Listing a house? This post will discuss what very home seller should do before listing their property to get the best price possible as quickly as possible.
For a guy who likes to thoroughly analyze things, I made a mistake when selling my house that could have cost me hundreds of thousands of dollars.
Before accepting the final offer, I failed to do a thorough analysis of what similar homes bought at a similar time for a similar price sold for most recently. Instead, I just looked at current listings, recently sold homes no matter when they were purchased, looked at how the overall median price point moved, took my realtor's guidance, and went with my gut.
In other words, I extrapolated the overall trend of the real estate market and applied it to my house without finding apples-to-apples comparisons. If the SF housing market was up 50% since 2012, so was mine! I now realize after writing this post why I wasn't more thorough. I was afraid I wouldn't like what I found.
Issues With My House
My house was on a busy street near one of the busiest streets in San Francisco (three lanes each direction). I didn't want to relive the disappointment when I tried to sell the house in 2012 and failed.
To refresh, I bought a 2,070 sqft, three bedroom, two bathroom single family house with an unwarranted room and bathroom on the ground floor on a 2,300 square foot lot in February 2005 for $1,525,000. I tried to sell the house for $1,700,000 in 2012, but didn't get a single offer. Finally, I sold the house in June 2017 for $2,740,000 because I no longer wanted to be a landlord.
In this post, I will now do the exercise I should have done before I listed my home. This is an exercise you should do too if you are planning on listing a house. If you don’t want to do it, make your real estate agent do it! You will be amazed at your findings.
Listing A House #1: 5 beds, 5 baths, 4525 sqft, asking $2,295,000
This house blows my rental house out of the water in terms of livability, interior quality, house size, and lot size. I'm a big fan of brick facade buildings because they remind me of homes back in Virginia where I lived for eight years.
This house sits on a half acre lot in a gated community with a pool, two outdoor hot tubs, and a gourmet kitchen. The house is located in the town of Moraga, a lovely suburb 22 miles east of San Francisco where the temperature hovers around 70-85 degrees throughout the year. Unfortunately for the seller, the town of Moraga declared a fiscal emergency in 2017 because they've got a management crisis.
The public schools in the area are good, and there's also a nice country club in the town for swimming, golf, and tennis. Every year I come out here to watch for free the Heritage Bank Tennis Open, where ex-pros and college players compete for $100,000 in prize money. This year, I finally started visualizing what the possibilities of suburban living now that I have a son.
On the financial front, this house was purchased for $1,843,000 right around the time I bought my SF home for $1,525,000. Now the home is for sale for $2,295,000, after going without an offer at $2,395,000 since April 1, 2017. At the time of this post, the house went into contract in August, but then fell out in November 2017.
In other words, this perfectly beautiful home cost the buyer $328,000 more to buy and will net at least $445,000 less than my house IF it sells for $2,395,000. That's a whopping $773,000 profit difference. Such a difference is astonishing given Moraga is a sought after location where many working professionals who have jobs in San Francisco want to live. All this time I thought the entire Bay Area was inflating at a similar pace. Not so.
Some takeaways from listing a house: There are relative value opportunities all the time if you look beyond what you are used to. If you can't afford to buy in the most prime neighborhood, that's OK! You can probably get way more for the same or less if you're willing to look. That's what I did in 2014 when I decided to look for panoramic ocean view homes in the western part of San Francisco. That said, the returns may not be as good.
Before buying, it's also important to analyze the fiscal health of the town, city, and state. It never would have occurred to me to check a municipality's finances when its median home price is over $1,000,000. If you have a government that mismanages its finances, you can expect tax increases and/or a cut back in services. See Chicago as a model city for fiscal mismanagement.
Listing A House #2: 3 bed, 2 bath, 1,700 sqft condo in the Marina district, SF
Some of you are thinking it isn't fair to compare a home in the suburbs with my old rental home in San Francisco even though both homes fit similar demographics. Fair enough. It's hard finding a home that was purchased at a similar time (late 2004/early 2005) at a similar price point ($1,525,000), but I found another one.
Here's a lower full-floor condo in the same neighborhood as my old house. With three bedrooms, two bathrooms, and 1,700 sqft, the condo is similar in size to my 2,070 sqft home I sold. The target buyer is definitely the same as well. The condo looks to have been remodeled maybe 20 years ago based on the bathroom and kitchen pictures. It's in a prime block, unlike my house.
