If you’re a homeowner or want to be one someday, there will likely be a time you want or need to sell your real estate. So, it’s essential to understand various ways to sell a home and their costs, so you do it as profitably as possible.
Today’s topic was inspired by a recent question from Scott in Florida, who says:
“I live in an old house on the Gulf Coast that needs a lot of repairs, like a new roof, windows, and upgrades to the kitchen and bathrooms. I’ve paid for many updates over the years but can’t afford more. I’m considering selling the property and downsizing by building a smaller, new home. Since I don’t have much cash or home equity, what’s the cheapest way to sell my house and get the best price?”
Thanks for your question, Scott. I can appreciate how stressful living in a home that needs costly repairs must be. Fortunately, you have several good options when you’re ready to move. This post will review the pros and cons of various ways to sell a home even if it needs work you can’t afford or don’t have the time to do.
What options do you have when selling a home?
When you decide to sell your home or other real estate, there’s a lot to consider. What’s happening in your local housing market, the property’s condition, location, insurability, and your available cash, timeline, and willingness to make repairs all come into play.
For instance, maybe you landed a high-paying job on the opposite coast or inherited a property that needs to be sold quickly. Or, you might be in Scott’s position with a property you cannot afford to repair or upgrade.
Many home sellers have plenty of time to make updates and put their property up for sale after finding their next home. But there are alternatives if you don’t have the time, cash, or ability to prepare a property for sale and pay traditional closing costs.
I’ll review the following ways you might sell a home and what they typically cost:
- Listing your property with a local real estate broker.
- Selling a property yourself as an FSBO (for sale by owner).
- Selling a property as-is to an investor.
The cost of listing a property with a real estate broker
Most real estate transactions happen because a seller lists their property with a real estate broker that charges a percentage of the sales price. Previously, a broker typically charged a commission from 5% to 6% and split it 50/50 with another broker, known as a co-broker, who brought a buyer to the deal.
However, a new rule went into effect on August 17, 2024, prohibiting brokers from advertising buyer’s agent commissions on the multiple listing service (MLS), the database of real estate listings. The rule’s goal is to prevent agents from only showing properties paying higher sales commissions, an unethical practice known as “steering.”
Listing commissions have always been negotiable and still are. You might negotiate a lower percentage, especially if you have a desirable property that may sell quickly.
For their fee, a broker helps you with a wide range of tasks from researching comparable sales, property staging, taking photos, putting your property in databases like the MLS and Zillow, advertising, hosting open houses, fielding questions from potential buyers, setting up showings, negotiating offers, overseeing contract contingencies, networking with other agents, coordinating with a closing office, and more.
In a typical real estate transaction, sellers also pay certain closing costs, such as title insurance, transfer taxes, negotiated concessions, and legal fees, if you use an attorney. Plus, you may owe capital gains tax on a home sale for the tax year unless you qualify for an exemption. To learn more, listen to podcast 826, What Tax Do I Owe on My Home Sale?
The primary pro for paying a real estate broker to sell your property is getting their expertise, connections with local professionals, and saving time and hassle. The downside is paying a hefty fee.
Also, since brokers usually work with traditional buyers who need a mortgage, your property should be in good condition and insurable. Otherwise, a lender won’t approve the deal for a buyer. Getting an all-cash offer on a home that needs significant repairs is possible, but they only make up 32% of sales and tend to be for higher-priced properties.
Laura answers a listener’s question about paying tax when selling an investment and what to do with the extra cash. Listen in the player below:
The cost of selling a property as an FSBO
Another way to sell your property is by putting out a yard sign that says “for sale by owner.” When you do that, you’re known as an FSBO (fizz-bo) in the real estate industry. You’ll likely get phone calls from brokers who want your listing, but you only have to pay them if you agree to a commission if they bring you a buyer.
As an FSBO, you’re responsible for every aspect of a real estate transaction, including pricing, marketing, showings, legal paperwork, and negotiation. You can use platforms like Zillow and Facebook to advertise your property.
If you’re not well-versed in real estate law, you should use an attorney for help with paperwork and disclosures required in your state. Neglecting to create certain legal documents for a real estate transaction exposes you to huge liability, especially when your home needs work.
