Here’s the key to negotiating the price: Don’t get emotional.

Emotions cloud everything. You want the buyers to be emotional. You want them to be excited. Most of all, you want them to be afraid of losing the opportunity to buy the house. If you haven’t had the house on the market for long and you get an offer that’s lower than you feel is right, don’t be afraid to pass it by. More importantly, though, don’t get greedy. If the house has been on the market for a while and you get an offer within reason, don’t let emotions about how you feel about the house cloud your judgement.

You have to always remember that you do not set the price of your house, the current market sets the price of your house. If you haven’t gotten many bites, it’s because you’re trying to sell it for too much.

Often times sellers put a lot of value in the work that they put into the house or the memories associated with the house and these things may not have equal or even any value to the people in the market to buy a house. Buyers don’t care if your kids learned to walk in the house or whether your grandmother had given you the bulbs that you planted in the front flower bed. All a buyer cares about is how your house compares to others on the market and how much they cost in comparison to what you’re asking.

So essentially, the theme of this post is simply to not get emotional in the negotiations. Selling your house is business and you should look at it as business and the decision as to what you will accept for your house is a business decision.

There are a couple of ways you can handle people coming to see your house. If you had a realtor representing you, you’d be pressured into showing your house at a moment’s notice. Likewise, as people call, you can show your house whenever someone wants to come and see it. The advantage to this is that you won’t eliminate any potential buyer because your house wasn’t available to see when they had time to see it. Even with this advantage, I believe this is the worst thing you can do.

I firmly believe in the Open House method of showing your house. I actually don’t know whether this method is really called that within real estate circles or whether it even has a name but it’s what I call it. What I call the Open House method is simply to have as many open houses as you can and only show the house at those times. When talking to a woman flipping the house next door to mine, she claimed, “Open houses don’t work in this market. I’ve tried them.” Nevertheless, my house sold within a week and a half while hers was still on the market 3 months later. I’m not saying that it was the reason our house sold and hers didn’t but it certainly did work in our case.

The Open House method has some real strong advantages.

Showing your house at an Open House allows you to get your home picture perfect. You can spend a couple of hours before your open house making sure everything is spotlessly clean. You can make sure everything is in its place. You can make sure there is no unwashed laundry visible. You can make sure all the kids’ toys are organized and put away. We always cooked some refrigerator cookies right before the open house to not only give the people walking through a treat to remember us by, but to also bring some good smells that create a home-like feel.

It’s critical to make sure your house has no bad odors. If that means leaving the dog at the neighbors for the days that you’re selling your house (or the kids for that matter…just kidding), do it. If a house has an unusual smell that’s the quickest way to turn off potential buyers.

You can also make sure extra people aren’t at the house. You can send the kids off with one of the parents to go drive around or to visit friends for the duration. You don’t want kids running around distracting potential buyers. This is a business transaction so it should feel like one. Also, it’s an emotional decision and anything that could bring distraction or annoyance should be avoided. When we would hold open houses, my wife usually manned the house while I took the kids somewhere to watch a movie while sitting in the van.

While showing the house to people you should fight the temptation to follow them around. Let them walk around on their own and be available for questions. You don’t want people to feel the pressure of having you standing there listening to their comments. I believe you should keep it as low pressure as possible and let the people fall in love with your house on their own. Anything to make the potential buyers uncomfortable should be avoided. When agents show houses, they recommend the home owners not to be there which is smart. When selling the house on your own, you don’t have that luxury but you can make it as comfortable for the people as possible by behaving like an agent and not like the homeowner.

Another thing that’s really important is to have copies of important documents available for the potential buyers. If you’ve had a home inspection, leave copies for people to take. Have extra fliers as well as purchase agreements that a buyer could fill out. Technically it’s the buyers responsibility to produce the purchase agreement for you but if you have a generic, fill-in-the-blank form for them, it’ll take the scare out of performing this transaction without a professional holding their hand through the process. I’ll include a link to a generic purchase agreement that I’ve used. I am not a lawyer but I’ve used this 2 different times and it’s worked well for us.

