widens. As we start the 21st century, investment continues to be strong in California, particularly coming from Asia and the eastern United States. In a regional economic slump, on the other hand, it's often best to hold on to your home until conditions improve. Especially in California, no downturn ever seems to last very long.
3. At times when your area is considered especially attractive for any number of reasons, the pool of buyers widens and prices go up. If considerably more people are looking to buy than are looking to sell in a particular geographic area -- for example, if a major local employer moves in -- this is considered a "hot" or seller's market. Prices tend to rise (often quickly) and buyers must bid competitively. For example, San Diego was "discovered" in the early 1990s, and many people wanting to move to Los Angeles, but finding it too costly, have moved south to a less expensive area.
In contrast, a "cold" or buyer's market is one where prices are dropping; there are many houses for sale and few buyers. Sellers must frequently court buyers by lowering prices and offering innovative financing packages that often include the seller taking back a second mortgage. (See Chapter 8.) In a "lukewarm" housing market prices are relatively stable.
The popularity of geographic areas, cities and neighborhoods can change quickly for all sorts of reasons. For example, Sacramento and a number of other cities in California's Central Valley and foothills are far more popular now than they were just a few years ago, but less of a bargain -- due to rising prices -- than they once were. And of course, significant changes in the desirability of particular areas can and do happen at the neighborhood level. Recently, for example, a number of older neighborhoods in cities such as San Francisco, Los Angeles, Berkeley, Stockton, Sacramento, San Diego, Oakland and San Jose have become very desirable, and home prices have increased, sometimes dramatically. This is especially true of single-family homes of wood-frame construction that are on rocky soil and have survived well in California's recent earthquakes. On the other hand, since the 1991 East Bay fire, buyers have been wary of homes in the Oakland and Berkeley hills unless they are sure reasonable fire safety measures have been taken.
My point is that you should do some strategic thinking of your own. There are many ways that your area might become more desirable: The large, loud and filthy refinery nearby is about to close; new restaurants and retailers are moving in; public transportation systems are improving dramatically. Check your local planning department for other upcoming changes. If you conclude that better times are just around the corner in your area or neighborhood, hold off your house sale if you can.
4. Certain times of the year are better than others. At the times of the year when most people are apt to make a move, prices usually increase, sometimes significantly. Two generalizations apply:
- Spring and summer are traditionally good times to sell. House prices usually jump in the spring, absent some major external factor such as a recession. Families with children are anxious to buy so they can move during summer vacation, before the new school year.
- From mid-November through mid-January, the market is slow and the pool of people wanting to move begins to shrink. Most people don't think about buying a house during the holiday season.
Selling One House and Buying Another
If you plan to sell your home and buy another, questions of timing inevitably arise. Is it better to sell your old house before buying a new one? Or should you focus primarily on buying, even if it means that you may have to sell your present house quickly to close on the new one?
If you're not buying another house, you can skip this section. Also, homeowners looking to sell who can afford to own two houses at once (even if for just a short period), don't need to worry about perfectly timing their purchase and sale transactions, and can go on to Section E.
If you sell first, you'll be under time pressure to find another house quickly. This is stressful, and rarely results in your finding a truly good new house at a reasonable price. Even if you do find a great house, you're likely to overpay in an anxious effort not to lose out to another purchaser.
On the other hand, buying a new house first and then scrambling to sell your old one is no fun either -- especially if you're trading up substantially and need to sell your old house for top dollar to make the down payment on the new one. Selling a house fast and getting the best possible price are normally mutually exclusive concepts. Too often, you're under time constraints to close on the new house, and will accept a lower than optimum price on your old house in order to make a quick sale.
Here are some constructive steps to minimize the psychological and financial downsides of selling one house while buying another.
1. Check the Housing Market Carefully
Before you put your house on the market or commit to buying a new one, carefully investigate the selling prices of houses in the areas where you'll be selling and buying. It's essential that you have a realistic idea of how much you'll get for your house, and how much you'll pay for the one you buy, as part of developing a strategy to sell high and buy low. (See Chapter 5 for more information on accurately pricing a house.)