The pro for selling your own property is saving a commission. But the downside is that you may spend more time than you expect dealing with potential buyers, administering a deal, working with an attorney, and ensuring all loose ends get tied up before closing. Plus, you could lose significant money if you underprice a property or aren’t a savvy negotiator.
Laura answers a question about selling your home and explains a legit way to skip taxes or pay significantly less, called the capital gains tax exclusion. Listen in the player below.
The cost of selling a property as-is to an investor
Real estate investors are everywhere–they can be individuals, investment firms, contractors, or real estate brokers. In general, they pay cash for your home as-is, making it the fastest option with the lowest transaction costs.
Whether you inherited a property that you must sell quickly or are like Scott and can’t afford repairs that a buyer’s lender would require, a cash investor could close a deal within a week or two.
You’ve probably heard of tech-enabled cash buyers known as ibuyers, such as those on iBuyer.com. They might be firms or brokers looking to invest in real estate in your area.
The best house-buying companies work with sellers anywhere in the country and can make a no-obligation, cash offer on your property that closes quickly. You don’t have to make home repairs, worry about curb appeal, or deal with potential buyers.
The downside is that an investor usually pays a price for your home below market value so they can renovate and resell it for a profit, known as a fix-and-flip. The discount you must accept depends on the features of your home, like its location, size, condition, quality, layout, and general appeal.
So, an investor deal will be the most hassle-free but may not allow you to maximize your profit, especially if you’re in a hot market. It’s also possible to sell your home as-is with a broker, but you’ll likely also need to accept a lower sales price than if you had made repairs before listing it.
Should you sell a home as-is or fix it up?
How can you know whether you’d come out ahead selling your home for less as-is or making repairs and hopefully selling it for a higher price? The more repairs you need, the smaller the number of potential traditional buyers, but the larger the number of investment buyers.
Getting multiple repair estimates from contractors can help you understand the necessary upfront repair costs. Based on the average, you can determine if it’s possible to make updates and price your home to at least breakeven.
For instance, if you could sell your home as-is and net $350,000 or spend $50,000 on repairs and net $390,000, the renovations wouldn’t be worthwhile. But if you could net $405,000, making repairs might be worth it, depending on the time and effort you must put in.
Being able to sell your home quickly, whether due to financial hardship, health problems, a family issue, or to relocate for a higher-paying job, can be worth accepting a lower sales price on your home. Consider the time and hassle of overseeing home renovations before putting a property on the market. Your best buyer may be an investor if you need extensive repairs like kitchen and multiple bathroom remodels.
Certain states require sellers to complete a seller’s disclosure to list any known damage or faults with a property. When needed, be truthful about property disclosures to eliminate future liability–or get help from a real estate attorney.
How can you maximize profit from a home sale?
Whether you sell a home using a broker, as an FSBO, or to an investor, making low-cost, minor repairs can pay off. Improving a property’s curb appeal and interior always helps first impressions.
For instance, pressure washing the exterior and driveway, mowing the lawn, trimming hedges, adding landscaping, and removing yard debris can make pictures of your home more inviting to potential buyers who see it online and in person.
Inside, give your home a deep clean, declutter, fix leaky faucets, and add caulk around windows, sinks, and tubs. Those minor improvements can have an oversized impact on how buyers view your home.
If you want to sell your home for more than you’d get in as-is condition, consider tackling home improvements that will likely be most valuable to prospective buyers. For example, an older roof is a red flag to home insurers; many won’t insure properties with a roof older than 10 or 15 years.
So, having a new roof could make or break a deal for a buyer who must get a mortgage and homeowners insurance. Likewise, repairing an older electrical system or replacing an old water heater means a home inspector wouldn’t flag them to a potential buyer in the first place.
Scott, your first step should be getting a home inspection and repair estimate to know what a buyer will find when examining your home. Based on the scope and cost of needed repairs, you can consult with a local broker on what comparable properties are selling for. That information should help you determine if repairing your home or selling it as-is will likely net you the highest profit.