Category: Help-U-Sell

Bad Pocket Listings and Good Ones

The real estate industry is at it again:  focused on the wrong issue at the wrong time for the wrong reasons!

To begin, let me make it clear that we are talking about ordinary Realtors, here – ‘Them’ – not ‘Us’ (Help-U-Sell).  We operate differently.

In the ordinary real estate world, there is a thing called a ‘Pocket Listing’ that occurs occasionally.  It is a listing that is held out of the MLS by the listing agent, giving that agent an opportunity to sell the home without the help of outside brokers or agents.  Ordinary agents sometimes take Pocket Listings so that they don’t have to share their big percentage based commissions with others, so that they can keep it all for themselves. If the home is priced properly and is in a desirable neighborhood, it is possible, even likely that a ready, willing and able buyer will contact the listing agent directly and purchase the property.  Since there would be no outside broker involved, the listing broker would keep all of the 5% or 6% or 7% commission the seller agreed to pay.

For example, assume we have a $900,000 listing at 5% commission.  If it is a successful pocket listing, held out of MLS, the listing broker would gross $45,000 on the sale (I know.  Sit down, take a breath, get a sip of water.  That’s a lot of money).  If the listing goes into the MLS and an outside brokers brings the buyer, the listing broker would gross half that much $22,500.  I think you can see why the concept of the Pocket Listing might be appealing to an ordinary agent!

There is a variation on this theme that has begun to show up in Hawaii.  It is the ‘Coming Soon’ listing.  You’ve probably seen them:  the for sale sign is in the yard with a rider sign attached that says ‘Coming Soon.’  The listing agent is not simply letting the world know that this home will be available for sale at some future date.  Think about what happens when a buyer who has been looking in that neighborhood for a house like this one sees that sign.  Of course!  He or she calls the listing agent directly.  Again, no outside broker, no reason to split the commission – and the listing broker makes more money!

Years ago, before the Internet, before Zillow and Trulia, the real estate industry created the Multiple Listing Service (MLS).  Listings placed into the MLS were fair game for any member broker or agent to sell with the assurance that the listing broker would share the commission with them.  Thanks to the MLS, today, more than 80% of all residential sales transactions involve an outside selling broker in addition to the listing broker.  It is one of the reasons ordinary percentage based commissions have remained so high:  they usually have to be shared by so many people that the industry would likely collapse if sellers paid less!

The industry is saying that Pocket Listings are bad because they don’t receive the full exposure MLS listings get, that when a listing agent holds a home out of the MLS he or she is doing a disservice to the seller.  I suppose that could be true in some tough markets or for some hard to sell listings – situations where it is important to pull out all the stops to find the right buyer.  But we are in a new real estate world today.  The Internet has provided vast channels for the distribution of listing information and the notion that nobody will know that your home is for sale without the MLS is simply not true.

My problem with Pocket Listings is who benefits and who chooses.

Pocket Listings are bad when the decision is made largely by the agent so that the agent can make more money; and honestly, that’s how and why this little gambit goes down . . . most of the time.

But at Help-U-Sell Honolulu Properties, we are different.  We sometimes take what the industry would call ‘Pocket Listings’.  The difference is, with us, if there is no outside broker involved, THE SELLER PAYS LESS!  We don’t charge them to compensate an outside broker if no outside broker is involved.  We don’t make more money on a Pocket Listing and they don’t pay for services that didn’t factor into the sale.  If the listing is located in a desirable area and is priced properly, we sometimes suggest that the seller hold it out of the MLS for a time to see if our own Help-U-Sell marketing program (which is extensive), can produce a buyer.  If it does, we can usually save that seller many thousands of dollars – like $10,000, $15,000 or more.  Our out-of-MLS listings benefit the seller, and sellers sometimes choose this option to maximize their savings.

Of course, even when our listings sell through the MLS, even when our sellers have to compensate an outside broker and agent, they still save thousands.  That is the whole point with Help-U-Sell Honolulu Properties:  Savings.  We’re going to get the job done quickly, efficiently, with a minimum of trouble and inconvenience and save you thousands of dollars over what an ordinary broker would charge.