The home was purchased for $1,500,000 in October, 2005. Because the market went up about 10% in 2005, let's say the apples-to-apples cost was $1,410,000 if they had purchased the condo when I closed in March 2005. After being on the market for $1,795,000 since April 6, 2017, the seller lowered the price to $1,750,000 on June 16, 2017 and finally accepted an offer for $1,720,000.
In other words, during the same time period, the property owner only made $220,000, or $1,020,000 less than I made on my home.
One takeaway: Condos, even in better locations, may underperform single family homes because they are more susceptible to large supply increases. We're now seeing a surge of condo construction in San Francisco that is putting a damper on rental and property prices. New condos are not only competing with older condos, they are also competing with single family homes in a similar price point as demographics shift towards simpler living.
Listing A House #3: 3 bedroom, 2.5 bath, 2,100 sqft single family home in the Marina, SF
OK, so now you're thinking it's unfair to compare my single family home to a condo in the same area, even though the size and type of buyer is similar. Fair enough!
I stumbled across a home that is basically my same house, just on a super prime block with little traffic, and very close to the Palace of Fine Arts and the Bay. I spoke to the realtor and he mentioned they put “a good amount of money” into renovating the two bathrooms.
They also painted the entire interior, refinished the top floors, and staged the home as well. Based on my home renovation knowledge, I'm guessing they spent about $50,000 fixing everything up, plus $15,000 on staging.
Charming house right? Back in 2004 when I was looking to buy a single family house in the Marina, this was the type of house on a quiet street I wanted to buy. But they were all going for about $1,000/sqft already, which meant this home would have sold for roughly $2,100,000. I couldn't afford this price point, so I bought a similar house, but on an inferior street for 29% ($600,000) less.
With the way the house was finished and the location, I was guessing the house would go over its $2,995,000 asking by $100,000 – $200,000. This is San Francisco after all, where homes are purposefully priced below market to ignite a bidding war.
What transpired was odd. The home went into pending at $2,995,000 within 14 days of listing, giving me confidence that my pricing assumption was correct. But a couple days before the home closed, the listing price changed to $2,799,000.
I was wondering why this would be the case given the pending status, and I realized why after the home was finally sold for $2,807,000. By changing the asking price to $2,799,000, the realtor and the seller could officially say the home was sold for over asking. Tricky stuff!
I'm honestly very surprised about the final selling price. If you are to use my 29% pricing discount when I bought in early 2005, the home should have sold for closer to $3,800,000 since I sold my home for $2,740,000. Even with a narrowing of the pricing gap to a 15% premium for the far superior location, the house should have sold for at least $3,150,000, which is what I expected.
The seller had put in ~$65,000 to prepare the house for sale, while I spent only $4,000 refinishing the floors, fixing the yard, and buying a fancy kitchen faucet. Granted, I did spend eight hours painting two bedrooms and touching up all the moldings, but still. The prep work cost differential along with the 1% higher realtor commission fee the seller had to pay is a lot.
Some takeaways: Be careful over prepping your house for sale. I've seen so many cases where the buyer just comes in and rips everything out, like this buyer is doing after I spoke to the contractor who so happened to be outside when I was walking by after sale. Painting, refinishing the floors, updating fixtures, cleaning, and staging is probably good enough if you can sell the dream.
I was told by a top producing realtor that if I spent $50,000 – $60,000 prepping my home I could get “maybe $2,500,000.” He wanted me to paint over my natural brick facade to a dark grey too. Crazy! I then got his opinion on the floor staining color and he told me a dark grey as well. But then he called his interior designer who said a white oak color. Then I talked to another top producer who said to make the stain clear to show off the original floor. Everybody had a different opinion.
Finally, although realtors are absurdly expensive, the right realtor can make all the difference based off his or her connections. There's only a ~45 day window to sell a property before it becomes stalefish, and the right realtor will be able to maximize exposure to the right agents. All it takes is one perfect buyer to get the deal done. My buyer loved the brick facade of my house because it reminded him of the colonial homes back at UVA, where he went to school. He didn't mind the vicinity to a busy street and liked that one floor had three bedrooms and two full bathrooms given he has a girlfriend and toddler.
So Many Variables To Buying and Selling A Home
Here are some common recommendations before buying: 1) not buying the most expensive house on the block, 2) buying in the best location possible, 3) buying during the middle of winter, 4) buying from a couple getting a divorce, 5) offering all cash, 6) buying in a fiscally sound area with tremendous job growth, and 7) buying below a certain valuation.