Now here’s the kicker. This is where you truly earn that commission you would otherwise give to the agents. You need to hold these open houses as often as you possibly can. If you’re not going to make the house generally available to people on their time frame, you need to make the open houses as convenient as possible for people to get to. We usually held them every day except Sundays. We tried to hold them during the middle of the afternoon on Saturdays and in the evenings on weekdays. We also posted the open house days and times in all of our advertising (newspaper and online) so that people know when they can come see the house and can plan for it. While this is the hardest part because of the time and effort involved, this is also the biggest advantage of not having a real estate agent. There is no agent out there (unless you have a million dollar house) that would agree to holding an open house every day of the week. Agents have other clients that they need to take care of and they probably don’t see it as a valuable use of their time. They’d rather let the buyer’s agents do all the showing for them and then just collect their half of the commission. You have no other clients and priorities higher than getting your house sold. In spite of what an agent will tell you, nobody has your best interests at heart as much as you.

This is really hard work. It’s really hard to clean the house to immaculate condition every single day for the open houses but in the end, the payoff is worth it.

LINKS:

Purchase and Sale Agreement

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But we’re in luck.  The MLS isn’t the only way to market a house and is even becoming more and more inconsequential with other options becoming available.

Newspaper classifieds have been the prime way of advertising your home when selling it on your own for decades.  In fact, it’s been the only game in town for a long time.  Because of this, classifieds listings are also very expensive.  If you live in a smaller market with a smaller paper, it might not be so bad, but if you live in a large city, you’re liable to pay hundreds of dollars per week for your listing.  With this kind of price tag, you may consider the realtor listing fee may not be so bad.

Luckily there are other resources.  All over the country free online classifieds are popping up and becoming very popular.  The biggest around, especially on the west coast, is craigslist.com. Craigslist was started in the San Francisco bay area as a mailing list of events going on in the city.  It then developed into a website that allowed anyone to post whatever event or classified free of charge.  It pays for itself by charging for job postings only in a couple of large markets (ie San Francisco).  The rest of it is free for any one’s use.  I always post whatever I have to sale on craigslist.  I’ve ended up selling more than just my house through their services.

Craigslist isn’t the only online classifieds site out there.  Many cities have their own versions that are geared for a particular area.  For example, in Utah there’s a free classifieds service through the local NBC network affiliate’s website, ksl.com. 

These sites are becoming the dominant player in advertising even to the point of taking significant revenues from newspapers all over the country.  More and more people are going to these sites to find what they want to buy before even picking up the newspaper classifieds.  The more popular these sites become, the less we need to pay for advertising in other ways.

When advertising your house, you need to place it in as many places as possible and get as much exposure as possible.  I chose to place it on the online sites as well as in the newspaper.  Even with the popularity of these sites increasing,  there still is a significant portion of the market that still looks exclusively in the paper for FSBO listings.  When selling my homes, we would take an informal survey as to where people found out about the house.  We found that people found us about half the time via the free websites like craigslist and about half the time via the newspaper.  Here’s what’s really interesting.  The ones that found us via the newspaper actually didn’t see our ad in the newspaper itself but on the newspaper’s own online presence.  The moral?  If your newspaper has the option, it may be advantageous to only advertise online instead of in the printed papers.  People have found that it’s a lot easier to search for the kind of house they’re looking for online than going ad by ad in the classifieds section of the paper.

The other standard way of marketing your house is with signs.  I’ve only used the standard red For Sale By Owner signs that you can pick up at Lowes or Home Depot or any other home improvement store.  I would usually have a large sign in the front yard with an “info tube”.  The “info tube” is a plastic container to put flyers for your house.  This is extremely important.  Your house flyer is the easiest place to outline all the advantages of your house.  Most people, when house hunting will do a drive-by first and look at the outside.  Then they’ll grab a flyer to get the details.  And only after they have that information will they come in and see it.  Make sure your flyer is organized and easy to see the good points.  I’ll link an example of a flyer that I’ve used.

Other signs you can use at your discretion.  I’ll generally put smaller signs at the entrance of the neighborhood to direct people from the main road or make it easier for people to find the house that are looking for it.

You’ll never know which marketing device will bring in the buyer for your house so use all you can.  One house I ended up selling to a neighbor who had been renting and wanted to buy in the neighborhood.  Another came via the newspaper website.  Another came just because he happened to see the For Sale sign while looking at another house.  No one method is the magic bullet, but a combination of all of them will bring in a lot of people.

Link:

Here is a sample house flyer I’ve used in the sale of one of my homes (3 MB)

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Ask low and hope to have a bidding war 

This method has worked really well in recent years.  I believe this will only work when it’s a sellers market which it has been in most of the country for the past 5 years.  The time for this method may be fast ending.  When you have a lot of people looking at houses within a price range you’re more likely to get that magical multiple offer situation.  The biggest risk you run in pricing your home low is that if you only get one offer at or near the asking price, you may end up without an “excuse” for rejecting.  That doesn’t mean you can’t reject it but it gives the impression that you’re just playing games with people.  Nevertheless, if you get into that bidding war situation with multiple buyers it creates a lot of emotion among those that are bidding and it’s very likely that you could get more money than if you’d priced it at the “fair” price.  As every toddler knows, something is much more desirable when someone else wants it too!