Note:  real estate commissions, whether set fee or percentage based, are not set by law and are always fully negotiable between the consumer and the real estate broker. 

Q & A: All About Help-U-Sell

How Does Help-U-Sell Work?

We’re a real estate company, but our business model is very different.  The difference is largely behind-the-scenes and our clients usually don’t notice any difference between what we do and what they are used to from a great real estate company.  The truth is: we do everything any other real estate company does – put your home in the MLS, market extensively, prepare virtual tours, feature your home all over the Internet, and much more – but instead of a BIG percentage commission, we charge a Low Set Fee.  The Fee is a lot less than what others charge and it works for us because we organize and run our office differently than other real estate companies.

What is a Set Fee and Why Do You Charge For Your Services This Way?

A Set Fee is exactly what the name applies:  a dollar amount commission that is Set:  everybody pretty much pays the same amount regardless of sale price.  Other real estate companies charge a percentage of the sale price – say, 6%* – so the family in the $450,000 home would pay $27,000 to sell and the family in the $550,000 home would pay $33,000 for the same service.  Of course that makes no sense at all.

We know what it will cost to market a properly priced listing on Oahu and it doesn’t vary much by price range.  So we add a reasonable profit to that figure and that’s our Set Fee.  The fee is slightly higher for very expensive properties because time on market and marketing expense are usually greater, but the bottom line is the same:  Everybody who sells through Help-U-Sell Honolulu Properties saves thousands over what they’d pay an ordinary real estate company.

Do I Have To Do A Lot Of The Work?

No. We do everything.  However, you can save even more if you find your own buyer.  So – if you’d like – you are welcome to do a little promotion on your own.  Some of our listed sellers take flyers to the office or distribute them to friends and neighbors and find their own buyers this way.  Others hold their own open houses. But none of this is required.  We can do it all for you and you’ll save thousands over what others charge.  Our competitors often say we are a For-Sale-By-Owner company and our sellers have to do everything.  That couldn’t be further from the truth! We are a full service real estate company and we do everything other real estate companies do, but we also allow for money saving options for our home sellers.

What Am I Giving Up?

Nothing.  We are not like a discount store where you get a good price but lose a lot of the nice amenities that go along with shopping with a major retailer.  We are like the major retailer, with all the frills, bells and whistles. Our difference is in how we run our office.

What Does It Cost Me To List With You?

Nothing.  We don’t charge an up-front fee.  Our fee is due at closing; so if your home doesn’t sell (which is very rare for us), no fee is due.

Why Doesn’t Everyone Do It This Way?

There has been little change in the way real estate companies run their businesses in more than 50 years.  So many people have to be paid out of that big percentage based commission they charge that it would be almost impossible for them to charge differently.  We’ve changed all that.  We run our office differently and market more efficiently.  And, we pass the savings on to you, the consumer.  Help-U-Sell Honolulu Properties is  the NEW way to sell your home, and save.

 See What Our Clients Say About Us

*Real estate commissions, whether percentage based or set fee, are not set by law, custom or Realtor consensus.  They are fully negotiable between the consumer and the broker. 

Costco, Sam’s Club & Help-U-Sell

Interesting reading recently about Costco and Sam’s Club.  Sam’s is failing while Costco is soaring like an eagle.  They are both membership warehouse retailers offering a similar consumer proposition:  pay an annual fee and buy in bulk for less.  So why would one succeed and the other fail?

It’s all about the business model.

Sam’s Club is Walmart’s attempt to emulate Costco;  but they have the emphasis on the wrong syllable.  Walmart opened Sam’s intent on making hefty profits selling things to consumers.  In other words:  they simply duplicated the model they had in place at Walmart and applied the discounts afforded by buying in bulk.