If, after investigating prices, you decide to go ahead and buy a new house, you next must focus on whether the market is "hot" (favors sellers) or "cold" (favors buyers). Judging the relative temperature of the market is important to buyers and sellers, and is crucial for people who are both. Your dual position lets you adopt a strategy of protecting yourself in your weaker role while letting your stronger role take care of itself.
a. Strategies in a Seller's Market
If sellers have the advantage in the communities where you both now own and plan to buy, it follows that selling your current house will likely be easier than buying a new one. Thus, you want to compete aggressively in purchasing a new house, while insisting on maximum flexibility as to the date you move out of your present house.
You can guarantee yourself this leeway by stipulating that the sale of your current house be contingent upon your finding and closing on a new one. When a buyer makes an offer on your house, include a provision spelling this out in your written counteroffer. Although few buyers will agree to an open-ended period, some will be so anxious to buy your house that they'll agree to delay the closing until you close on a new house or until a certain number of days pass, whichever comes first. (See Chapters 9 and 10 for more on offers and counteroffers.)
b. Strategies in a Buyer's Market
In a buyer's market, where sellers outnumber buyers who can afford to purchase houses, you're in a stronger position as a buyer than as a seller. Consider protecting yourself by making your offer to buy a new house contingent upon your selling your current one. A seller having a hard time finding a buyer is likely to accept this contingency, even though it means waiting for you to find a buyer.
2. Bridge Financing: How to Own Two Houses Briefly
Unfortunately, no matter how carefully you time things, you may not perfectly dovetail the sale of one house with the purchase of another. You may own no houses, in which case you'll have money in the bank and will need a temporary place to live, or you may own two houses at once. The following suggestions should help you pull this off:
Raise as much money as possible to put toward the down payment on a new house. Most people have some money saved to combine with the profit from the sale of an existing house to make the down payment on the new one. If your savings, without the sale, put the second house within reach, maximize your cash by charging living expenses, getting an advance from your employer or selling personal possessions you no longer need. Although the interest on credit cards is high, you'll be able to pay bills off promptly when your existing house sells. If you raise a good amount of money this way, consider combining it with the next option.
Borrow down payment money from family or friends. Point out that you need help for only a short period and offer a competitive interest rate. Keep in mind that it's easier to borrow short-term money than to borrow a large sum for 20 or 30 years. If, for example, your parents have money put aside for retirement or your sister is saving to take a year off from work, either may be willing to tap savings to help you for the short time it will take to buy one house and sell another.
If you follow this approach, give the lender a promissory note, secured by a second mortgage (deed of trust) on your new house. This arrangement can often mean no monthly payments are due until your first house sells and thus no negative effect on your debt-to-income ratio. (See Chapter 8, Section D, for more on second mortgages.)
Get a bridge loan from a financial institution. If you have no other choice, you can normally borrow money from a financial institution to "bridge" the period between when you close on your new house and when you get your money from the sale of your old one. This simply amounts to getting a short-term home equity loan on your existing house, using it toward the down payment and closing costs on your new house and repaying it when your first house sells.
We say "no other choice" because bridge loans can be very expensive. Interest rates are generally a couple of percentage points above the prime rate, and the loan lasts only a month or so. Lenders often charge a host of up-front points or fees for credit checks, appraisals, loan originations and physical inspections. These charges can total up to 5% to 15% of the amount borrowed. On $50,000, that's $2,500 to $7,500. This wouldn't be unreasonable if you needed the money for a long time and spread the cost over many years. It's very expensive, however, if you need money for only a few months.
Benefits of Timing Your House Sale
Here are a few examples of how timing the sale of your house can increase or decrease your profit.
