How to Sell a House

In an earlier post, I noted that my brother and I were selling a house in Pennsylvania.

Well, in mid-June we closed on the sale.

It was interesting to be on the other side of the table so soon after purchasing a home.  The process suffered a bit in the same way it did as when I was a buyer - lack of communication.

Because it is a negotiated deal that isn't complete until the buyer has the keys and the seller has the proceeds, neither side wants to show their cards.  When I was a buyer, I became terribly frustrated by the lack of responsiveness from the seller.  It was also impossible to know whether the seller was ignoring me, whether it was the seller's agent or lawyer that was behind the silence, or whether people weren't on the same page in terms of pace and reading / responding to e-mails.

Getting an offer
As the seller, I ran into this again.  We received an offer that we felt was low but we had at least one or two other potential buyers set to see the house before that offer would expire.  We didn't want to counter the low offer without knowing if we might have another offer coming in.  We'd also had a few other showings (although not the volume we'd have hoped), but often the agent for the other side wouldn't leave feedback.  This left us wondering if there was real interest in the house or if people were just using up a sunny Saturday to go "window shopping" through open houses.

In the end, the other interested parties either weren't interested, or cancelled their showings.  So, we were left with a low offer and not great prospects.  If we had regular showings, we might be inclined to think we could let the low offer go since another might be coming.  What really got us moving though was that the current renters let us know they were planning on moving out.

Countering
We eliminated the option of accepting the low offer which left us with two options: #1 Counter the offer with a number that we would be more acceptable or #2 No counter and keep the house on the market.

Our agent was careful to advise us that even if our higher counter offer was accepted, the agreement was still conditional and the Buyers could come back with requests for repairs and such to bring the effective price down.

We countered the offer and were happy yet cautious that it was quickly accepted.

The Sale Process
Pennsylvania thankfully has a standardized template for a sales contract so we didn't need to hire a lawyer.  The Buyers had agreed to our price, but the offer was conditional on an inspection and approval of their financing.

The Buyers also wanted to move in rather quickly, so we needed to have the current renters vacate so that the house would be ready.

The inspection did turn up several items in need of attention.  Some were "musts" - the bank would not approve the loan if they weren't remedied, while others were items where the Buyers were looking for us to pay for or help pay for repairs.

We had supplied the Buyers with our own inspection at the beginning of the process so we were less than keen on the idea of paying to replace the roofing shingles when they should have known they were old before putting in an offer.  We also knew they wanted to move in quickly, so this gave us leverage in terms of what we were willing to budge on.

We did have to pay for termite inspection and treatment, as well as treatment and pumping of the septic system, and for some old lead paint to be removed from window frames.  These were all required items.

The Buyers, given the time squeeze, didn't have much of an option - they could either accept where we were willing to budge or hold out for more, but potentially delay closing.  Again, because of lack of direct communication, I'll never know if they were perhaps furious at us for not budging on these types of repairs, or maybe they just thought they'd try and see what they could get.

Another breakdown in communication did end up delaying closing and I believe the Buyers were out of their previous house and had to stay in a hotel for a few days.  Pamela and I had to deal with this and understand how much of a hassle it is.  Their inspector had pointed out the lead paint on the windows needed to be removed and repainted.  Somewhere between their inspector, our agent, and the handyperson who we hired to do the work, the detail got lost that both the inside and outside of the window frames needed to be treated.

Their inspector came back a few days before closing to do a final walk though and pointed out the inside had not been dealt with.  We got our handyperson to go back, but the inspector couldn't return for a few days which delayed the bank's ability to close on the loan file.

On to Closing
Neither my brother nor I had to attend closing.  We had our agent attend and sign the final documents for us.  It was very straight forward for us - we got a statement the day before with the final numbers (which had a mistake), then we got a call after closing from our agent to say that it was complete.  We got a direct deposit of the net proceeds the next day.

Preparing Your Financial Docs

Getting your financial documentation in order for a mortgage is quite an undertaking.  I can't imagine what it must have been like before we could all pull our statements off the internet.

This post is designed to fill you in on what your banker or broker will be looking for in order to get your mortgage approved then cleared to close.