Costco did that, too, but that wasn’t the point;  not really.  The profits made by selling goods were secondary to something else:  Membership.  Costco makes 75% of its Operating Profit on Membership Fees.  They enjoy incredible customer loyalty, achieving a 90% renewal rate.  The chain has paid bonuses to managers who find ways to charge members LESS for goods.  No item is marked up more than 15%, which is remarkable when most retailers employ a ‘Keystoning’ strategy that starts with doubling an item’s cost.

Costco makes its money by growing happy, even enthusiastic customers.  They do it by:

  • Keeping prices low and NOT planning to make a lot of money on the items they sell
  • Creating their own ‘Kirkland’ branded items that, unlike most store brands, are usually of superior quality
  • Offering the best free progressive buffet lunch in town (wink)
  • Allowing anything they sell to be returned for any reason
  • Appealing to upscale consumers (Meanwhile Sam’s Club/Walmart openly acknowledges that cuts to public assistance could adversely affect its bottom line!)
  • Paying their employees generously (as a result, their employee retention is outstanding)

Put plainly:  Costco wins because it employs a better, more consumer focused business model.

Which is not at all unlike the Help-U-Sell Honolulu Properties.

We make money selling real estate just like the other guys.  But our goal is to create such a great real estate experience that our customers return to us over and over again.  We accomplish this by:

  • Charging much less than our competitors.  We do make money when our listings sell, we just don’t make a killing
  • Staffing up with the most savvy and intelligent folks we can find and then rewarding them for their contributions
  • Offering a program to consumers that makes perfect sense and requires no smoke and mirrors to explain
  • Orchestrating the most effective marketing program in the industry

This is why we have dozens of testimonials from happy clients.  This is why the lion’s share of our business comes from former clients and the friends and neighbors they send to us.  Often, people tell me they came to us initially because of the savings they would achieve.  But they stay with us again and again because of the outstanding service we offer.

Which is not at all unlike Costco.

We join Costco because we like the idea of saving money.  But we shop Costco first because the shopping experience is so positive.

The better business model always wins.

For more information about our superior model, call today at 808-593-8811, or you can simply click here.

Do You Need MLS To Sell Your House?

There is a little controversy right now about the concept of a ‘Pocket Listing.’  There have been a number of recent news and opinion pieces, mostly from Realtor groups, condemning the practice of keeping a salable listing out of the MLS.  Before I tell you what I think, let’s examine the Realtor point-of-view.

Since the advent of the MLS, the residential real estate business has operated on a cooperative basis.  Because most MLS membership agreements require that every home listed by a member broker be offered for sale with an MLS listing (unless the seller signs an op-out waiver), every Realtor has an opportunity to sell any property listed with a competitor and earn a portion of the commission.

This is marketed as being in the best interest of the seller because it maximizes the opportunities for exposure of the home, getting it in front of more and more potential buyers through their individual agents. And after all, whether another Realtor comes in with the buyer or the listing agent finds the buyer him or herself, the cost to the seller will be the same; it won’t cost any more.

And that’s where the problem lies – real estate commissions are HIGH because each one is designed to compensate an outside broker and agent whether they are involved in the sale or not.

In general, when a seller lists with a traditional broker, he or she agrees to pay a percentage based commission.  The actual percent varies, but will often be in the 5% – 7% range.  Let’s consider something right in the middle, say, 6%.  On a $500,000 home, that’s a $30,000 commission!  Huge, right!?  But one of the reasons it is so high is the listing office has to be prepared for the likely event that an outside broker and agent will bring the buyer – and, generally, they’ll be paid half of that commission.  Of course, if there is no outside broker, if the listing broker finds the buyer his or herself, the seller still pays $30,000 because . . . well because that’s just the way it’s done!

At Help-U-Sell Honolulu Properties we don’t charge a percentage based commission, we charge a Low Set Fee.  And, we unbundle commissions.  If there is no outside broker involved, you don’t pay for one.  Now that’s a real benefit to a home seller, one you can put a dollar sign on!

My opinion? I don’t think this needs to be an either/or question. How about flexibility?  That’s why we put most listings in the MLS but only charge our sellers for an outside broker and agent if they are involved in the sale.  If we sell the house without an outside MLS broker, the seller doesn’t pay for one.