Ask high and let the buyer “talk you down” to the price you want

This is very common no matter where you set your price.  This allows you to get about what you want for your house and it allows the buyer to feel like they’re getting a better deal.  Often this is the way that everyone feels good about the deal.  The risk, though, is if you price it too high it could cause people to look at the specs and the price and dismiss it out of hand.  Anytime you decrease traffic to your house, you’re limiting your opportunity to find a buyer.  Even with that said, most people assume that they’ll be able to talk the buyer down at least a little bit so as long as the house isn’t priced to outrageously, people will come and give it a fair shake.

Price it where you want it and be firm

This is the most straightforward way of pricing.  When you set your price you make sure it’s fair and reasonable.  When interested parties start talking about negotiations, if you explain to them that the price is firm and explain how you arrived at the price, most buyers will respect that (assuming your reasons are valid) and give you the full price offer your after.  The biggest downside is you may alienate the “wheeler and dealer” types that just have to feel like they got a good deal but you’ll appeal to those who are uncomfortable with the whole negotiation process.  When you’re dealing with people without an agent that can negotiate for them, many are more comfortable with this straightforward process.

In the 4 houses I’ve sold, I’ve tended towards pricing it at a firm price.  Most of that was because I had to make what my loans required and I had little wiggle room to negotiate.  When I would explain that the house is at the fair market value and that I have to make the price in order to satisfy my lenders, no one tried to talk me down. 

On one occasion, I asked the price I wanted to get but I wanted to still try to possibly create a bidding war situation.  I was selling at a hot time when the market was just heating up and I wanted to try and sell fast.  I priced it at what I wanted to make on the house and what I felt was a fair market price.  I then told all who looked at the house that I would accept offers until a certain date and time.  This ended up intimidating some but in the end I ended up with 3 offers of asking price or higher.  As I negotiated with each of the buyers in turn they increased their offer price until there was only one left.  It didn’t increase the sale price substantially but it did get me an extra $5000 that I wouldn’t have had.  Whenever looking for a multiple offer situation, give a deadline when all offers will be accepted.  This increases your chances of not only getting more offers at once to consider but it creates better initial offers because people believe that they could be competing from the very beginning. 

Always remember that buying a home is an emotional process and not a logical one.  Any way to increase the emotion on the part of the buyers will mean better offers.  Once a person has made an offer on a home, they have invested emotion into the process and the idea of not getting the home at that point is not desirable.  That’s why the bidding war works so much in the seller’s favor.

What is the fair market price?

This is the hardest thing to determine.  The way real estate agents determine a price to list houses is by pulling comparable homes that have recently sold.  They have access to the MLS to give them that information.  As a seller not using an agent, you don’t usually have access to the MLS.  One way to solve this is to interview 2 or 3 agents to see if they want to sell your house. Agents will give you a “free” consultation and pull the comparables before they come to look at your house.  That way you get the information without having to hire the agent.  If you make it clear that you’re interviewing several agents before making your decision, it makes it easier to deflect the high pressure sales pitch.  You’ve got to know yourself, though.  If you’re susceptible to the high pressure, then it’s usually better not to even interview the agents.  That’s the boat I’m in.  I have a hard time saying “no” so I usually don’t even go there.

Luckily there are other resources to find out what houses have been selling for.  In every county sale prices of homes are public record.  The biggest problem is that the records aren’t usually in an easy to search format with the county.  Recently there have been more and more websites that have compiled all the data for you and put it into an easily searchable format.

One of my favorite sites is Zillow.  I found this site a couple of years ago.  This site tends to have the records updated in their databases fairly quickly giving you the most recent information.  They have a nice map system that lets you check on the recent sale prices and estimated prices of every house in your neighborhood.  Zillow also will estimate your own house.  One word of caution:  Don’t trust zillow’s estimate to implicitly.  It’s a nice place to start your work.  Zillow can’t take into account the desirability of different floor plans.  In one area it tended to treat ramblers with basement the same as split-level homes when a rambler usually comes at a premium.  The best way I’ve found to use Zillow is to look at the list of the closest and most alike homes and use that as your basis of deciding what to ask.  Zillow works great in some areas and not as good in others.  It will depend on how much of your county’s information they have uploaded into their databases.