Now that I've sold my house, I realize there are more variables that go into getting the best price possible, including a well-connected real estate agent who can find the right buyer and good old fashioned luck.
If I wasn't fearful of losing my job in Manhattan during the dotcom collapse, I never would have moved to San Francisco in 2001. If I never attended an open house for a three bedroom condo for $1.2M in the winter of 2004, I never would have parked my car next to the house I ended up buying in 2005 and selling this year.
If my rowdy tenants never decided to move out in May 2017, I never would have had the opportunity to test the market. If I never met my realtor at a house she was listing a couple blocks away from new house a year and a half prior, she never would have found the agent with my ideal buyer.
Luck is easy to find in a bull market. The key is to recognize whether we are in a bull market or not and press if we are, and de-risk if there are signs of a slowdown. Don't forget that often times, money is made on the purchase, not on the sale. To their long term detriment, I see too many emotional buyers pay irrational prices because they just love the kitchen or have been outbid one too many times (examples #1 and #2). A good realtor should be able to walk you off the ledge.
Although it's best to hold onto your property forever, if you want to sell, you should sell when you don't have to sell. It's when you have to sell that you might be screwed because you won't have as much courage to negotiate and everybody else might want to sell too. Once a downturn hits, the bottom drops out and you'll see vultures offer way below asking. I experienced this during my unsuccessful listing in 2012 when I was getting whispers for $100,000 below asking.
Finally, all it takes is one buyer to fall in love with the place and pay top dollar. He took out a $2,000,000 mortgage and a second for $300,000. Therefore, it's worth spending a little longer searching for that one if you can afford to wait.
My final realization is that if I did this exercise before getting my initial offer of $2,600,000, I would have gladly taken it and not countered to $2,788,000 before finally settling on $2,740,000. Example #3 selling for $2,807,000 would have implied my house was valued at ~$2,400,000 using a 15% discount.
I'm sure 20 years from now I'll look back and realize how cheap I sold my home. There's no doubt in my mind the house will be worth $4M+ by the year 2037. But for the next 12 months at least, I'm feeling good about my sale, especially since I've reinvested the proceeds in truly passive investments that take zero of my time and may provide higher returns now that the SF market is cooling.
Related: Every Indication To Consider Before Selling An Investment Property
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29 thoughts on “What Every Home Seller Should Do Before Listing A House”
Sam, what is your opinion on paying a premium to be on a better street within a good neighborhood? How much more would you be willing to spend vs. taking a “discount” on a house that is in the great neighborhood but not on the best street?
SFH metric or do you feel the same if it is say a duplex?
We definitely overprepped our last house so, as we make moves to sell our current home, we’re so careful not to do that here. You’re spot on to point out that paint, nice fixtures, and staging can do wonders to sell homes!
Not to say we’d ever use our realtor again, because he sucked, but since he was a family friend, he only charged us 1.5% on the sale. So… sucked, but we saved $$$ on realtor fees on the selling end. And we ended buying from a divorcing couple in our dream neighborhood, so you’re right on with that advice too! :)
I completely agree with all your points!
When I sold 2 of my investment flats, I went through a similar process, although I did find it quite hard to find comparable properties.
We made an extra $40,000 (20% more profit) on the last investment flat we sold, only because we had a great estate agent and a buyer that, unfortunately for her, fell in love with the place. And the agent could read how much she wanted it and used it against her.
We were on holiday visiting Rome at the time, and I can remember sitting under some trees to rest from the heat and getting text messages every 15 minutes from the estate agent with a bigger offer. The easiest $40,000 of my life. I wish it was always that easy to make money :) Although this is nothing compare d to what you made!
Now the market here (London) has cooled down a lot, and I’m not planning to sell my 2 rental properties for a while! I think we’ll see a bit of a rollercoaster with the real estate market in the next few years, I’m just going to wait a bit and put more money into passive investing and mortgage repayments for now!