And, if your home is very marketable and priced well, we have no problem holding it out of the MLS so you can save the most on commissions.  Often, what I recommend is that we start without MLS and if we don’t have an offer or sufficient activity in 30 days, then go into the MLS and offer the home for sale through outside brokers.

At Help-U-Sell Honolulu Properties, we are about two things:

  • Getting your house sold for top dollar
  • Saving you the most money in commission expense

We will consult with you at the time of listing and continuously thereafter about how best to market the home, whether an MLS listing makes sense or not, and how to maximize your savings while selling for the greatest possible price.

Help-U-Sell On Air

One of the most enjoyable things I do in my real estate career is my weekly radio show.  Every Wednesday morning, I’m on air with Rick Hamada at KHVH 830 am for an hour of real estate conversation.

I usually give an update of any significant developments in the local market, talk about a specific issue or two relating to housing, and take calls from the audience.  It is an entertaining and informative segment that enables me to interact with thousands of people I might otherwise not meet.

The radio program has enhanced all of my marketing in a way I never expected.  When a consumer sees one of our listings or picks up our magazine, or even sees us on the Internet, they have a moment of recognition:  ‘Oh, I know this guy!  I’ve heard him on the radio!’  That connection lends a degree of credibility to my marketing that makes it much easier for consumers to call me.

Beyond the vanity aspect and marketing value, I’m proud of the radio program because it has given me an opportunity to help Hawaii home owners and buyers understand our market and the real estate process better.  After all, I have been at this for years and have a lot to share.  The radio show gives me a vehicle for that.

Next Wednesday, why not tune in to 830 am in the morning and catch the show?  Better yet, why not call in with a really good question?

By the way, an archive of past shows is located HERE, along with a collection of my video real estate Tips.

 

 

Using Social Media to Sell Your Home

At Help-U-Sell Honolulu Properties, we pull out all the stops to market our listings.  Today that not only means traditional methods like ads and post cards, mailers, flyers, signs and the like; it also means heavy involvement in Internet marketing.  We broadcast our listings to dozens of real estate property portals, give every listing its own website, create a virtual tour for each one and delve deeply into Google, Facebook and Twitter as we search for buyers.  Even this blog helps by keeping relevant, search engine optimized content about the local market before consumers.

But Help-U-Sell is also about seller participation.  We want our sellers to be as involved in the process as they want to be (and some don’t want to be involved at all, and that’s fine).  If they’d like to hold their own open houses, we’ll help them do that.  If they’d like to present the home to the neighbors or talk it up at work, that’s great.  And, if they find their own buyers, they’ll save even more money than they would if an agent did.  That’s the Help-U-Sell Way.

Home sellers can also participate in the marketing process by using Social Media.  The average American has between 129 and 160 Facebook Friends depending on age bracket.  When we put a home on the market and create its individual web page, we encourage our sellers to share that page with their Friends.  It helps to add a more personal note, something like:  ‘Hello Everyone!  We recently put our home on the market with Help-U-Sell.  I’d really appreciate it if you’d share this with your Facebook Friends.  Who knows?  It might be perfect for one of them!  Thanks.’

Let’s do a little hypothetical math.  If you share with your 150 Friends, and half of them share with their 150 Friends, and 20% of them share with their 150 Friends . . . you will have put your listing before 348,900 people!!

Staggering, isn’t it!  If  you are active on Twitter or LinkedIn, you might do the same there.

So what happens if your Friend calls and says their Friend saw the house on Facebook and wants to take a look?  You have a choice.  You can have us call them and arrange a showing, or you could invite them to stop by and show them through yourself.  If they like it, we’ll take over, write the offer, negotiate and then handle the sale all the way through closing.  And all you pay is the low Help-U-Sell fee.

At Help-U-Sell Honolulu Properties, we are all about savings and effective use of our clients’ social media connections can help to maximize that!