Another site I’ve used on occasion is Ditech.  They have a free “e-appraisal” tool.  It allows you to enter your address and it will give you a range of what your home is worth along with comparables from the surrounding area.  It’s a good tool but not as versatile as Zillow.  I use both to get as much information as possible.

If you want to know what other people are asking for their homes, you can check Realtor.com.  This is basically the MLS information that they want to release to the general public.  I’ve had mixed results using Realtor.com.  The biggest problem I’ve had with it is that in some of the areas I’ve lived, they didn’t give address information so that it was hard to determine what neighborhood the homes were in for comparison.  In other areas they would almost always give addresses.  With Realtor.com you have to remember that these are the “asking prices” and not what people are actually paying for their homes.  Some people will be asking high and others will be asking low and still others will be asking right on.  Even with that, these are the prices that people will be comparing your “asking price” to so it’s good information to have.

Another factor you have to take into account is how fast you want to sell your house.  If you have the patience to wait for “just the right one”, you might be able to price it a little high.  The downside you always have to remember, though, is as a owner seller, you’re paying for your marketing so the longer it sits on the market, the more money you lose.  There’s also the exhaustion of the whole selling process as well as the bad impression a house on the market for a long time has.  If you have to move within a couple of weeks it might be advantageous to drop your sale price by 1% to 2% to give someone a real deal and get it done.  In my experience, a fairly priced home will sell fast enough in most situations.

The last thing you have to take into consideration is how your house sells.  In the last article, I explained how to get your house ready to sell.  Depending on how much of that you chose to do will affect how much you’ll be able to sell your house for.  A house is worth a certain price range.  All houses with 3 bedrooms, 2 baths, 1500 sq. ft., in a certain neighborhood will sell for a price within the range.  Where you are within that range is determined by how your house presents itself compared to the others.  If your house has nice landscaping and no bad spots inside with nice upgrades, it will sell at the top of the range.  Anything less will sell somewhere below.  What you decide to do in the previous step will affect what you will be able to get for your house.

Myths

Now let me just talk about a couple of myths about house prices.

• I set the price of my house.

You actually don’t set the price.  The market decides how much your house is worth.  You can influence what the market will decide by what you do to the house, but not matter how much money you put into it or you think it’s worth, it will be the market that decides.  Too many people overprice their homes because of the amount of money they put into renovations or because of sentimentality or because of denial of current market conditions.   Just because you could sell your house for $200K last summer doesn’t mean you’ll get that much in November. 

• If I sell my house by owner, I’ll have to reduce my home price because people will be expecting a deal

This is the biggest scam that realtors try to perpetuate.  I’ve seen it and heard it all over the Internet and from realtors’ mouths.  A house is worth a certain price.  If you choose to pay a realtor for marketing and to do some paperwork, then that is what the 6% commission is going to.  If you choose to do the hard work yourself, than that money goes to you.  There is no reason to reduce the price of your house just because you are selling it by owner.

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Our aim is to make your house the house to buy! Weeks before you put your house on the market, you need to make and execute a list of imperfections that need to be remedied.

First and most important is the outside. When you start marketing your house, a lot of people will do a drive-by to see if they even want to bother coming in to see the inside. If your yard is in shambles, most people will just keep on driving. Make sure your grass is mowed and neatly trimmed. Make sure you have flowers and plantings in your flower beds. Weed your flower beds. If it’s spring or summer, plant annuals to immediately give the outside color. Do any obvious repairs to the outside of the house. If your trim is looking worn and pealing, repaint it. If the bottom seal of your garage door hangs, fix it. If your windows have dried dirt caked on them, wash them. If your deck is looking worn and tired, repair and paint it. Power-wash all of your concrete. Make your yard one of the model yards of the neighborhood.

Once your yard is looking great, it’s time to work on the inside. The next thing to do is de-clutter and depersonalize. Take down all pictures and decoration items, especially collectibles. You may have what you think is the most attractive decor in town, but there are many tastes and you don’t want to elliminate a possible buyer by making it so they can’t imagine themselves in the house. It may make your walls feel empty but that’s OK. If you have your Led Zepplin posters up, it may make it hard for someone to imagine the space with their crucifix on the wall. If you love country style decorating, it may make it hard for someone to imagine their modern stainless steel furniture in the room.

