[vc_row][vc_column][vc_column_text]I am a real estate attorney. I am also a real estate agent. After graduating law school in 2008, I jumped into the housing market with both feet. You see, during my last two years of law school the housing market crashed. I will admit, I watched the crash with a bit of glee, because when I started law school I feared I would never qualify to buy a house.
We all know what happened, prices dropped and I was able to qualify to buy my first home (maybe you didn’t know that part). But I wasn’t prepared for what happened next. Having been working in real estate full time for four years now, the knowledge I’ve acquired on how the buying and selling in various real estate markets has shown me I could’ve avoided the situation that befell me. I thought I would share what I know now, that I did not know when I bought my house as a new law school grad. To keep it simple, I have broken it down to five things I didn’t really understand or even consider, at the time. This list also applies to anyone buying or selling a home without an agent (for sale by owner). The first thing I’d like to discuss is:
Know the Market
Whether you are buying or selling, you need to understand your market. The principles used when buying or selling real estate are no different than buying or selling anything else. You would not go into a store and pay more for one product over another without a higher perceived value.
No matter how many upgrades or improvements your home has or how many people see your house, online or offline, people buy for perceived value. You need to position your home in a place of value in the market when selling, and when buying you need to make an offer based on value of the property you feel is appropriate.
There are many resources online in which you can conduct your market research (i.e. Trulia, Zillow, NeighborhoodScout), but make sure your research is based on comparable properties sold within a half mile to a mile of the house and the information has been updated within the past four to six months. You can then divide the price by the square footage (sqft) and Voila!! In the box below, I’ve shared a formula to help estimate the value of your home or the home you would like to buy.[/vc_column_text][vc_accordion title_size=”heading-1″ collapsible=”yes” active_tab=”2″][vc_accordion_tab title=”SqFt Formula Example”][vc_message type=”info”]Example: Over the past 3 months there have been 4 comparable homes that have sold in your subdivision. First, divide the sales price by the square footage (House 1: $200,500/ 1750 = $114.57 a sqft). They are as follows:
|Sold Price||Sqft||Price per sqft|
|House 1||$200,500||1750||$114.57 a sqft|
|House 2||$215,000||1800||$119.44 a sqft|
|House 3||$230,000||1950||$117.95 a sqft|
|House 4||$250,000||2150||$116.28 a sqft|
Now that we have a price per sqft for each of the comparable houses that have sold in the last 3 months, the next step is we need a high, a low and an average price per sqft for the subdivision. The high and the low are easy, House 1 sold for $114.57 a sqft (the lowest) and House 2 sold for $119.44 a sqft (the highest).
The average price per sqft is a bit trickier. Add together the price per sqft for EACH of the homes and then divide them by the total number of houses you are comparing (4 in this case). In this case, the average for this subdivision is $117.06 a sqft. You can now use those numbers as a rule of thumb when considering placing your home on the market for sale by owner or when deciding how much to offer for the home of your dreams.[/vc_message][/vc_accordion_tab][/vc_accordion][vc_column_text]I made a huge mistake when I bought my home because I did not even look at the actual market. I assumed, based on nothing but my own hopeful feelings and the word of mouth by people I trusted saying that the market had hit the bottom and was headed back up and that was good enough for me. I didn’t research the market even a little. I found a house I liked, they told me I qualified to buy it and I blindly paid what the builder was asking . . . Then the builder had a community wide price drop of $15,000 not even a month after I bought it. Ouch! If you are going about it alone, you must be wiling to do the work – Study the market.
Understand The Residential Purchase Contract And Use The Standard State Forms
Buying or selling real estate requires written contracts (check out our blog on the statute of frauds). Written contracts are beneficial because they provide clarity for the responsibilities of both the buyer and the seller in a transaction. Using standard state forms is usually preferred in a transaction because they have been tried and tested in the state courts. Risk in a transaction comes from the unknown; chances of problems arising during this stage increase dramatically.
A common trend among people contacting our real estate law firm tend to be after a transaction has closed or fallen through; all of them asking questions about issues that are pretty clear in the contract. The problem is, they didn’t read the contract or didn’t understand what they read at the time they signed it. Simple solution… read the whole contract and become clear on what it means BEFORE YOU SIGN. You can seek legal or other professional advice if you do not understand the terms presented. More about that later. Whether you are buying or selling a home without an agent, make sure you understand the documents you sign. Even if you are represented, it’s always best that you understand the documents you are asked to sign. That way there can be no curveballs you can’t dodge later in the process.