How to Shop for a Home in Today’s Market

Flashback: 1999

Sunday morning is spent with the classified section of the newspaper spread on the kitchen table.  Bob and Sue are circling ads for homes that might meet their needs.  They have been at this process for several weeks and have it down to a fine science.  The current pool yields five that might work, which means five calls to five real estate agents, one of whom is sharp enough on the phone to set up a showing appointment.  Bob and Sue like this agent and spend the next four Sundays looking at houses with her, eventually buying one.

Those were the days when the primary value of a Realtor was providing access to proprietary information about homes for sale.  Without the help of this kind of gatekeeper, home buyers had a very difficult time finding properties.  There was no Internet, no public property portals, no readily available information on past sales and so on.  The only way you found a home on your own was by reading classified ads or noticing for sale signs.

Today it’s very different!  Public websites like Trulia, Zillow and Realtor.com have put all of the information about homes for sale in the hands of consumers.  Though the data on those sites is somewhat flawed and often out of date, we are fortunate here on Oahu to have the home search capabilities of our Help-U-Sell website.  Connected directly to the MLS, it provides consumers with the most up-to-date and accurate information available.  We give you ALL the information on houses for sale because we believe house hunting should be a partnership.  Many of our home buyers participate in the home search process, searching online for possible matches and giving feedback on properties we select for them.  They like to be involved in the home search process.

This new breed of home buyer relies on us to make sure they don’t miss something new or not on the public portals.  They also look to us for information on neighborhood values, past sales, planned development and so on.  Often these buyers want to drive by a property that seems appealing before actually making an appointment to tour it – another reason to make sure you are maximizing curb appeal when you house is on the market.  With this level of home buyer involvement, house hunting time has diminished as has number of properties toured before making a decision.

When we encounter a new home buyer, one of the first things we do is have an in-depth conversation about their housing objectives.  We want to understand not only their wants and needs about floor-plans, house styles and neighborhoods, but also what’s most important to them from a lifestyle and location standpoint.  We also help them understand their borrowing capability and fine tune their price range expectations.  If they’d like to participate in the search process, we set them up with a website account which gives them  access to properties in the MLS.  This lets them search for homes for sale just like an agent.  We search as well, communicating frequently about what’s available and what might fit their needs.  We tour homes that seem to match until the right one comes into view.  It might be the first home we tour or the fifth or the fifteenth.  All the while we are answering questions about construction, zoning, financing, potential improvements, neighborhood values and so on.

From that moment on we are constructing an offer, negotiating with the seller, arranging for financing, setting up and managing inspections, collecting required paperwork and orchestrating all of the details that enable a closing to take place.  It is a complex and at times confusing process that ends with smiles all around as the keys are passed to the buyer at the closing table.

Today, the value of an agent is so much more than simply providing access to information about homes for sale.  We still do that, but we do it with great new consumer oriented tools.  Our primary value, though is in helping our buyer clients make really good decisions and then navigating everything that needs to be done to manifest those decisions.  We’d love to help you in your home search.  Call us today for a free, no obligation consultation.

 

Build Wealth with Real Estate

Meet Troy and Tanya.  Seven years ago they were interested in building wealth with real estate. They bought their first home, a condo near Pearl City, for $325,000 on a minimum-down FHA loan.  Four years ago, they rented that place and bought a single family home for $450,000.  Today they are looking at an even nicer house for $600,000.

By carefully buying real estate to live in and to rent, they now have about $230,000 in equity in the two properties. They have achieved that in 7 years with about a $70,000 investment in down payments and closing expenses for the two houses.  When they buy the new home, they’re going to, once again, keep the old one and rent it out.

And this couple is in their early 30s!  Can you see how, over the next 30 years, they could become at least comfortable if not wealthy by buying, selling and renting real estate?  

Their story is not unusual: there are dozens of Troys and Tanyas who have figured out that  real estate is their best investment.  For generations it has been the principal way in which American families build financial stability and independence.  Carefully orchestrated, real estate can be a wealth building tool, but the key is to get started!  Whether you are in your 20s, your 30s, or even your 40s, it is important to develop a vision for your real estate future and then create a plan to achieve it:  a Real Estate Plan.