After you empty your walls and de-decorate everything, it’s time to de-clutter. You want the house to feel as large as possible and nothing makes a house feel more crowded than too much furniture. You want your house furnished but not at the expense of space. So take out the extra chair from your family room that sits at an awkward angle. Take out the dressers from the bedrooms and just leave the bare minimum like beds and maybe night stands. Take out the over-sized entertainment system and big screen TV that fill up the family room. Once all the big furniture is out, clean out the closet and storage areas. Take every unnecessary thing out of the garage. Make the garage feel as empty and “big” as possible. Take out extra clothes and stored items from your closets. You want people to come through the house and say, “Wow, there’s a lot of storage here!” Ultimately, you’re trying to change your house from a lived in house to more like a model home. You’ll probably have to get a storage unit or borrow a friend’s garage, but this is so important in putting your best face forward in selling your house.

Next it’s time to do all the repairs that have been plaguing you since you moved in. My wife and I often joke that we never finish our remodels until it’s time to sell the house. On all of the walls that you had pictures, all of the nail holes need to be filled and repainted. Touch-up paint all of the walls and trim. Fix cabinet doors. Re-caulk areas that are getting ugly. Anything that might turn off a potential buyer needs to be fixed.

At this point it may be helpful to have an honest friend or relative go through your house and suggest ways it can be improved. So often when we’ve been living someplace for a long time, we put on blinders to the imperfections. It’s really helpful to have someone without bias give their opinion on things that you may not have ever noticed before.

Finally it’s time to stage. Move remaining furniture so as to take advantage of special features like a fireplace or bay windows. Clean the house from top to bottom including windows, blinds, and baseboards. If you’re out of energy by this point, it may be nice to hire professionals. They’ll bring in 2 or 3 people and have it all done before you know it. Make sure you take care of any bad smells such as diaper pails or pantries or cupboards. Make a fruit bowl or a fresh flower arrangement to replace some of the missing decor on a table or counter top.

At this point your house is ready to show and put on the market!

Remember that you don’t have to do all or any of these items but the tradeoff will naturally be that you’ll have to be competative in the only other way available and that’s price. We’ll talk more about how to set price in a future post but often the price tradeoff is a lot higher than the effort you could put into your home in order to get top dollar.

Now a note on jumping the gun. It’s a terrible and sore temptation to put the house on the market as you’re doing your repairs and preparation. DON’T DO IT! You must always put your house’s best foot forward. It’s kind of like revealing the man behind the curtain. You want the buyer to see the house in its finished state and not show the work put into making it that way. It’s not ready to sell until all preparation is completed. Buying a house is an emotional experience. You want to appeal to their good emotions and not being ready will ruin that.

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I thought an ideal way to start this new blog off was to share some information I’ve learned about selling homes without the use of a real estate agent. In the last 5 years, I’ve bought and sold 4 houses in 3 different markets in 2 different states. 3 out of those 4 houses we sold on our own without the help of a realtor. I’m not in real estate. I don’t buy and sell houses for income, though it’s nice when I make money on the deals. I just happen to work in a very unstable industry making it necessary for me to have to move to different areas a little more often then I would have liked. The main reason I didn’t use agents in those transactions was cost. I usually hadn’t lived in any of those houses for enough time to be able to afford the commission a real estate agent takes and still be able to at least break even. Out of necessity I’ve had to bone up on effective ways to sell my homes on my own.

Here’s the dirty little secret that agents don’t want you to know. Selling a house is not rocket science. It’s well within the abilities of any homeowner out there. An agent will try and scare you about the negotiations and contracts and marketing involved in selling your house. They’ll try and tell you that you’d make more money using an agent then selling it yourself even when you take into account the commission. The National Association of Realtors routinely run commercials discouraging homeowners from selling your house yourself. Their statistics may be true on the average but you can beat the averages easily just by getting a little information and putting in the work required to sell your house.

Over the next couple of weeks, I’m going to post information on what I’ve learned about selling your house For Sale By Owner (FSBO). I do this for the sole reason that I want to help others. I think the Internet is going to cause a fundamental shift in how we buy and sell real estate. I think the role of real estate agents will change significantly just like travel agents back in the mid 1990’s. The only way this shift can happen is by countering the lies and FUD (Fear, Uncertainty, & Doubt) dished out by Realtors and educating people out there who aren’t afraid to do it themselves and take their well deserved equity instead of giving it to someone else who, frankly, doesn’t earn it.

I hope you enjoy the following posts and if you have any comments or suggestions or advice you have learned yourself, please feel free to leave comments and maybe together we can all learn more than we knew before.

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