1. Jon and Penny Timed a Job-Related Sale to Their Benefit
Jon was transferred by his company to Eureka in the middle of November. His new job was a thousand miles away from his current job in San Diego. Jon and his wife Penny realized that houses often sell for less in the winter and thought that because the economy was stagnant, interest rates were likely to fall in the spring. They guessed that their house might go for $15,000 to $20,000 more in May or June and they also didn't want their kids' schooling interrupted. Accordingly, Jon and Penny decided to try to put off the sale as long as possible. Fortunately, when Jon explained the problem, his employer was willing to help, including putting him up in a company-owned condominium in Eureka for very reasonable rent, and agreeing to pay for his airfare to visit his family in San Diego on alternate weekends. This not only allowed Jon and Penny time to pick out a home in Eureka, but also let them wait until March to put their existing home on the market. When their house sold in April, with a June closing, Jon and Penny got a very good price. Although not everyone has an employer as cooperative as Jon's, your boss may be willing to help take some pressure off you.
2. Ann Minimized the Financial Trauma of Sudden Widowhood
Ann was widowed suddenly. Her first impulse was to sell the home she and her husband had lived in for many years. "I had to get away from the memories," she said. Ann talked to a good personal counselor and learned that it is usually a mistake to make a major decision like the sale of a house within so short a time of such a shock. Her counselor even showed her one of several studies indicating that human beings' decision making abilities seem to be short-circuited by grief and shock for at least a year -- often two. Nonetheless, Ann felt that living in her house was too much to bear. After checking with her tax advisor concerning the timing of her transaction, Ann rented her home to a friend's son and lived elsewhere for several months. Then, when she was ready to cope with business details, she sold the house and got at least $20,000 more than she would have had she sold immediately after her husband's death.
3. Fred Saved $50,000 by Waiting Patiently
When Fred purchased a larger house and sold his old one, he realized immediately that he wasn't under time pressure to sell. Accordingly, the first thing he did was work out his finances so that he had enough money to close on the new house without selling the old one immediately. This involved arranging a short-term loan from a friend. When Fred did find the house he wanted to buy, it was priced fairly, but at least $30,000 more than he could afford.
When Fred got friendly with the seller, he learned that she was extremely anxious to sell quickly so as to avoid losing a deal to purchase her custom-built dream house. As it was just after Christmas and houses weren't selling, Fred decided to make what he thought was a ridiculously low offer. As soon as the seller saw that he had the money and that his offer was not contingent on selling another house, she accepted. Fred held on to his old house for three months and priced it $15,000 more than was suggested to him, which was at least $20,000 over the current market. He figured that since he wasn't in a hurry, why not test the market for a while and hope that a little spring sunshine would cause a general price increase? The happy result was that Fred's house sold for his asking price at his first open house.
In short, by planning ahead, Fred estimated that he made about $50,000 more than he would have had he not used timing to his advantage.
4. Paul's Impatience Cost Him Thousands of Dollars
Paul wanted to move to a bigger, more expensive house. He had a nonassumable loan at a low interest rate on his existing house. Unfortunately at the time Paul wanted to move, interest rates were exceedingly high. This meant relatively few people could afford to buy his home, even though it was a desirable one. Paul couldn't afford to lend the money to a buyer through a second mortgage, because he needed as much cash as possible in order to buy the new house. Although Paul was warned to be cautious, he was impatient and committed himself to buying the new house, putting down a substantial nonrefundable deposit. When his existing house wouldn't sell at a decent price, Paul became desperate. He sold his house to a buyer who could pay cash even though the offer was for 15% less than a conservative appraiser had told Paul the property was worth. If Paul had continued to live in his house until the market improved, he could surely have sold for at least $10,000 more.
Meet the Author
George Devine is a licensed real estate broker and a widely respected educator in the real estate field. He holds a B.A. from the University of San Francisco, and an M.A. from Marquette University, and has pursued additional studies at San Francisco State University, Seton Hall University, Fordham University, New York University, the University of California at Berkeley and other academic institutions. Currently, he teaches real estate at the McLaren School of Business at the University of San Francisco, where he was named the Outstanding Adjunct Professor. For several years, George wrote the popular "Real Estate Handbook" column in the weekly Real Estate Guide section of the San Francisco Progress. He is the author of For Sale By Owner in California and co-author of How to Buy a House in California.
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