You can be assured that they'll request two months of statements from your checking, saving, investment, retirement, credit card, and student loan accounts.  If you already own a home, they'll want a copy of your original promissory note and recent statements.

Our process got a little gummed up due to a few things that could have been avoided:

• Cash deposits - if you deposit a large check (depends on your situation, but we got flagged for amounts >$500), they will ask for a letter of explanation and for you to paper trail the source (copy of check or deposit slip).  In our case, we got flagged because Pamela wrote me checks to be the holder of the funds for the down payment.  These were easy to paper trail.  We ran into trouble with a cash gift that Pamela's parents deposited into her account.  The broker requested Pamela's parents checking account statement along with a signed gift letter stating that we didn't have to repay it.
• A note on gifts - our broker told us that you can have your application denied if you receive a substantial gift.  The thinking is that the banks don't want to loan people money who can't make a down payment on their own.  So keep this in mind if you might need help on your down payment - if the gift is made far enough in advance, it won't show up on recent bank statements.  Otherwise, gift givers should wait until after you close.
• I also received regular monthly checks from our renters in PA (see rental property).  When my Brother and I came into possession of the house, we were never put on the mortgage so it didn't come up in my credit report.  Needless to say, we should have discussed this more up front.  As we were hoping to close, they asked for the original promissory note - from 1986.  I had my mother mail me a book of documents that she had on the house, but the note wasn't among them.  I was able to get a copy from the mortgage holding bank, but this took time.
• Loans from retirement accounts - this was probably the first situation where online statements caused problems.  Pamela's pension fund is not the most technologically savvy, so when a large direct deposit showed up in her checking account (the pension loan) we were unable to provide a statement.  She called the administrator only to be told that statements are printed quarterly.  They offered to write a letter confirming the loan, but this would require time to process.  In the end, she printed a screen shot of the website and wrote a letter explaining the situation.

Your broker will process through all of these documents and then provide you with a Commitment Letter.  This essentially says that the lender thinks you are worthy of the mortgage you are asking for and will outline the rate and the terms.  The Commitment Letter will come with conditions.  This is the lender saying "we'll give you your loan based on what you gave us, but we see a few things that we want more information on.  If we don't like what we see, we aren't obligated to give you the loan."  Once you complete those conditions, you may be "cleared to close" or the lender may provide you with more conditions.

Besides being mindful of the issues we ran into listed above, I would suggest you stay on top of whoever is processing your loan.  In fact, being proactive is the best option.  If you have received a gift, get the documents in advance.  You don't want your broker to be doing one final run through and come across something he/she missed that will take days to complete.

First Seller's Post

You've probably noticed the vast majority of the blog to this point is related to our purchase of a home in Westchester, NY.

I recently began the process of selling a rental home my brother and I own in Pennsylvania.  This property was passed down to the two of us from our parents.

For the past several years, this property has been occupied by renters.  While some extra cash from the sale of this rental property would have been great for our home purchase, I wasn't in any hurry and didn't really consider it. 

In the midst of the home buying process, I received an e-mail from our renters.  They were expecting a baby and were beginning to look at purchasing a home of their own.  They asked if we would be interested in selling the Rental Property to them.

The timing was advantageous and we didn't have any long-term plans for the home so we thought we'd investigate.  I also found that there are some strong tax advantages to selling a home then rolling over the proceeds into the purchase of a new home.

We engaged a local Realtor, the same one who had sold our father's home, who put together a report on comparable homes for sale or recently sold.  This framework helped us to estimate the current market value of the rental property.  We then hired an inspector to take a look at the home - we haven't been inside the house for years and we knew some aspects of the house would need repair.

The inspection, fortunately or unfortunately, turned up many items that would need to be fixed in order to sell or by a buyer who was willing to put in the money.  The inspector also let us know that we'd need to find a cash deal or a conventional mortgage - any type of government loan wouldn't work, as the house wasn't in good enough shape.

We've used this information to come to our listing price and we conveyed that to our current renters.  We are now awaiting the listing of the house to go live and hopefully get some interest.

I look forward to updating you on the progress of the sale!