You would’ve thought I knew better. This confession is a bit embarrassing. My thought walking into the builder’s office was, I don’t need a real estate agent to buy a house, I can get a better deal (click here to better understand how a buyer’s agent is paid), I am an attorney, I can represent myself, I got this…
I then proceeded to review about 10% of the documents I signed while buying my house. I am not kidding. At some point my mind blurred and I just started listening to the builder’s sales rep and just signed whatever they put in front of me. I will be honest, I gave every page a cursory glance, but I truly had no idea what I was signing or what they meant at the time. More about this below, but I was too proud to ask the questions and represent myself the right way.
Disclose And Review Disclosures
One of the questions we deal with most often from seller clients in the middle of a for sale by owner or FSBO transaction is “What do I need to disclose?” Naturally, there are exceptions to this rule, but when in doubt, disclose what you know about the property. Omissions are NOT your friend. Most issues are not going to stand in the way of a sale and it is far better to take care of a problem now with some negotiation power than after the sale with an attorney charging you by the hour.
On the other side of things, if you are buying a house without an agent, read the disclosures and ask questions about anything you think is unclear or unresolved by the current owner. Engage a home inspector to review the seller disclosures prior to completing the inspection. Finally, make sure you receive all of the disclosure documents you are entitled under the contract (Common Documents Used in a Real Estate Transaction).
When I bought my home, I had no idea what the seller / builder was required to disclose and what was not required. I remember signing a waiver of inspections with my purchase contract after the sales agent told me, “The whole house was just inspected by the city, you don’t really need an inspection unless you want to spend the money…” I don’t remember receiving or reviewing any disclosures.
Ask Questions – Don’t Be Afraid To Look Stupid
I was in an electronics store the other day and I was considering new laptop. I grilled the sales rep. with questions for about an hour. The laptops I was comparing were between $300-$500 dollars, which really isn’t a lot when you think about it. When I sat down with the sales agent to buy my house, a much bigger purchase and commitment, I think my brain went on vacation. I asked about three or four questions max. At the signing for the final closing it was the same thing. Do you see the where I messed up?
The price range for my house was in the hundreds of thousands of dollars. A home is likely the most expensive thing you will ever buy or sell. Don’t hesitate to slam on the brakes if you don’t understand something and ask a question. Don’t be trapped by your own pride, don’t tell yourself stories about being annoying or nagging, do not be scared of confrontation or upsetting the apple cart, ask the questions you want answered. It’s your credit, finances and living on the line, not theirs.
If you are buying or selling a home without an agent, no one is going to ask the questions for you or watch out for your interests. Remember that the entire transaction. Every time you are tempted to gloss over an issue or just sign a document, you are your own representation; you must do the job. Also, if you find yourself in over your head, consult with an attorney, an accountant, a trusted advisor, a parent, etc … Don’t fall victim to your brain being on vacation.
Prepare Yourself For The Unexpected
I tell my clients that from the time we make an offer on the house they want or accept an offer from a buyer, there are about a hundred things that will go wrong. I will protect them and take care of almost all of them before they even know anything happened.
When you buy or sell a house on your own, there is no one there to intercept those problems and unexpected issues as they arise. You need to be flexible within a transaction and creative to overcome those unexpected issues that will happen. At least half of the transactions we deal with on a monthly basis are falling apart at some point in the transaction and have to be put back together in a mutually acceptable manner.
The reason? A real estate transaction has a lot of moving parts involved and so many people it is dependent upon for success yet not one person can control all of those factors. Your flexibility and creativity will help in seeing yourself into your next home or out of your current home successfully.
There were many things that happened throughout my transaction that were not expected, our down payment grant fell through, our closing was delayed, financing changed, our appliances were not delivered correctly, the list goes on and on. It was an emotional roller coaster because I wanted to own a house and stop renting. Had I dealt with each issue and negotiated with creativity and flexibility, I might not have had such a troublesome process.
If you’re buying or selling a home without an agent, please take and heed to what I’ve shared here and you will avoid many headaches in your home buying or home selling experience. I’m not trying to convince you to hire an agent or even an attorney. I’ve shared this to help you make wise, considerate and calculated decisions to ensure you come out on top. It will be a challenge, it always is regardless of experience. If it were easy, everyone would do it; there were wouldn’t be a need for real estate agents or attorneys.
Luckily, we are here to help in any way we can. The attorney’s with WELLS Law Groups are more than happy to answer your questions over the phone so we can help you through the process and help you achieve your goals successfully.[/vc_column_text][/vc_column][/vc_row]