I sold my house two years ago and didn’t use an agent but still had it listed on the MLS. I saved 2.5% on commission (the buyer had an agent so I had to pay his %). I purchased five properties in the last seven years and always used an agent for the purchases and , because I have a good relationship with that agent, she provided me with all the information I needed when it was time to sell (comparative analysis included). I also negotiated for her to do my tenant’s credit checks for free for a few years. Some cities have all that information available on line if you care to register. I decided to sell my rental properties sooner than planned, it is too stressful to be a landlord and passive income sounds pretty good right now:)
We live on different realty planets, Sam. I bought my Charlotte house in 2008 for $225K. We’re putting it on the market next March and we’re hoping to get $240K. But though we live on different realty planets, your advice is still sound. The only upgrade we intend to make is exterior pant. Congratulations on your sizable profit. A million dollars in twelve years is very impressive.
We have sold three homes so far and each time, thankfully, we did very well. Each time our realtor gave us an appes to apples comparison based on age, square footage, etc. You absolutley must do this to make a “safe” sale decision or buy decision. Our last house (we built it), which we listed for sale for $695,000, had multiple low-ball offers as low as $550,000. When we pulled out the apples to apples data, it was a no brainer. We think that buyers also did this but then tried to use that data to derive a lowball offer amount. We ended up selling the home for $690,000, all because we waited and had the data to back up our pricing, making a tidy profit. Too many people leave money on the table because they get desperate, lazy, or impatient. With supportive comparables data in hand it provides a good rationale for your asking price and gives you high confidence that the house will eventually sell in that range.
I just put our rental condo up for sale. We got it on a short sale and the price increased almost 100% since 2011. The problem is that there is a new building coming up next door and it will block some view. There will be new amenities like new shops and stuff. Anyway, hopefully it’ll sell soon. I’m also putting it up for rent. Whatever goes first..
This article will come in handy. We are starting to prepare for a downsize move in the next 1-2 years. DW and I have had discussions about how much to do to the house before listing. My thought is we put way to much money into the house over the years already. Cosmetic improvements, yes. Major remodels, no. The new buyer can make those improvements if they see fit after the purchase. Maybe they won’t change a thing. I will also be reading your realtor article you mentioned as well.
Amazing jump in price. Congrats on your sale!. California housing market is super hot. We just got our first home, our plan is to buy a rental property. Nice article.
I always put location at the forefront. I’ve been in my current house for over a decade, and I’m OVER living so close to neighbors. I’ve considered buying a plot of land but it has to be in the right neighborhood. It can’t be so desolate that the house will never sell. It’s undecided if that dream is for the forever home. Right now, looking to rent out my current home once we move to see if being a landlord will work for us. If it doesn’t it’ll be a quick property to sell. I’m happy 21 y/o me made a good decision to buy a home in a good resale location.
I’m impressed u did at 21! How did you do it? When I was 21, I was finishing up my junior year in college. I would’ve loved to of bought a condo in New York City at 22, but it was going for around $700,000 this two bedroom 2 Bathroom Pl.
That was right before the housing/stock market crash. I wouldn’t have been able to do it in a HCOL area. I live in the SW so the housing prices are more reasonable. Anyway, at the time I thought it was crazy the lender would even considering giving us a mortgage. I wouldn’t take it back though. I grew up quickly and hit the ground running.
You are a brave man to analyze the market in this way _after_ you had made your sale – I would be scared to look in case I discovered that I had f***ed it up.
We are planning to relocate in a year or two and I am very much not looking forward to the stress associated with selling our home. I do plan to be retired by then, so on the bright side at least the stress of home selling will not be piled on top of regular job related stress.
“If you have a government that mismanages its finances, you can expect tax increases and/or a cut back in services. See Chicago as a model city for fiscal mismanagement.”
Add Illinois as the model state for fiscal mismanagement. Coincidence that Chicago is in Illinois?
Good points raised as well. We’re still renting, but it’s good to consider from the seller’s perspective if and when we decide to buy in the future.
One thing you don’t touch on when it comes to selling your house is agent commission. It still blows my mind that 5%-6% is standard and there seems to be no way to break this. What other industry today pays that kind of commission other than maybe esoteric derivatives/structured products? I keep thinking that technology will erode this monopoly power but so far it doesn’t seem to be happening.
Do they also charge broker fees in California for rentals or is that just a NYC phenomenon? They charge 15% of annual rent as a broker fee to rent apartments here and that is even more egregious. Agents don’t even do anything for a rental but hand you a rental agreement and unlock the front door for a tour!
