Staying Cool in a Hot Market!
Part II of II: The Most Common Errors a Seller Makes when Selling a Home
This article is the second part of a two-part series regarding the sale of your home. Click HERE to read the first part and get a brief overview of the sale process. Below, we address some of the more specific errors and problems that are all too commonly made by sellers, and which you can easily prevent. We list them in the order that they are most likely to occur.
- 1. Get your Attorney Involved on Day One!
If you have a lawyer already, then you should feel comfortable calling him/her and telling her that you are going to sell your home. If you do not have a lawyer, find one. Your best source for a referral is friends and family, work colleagues, etc. Blind internet searches also work, but be sure to check out the client reviews: whether they are positive or negative, and especially whether they appear to be authentic. Ask the attorney for an initial face-to-face meeting. You’ll find that it costs you nothing – zero – to make that first call, and you have no further obligation unless you want to continue the arrangement. Most lawyers will also provide a free initial consultation, and this is the best way for you to learn whether he or she is a good fit for you and what the costs will be, step by step.
The benefit of calling your attorney first is that he or she may have some great personal advice to give that goes outside the traditional scope of legal representation (reviewing contracts, drafting deeds, etc.). He or she can refer you to good local realtors, cleaning or moving companies, and other great resources. It will also give your attorney advance notice so that she is certain her future schedule will be able to accommodate your needs.
- 2. Have your Attorney Review any Contracts with Realtors
I often get asked whether it is worth it to hire a realtor to sell one’s house. There is no correct answer to this, although a good realtor is almost always a worthwhile service. Generally speaking, statistics show that realtors get higher prices for properties than owners on their own, and the good ones have a knack for knowing what kinds of properties are selling well in which neighborhoods. Then again, realtors charge a commission of anywhere from 3% to 7% of the purchase price. (The customary commission is usually around 5%.) More importantly, a realtor will take over the tasks of showing the property to prospective buyers and handling some of the preparations for closing, as described below.
When hiring a broker, get the same references as you did for your attorney. Most importantly, READ THE LISTING AGREEMENT, and have your attorney review it for you, BEFORE you sign it. This is an important legal contract between you and the realtor’s office, and it sets forth what services the realtor will perform and at what cost to you. It fascinates me how some people will not hesitate to sign a realtor’s listing agreement, costing them $25,000 to sell their $500,000 house, yet they do not think to pay a lawyer about $200, at most, to first review it for them. (See Rule No. 1, above!)
Before you sign that contract, ask yourself what, exactly, is the realtor going to do for that $25,000? Will he put an ad in the newspaper? Will he accompany prospective buyers in and out of the house? Will he draft the sale documents? Will he organize and schedule an inspection of the house with the Fire Department? If you are selling a condominium unit, will he handle all communications with the condominium manager, and will he obtain copies of all the governing documents and budget for the condominium and deliver them to prospective buyers? These are all very time-consuming tasks. The more the realtor does for his commission, the more valuable the deal is for you and the less you will have to pay other professionals.
Take this example: I once represented a buyer who offered $1.9 million for a fully renovated farmhouse in Newton, MA, without getting a mortgage (a seller’s dream!). After the home inspection, there were several very small construction issues which the buyer wanted fixed prior to closing, and he asked the listing broker to please go through the house with him so that he could point these out. The broker told him that those were “matters for the lawyers to handle,” meaning that he could not be bothered to walk through the house with the buyer. He also stated that he would not draft or assist in any initial paperwork, such as the purchase and sale agreement. The seller instead had to pay her attorney to handle these preliminary matters – while still paying her broker a commission of $99,000!
Don’t get too concerned: most realtors here in Melrose and the surrounding area are excellent and will perform all of the above services as part of their commission, but you must make certain of this before signing the listing agreement. If they do not agree to help you with these things, find a new broker who will, or negotiate a different commission. Your attorney can help you with this.
- 3. Have your Attorney Review the Offer before you Sign it.
This is probably the most common error I come across. Each time I get a call from a client who is selling his or her home, the first advice I give is, “Don’t sign anything until I see it first.” The Offer, sometimes called the Contract to Purchase, is just that – it is a legally binding contract that contains the basic terms of the sale. Although the more specific details of the transaction are set forth later in the purchase and sale agreement, any terms contained in the accepted (signed) Offer are set in stone, unless the buyer agrees to change them.
- 4. Create Your Own Timeline.
When entertaining any offers from buyers, or when you hire your realtor, let them know YOUR timeline. Oftentimes, buyers and their agents like to rush the transaction through, within four weeks or even less, and they leave an offer open for you to consider for only 24 hours – giving you very little time to review it with your attorney. If this meets with your approval, great; but if you want time to fully review the offer, tell them ahead of time: “Any offers must be kept open for __ business days” (fill in your own blank). The same goes for the purchase and sale agreement and the closing date. Also: plan well ahead on how long you will need to pack, move, find a new residence, etc. Setting this tone from the beginning will avoid many headaches during the rest of the process.
- 5. Take care of Title Issues Before the Eleventh Hour:
Locate the closing documents from back when you purchased the house, if you still have them. This package may hold the key to any annoying issues which arise later on. A very common title problem that comes up just before the closing is the undischarged mortgage. When you take out a loan to buy a house, you sign a promissory note for the loan and a mortgage that gets recorded. When the loan is paid off, the bank must deliver to you a recordable discharge of that mortgage to clear the title to your house. Unfortunately, those discharges get lost, sent to the wrong address, and often contain typographical errors which must be corrected. This creates a “cloud” on your title and you are required to fix it.
Most of the time, you have no notice of the defective discharge. It may have happened when you first bought the house and the previous owner’s mortgage was paid off with your purchase money, or it could have happened following your refinance of your property. Either way, your closing documents from that previous transaction can be invaluable by directing you to the responsible party to contact; and if you purchased an owner’s policy of title insurance at the time of your purchase, your title insurance company must fix this issue for you right away, which will save you time, and hundreds or thousands of dollars.
- 6. Get your Attorney Involved on Day One!
Did I already say this? The fact is, if you can avoid this most common mistake, you probably won’t ever come across the others!
Click HERE for last week’s entry: Part I of II: How do I Sell My House?
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