R.E., my experience is that after selling a few homes, I’m comfortable with negotiations and contracts. With having a flexible schedule to allow showing the home on short notice, my listing “commission” expense is a flat fee to a licensed broker to enter the information into the multiple listing service. In Florida, I pay $75, but in South Carolina, the cheapest I’ve negotiated is $200. The listing then offers 2.5% to the selling broker. Free ads on websites, and perhaps a few paid ads, seem to add to leads from the MLS and broker syndications. A lock box and a yard sign cost about $40, and can be reused.
“Money is made on the purchase, not on the sale.”
This reminds me of the old adage that you make most of your money in a down market, you just don’t know it at the time.
Given current trends, wouldn’t it make sense to hold off buying real estate in San Francisco for a while, especially if one is living in a rent-controlled apartment?
Wow houses in SF are indeed expensive! We live in an average home in VA, and I already feel like I’m living the dream!
Whenever Mr. FAF and I pass by a wealthy neighborhood in the DC area (some houses even have horses outside with a huge stable – what?!), we would point to some houses and say we will buy a house like that one day.
It’s just fun to talk about it, but I don’t know if we can ever afford to or feel that it’s an absolute necessity. Maybe we will change our minds when we have more money.
Mr. FAf and I don’t plan to see our house any time soon, but this is a great guide for when we do. Thanks for sharing, Sam!
Housing prices out where you’re at are astonishing… your first example house where I live in Indiana would like be $600-$700k.
But… I guess Cali is quite a bit cooler than central Indiana!
Yeah, it’s just a function of income and also environment. There’s a lot of high paying jobs here, and you can still go outside in the winter and play so that allows for year round activities.
The key is to make your money here and then relocate to an area that you love even more.
Sam – We sold our primary residence last year. I wish I had read this advice before I sold.
“Some takeaways: Be careful over prepping your house for sale. I’ve seen so many cases where the buyer just comes in and rips everything out, like this buyer is doing after I spoke to the contractor who so happened to be outside when I was walking by after sale. Painting, refinishing the floors, updating fixtures, cleaning, and staging is probably good enough if you can sell the dream.”
I almost over prepped. We put about $10K and a lot of sweat equity into getting the house ready and once I got started it was hard to stop. We did the things our Real Estate Agent suggested – removed old carpet to expose hardwood floors, drywall to cover old wood paneling, painting, updating fixtures, and minor cosmetic repairs.
Anyway, I asked her to come over to see what we had done so far thinking we still had plenty more to do. She looked at everything and said something like “this house is more than ready to put on the market.” We ended up selling it in one day (bidding war!) for about $30K more than I was expecting.
But I still always wonder could I have gotten a little more. Maybe that is always the case?
Ironically, the only two times I sold a house were during relocations with my company. Both times, the company ended up buying them from me. So I haven’t sold a house to an actual seller yet. Both those houses ended up losing money, the one in Virginia substantially My experience has been primarily on the buying side. In fact I went out and got a real estate liscence as a side project to buy my very first house, so I could learn the inner workings of the process, and save myself some commission fees. My biggest take away is that Real Estate success is highly dependent on timing, if you’re very mobile, you can use that to your advantage, if not you better be a good negotiator.
Selling a property has got to be nerve wracking and I’m glad to hear your experience turned out well. You made the right decision for you and your family to sell when you did. Very insightful examples above too. That’s so sneaky about how the agent changed the ask price in the last example. I bet some agents do that a lot.
Sam, first of all, congrats on the profit you made on your buy/sell. Compared to all of the other examples, you crushed it. One other tip that we did with our recent home sale – at the suggestion of our realtor we paid $500 for a formal appraisal, then listed the house $100 below the appraised value. The listing featured a prominent “Below Appraised Value” headline, and resulted in a bidding war within 7 days of listing, easily earning back the $500 we’d paid for the appraisal. I’d never heard of this approach before, but it certainly worked for us!
Fascinating post Sam! I’m weary of agent advice especially if it’s expensive and require me to hire one of their friendly connections…I don’t think $65k to dress up a house for sale is a good smart.
Do you have a post on how to find a good / judge a good realtor? I think that’s the biggest variable here that a seller can actually control.
$65k is definitely a huge sum. I feel like I can put a down payment for an average house with that amount. But yes, when the house is expensive, it needs more care and maintenance for sure.
I found our first ever realtor through the Dave Ramsey ELP Realtor network. The first person we met was ok. But she referred us to someone else who was fantastic and knew what she was doing.
Sure. See: How To Find The Right Realtor Because My Realtor Sucks