At Help-U-Sell Honolulu Properties, one of the most gratifying things we do is help families secure their financial futures through real estate. It is something we are very good at and we’d welcome the opportunity to help you.  The process starts with a consultation – more of a conversation, really – where we talk about your goals, your financial situation, and your future.  There’s no cost or obligation and at very least you’ll leave with much more information than you have now.

Like Troy and Tanya, you may find that your house can be more than a great home.  It can be the best piggy bank you’ve ever imagined!

(Troy and Tanya are composites of a dozen young couples we’ve helped through the years. Their story is typical and is based on a prevailing interest rate of about 4.5% and average annual housing appreciation of 3.5%.  Housing does increase in value over time and mortgages do get paid down, creating equity.  Call us today and let’s get started building wealth with real estate for you!)

The Truth About Help-U-Sell

I talk with Oahu residents – and even people who don’t live here – about Help-U-Sell all the time.  I am excited about who we are and what we do and love to share that.  I am often surprised by what people think they know about us though.  The misconceptions seem to have a life of their own and though we’ve been operating successfully for more than 10 years, I encounter them almost daily.  Some of the most common misconceptions are:

Help-U-Sell is a For Sale By Owner Company –  No, we are a Full Service real estate company.  We do everything every other Full Service real estate company on the island does and a lot of things they don’t do!

You have to do a lot of work yourself if you list with Help-U-Sell – No, Full Service means Full Service and we do hold open houses, manage inspections, market heavily, hold hands, anticipate and solve problems and manage our transactions like mother hens all the way to closing!

You have to pay Help-U-Sell up front!  – No, our fee is due at closing; so if your home doesn’t sell, you don’t pay us.  It’s the same as with almost any other Full Service real estate company.

Help-U-Sell people aren’t real agents! – No. Just like almost any other agents working on Oahu, we are licensed by the state and belong to the State, Local and National Association of REALTORS.  We are as real as a Realtor can be!

Well, with Help-U-Sell, you get what you pay for! – No, no and no.  This statement implies that we are a stripped down discount service, the Yugo of real estate.  We carefully analyze your home and the market and make pricing recommendations, advise you about sprucing up, put your home in the MlS and all over the Internet, we stay in touch, arrange showings, present and advise you about offers, estimate your net proceeds, manage the transaction to closing and on and on.  We charge less NOT because we’ve stripped service out of the equation, but because we run our company very differently from the way others are run.  It’s a new way to sell real estate that saves sellers thousands!

Here is a 90 second video that explains who we are concisely:

Are Real Estate Commissions Motivators?

Most real estate brokers – what I call ‘ordinary‘ real estate brokers – charge a percentage based commission: 5% or 6% or 7% of the final sales price of the property as commission.*  Of course, as I’ve said before, this makes no sense at all.  There is no relationship between the arbitrary percentage charged and what it takes to get a house sold.  Still, percentage based commissions are what most brokers charge . . . because that’s what they’ve always charged.

We at Help-U-Sell Honolulu Properties have a better, more up-to-date idea.  We charge a Low Set Fee to sell your property, and it is the same whether your house is worth $500,000 or $650,000.   Our fee is not arbitrary but is based on what we anticipate the actual cost of marketing a properly priced listing on Oahu to be, plus a reasonable profit.  The bottom line about our fee is that it is designed to save home sellers money and is always thousands less than they’d pay a typical percentage based REALTOR.

I once heard an ordinary agent explain to a home seller that the percentage based commission she was charging was a good idea because it would motivate her to get the highest possible price for the sellers!  ‘When you make more,’ she said, ‘I make more!’   Well let’s take a look at that notion for a moment shall we?

First, let’s create a hypothetical situation.  Let’s assume we have a house worth somewhere in the neighborhood of $500,000 – $520,000.  Agent A – who works for an ‘ordinary‘ broker – offers to sell the property for a percentage based commission of , say, 5%.*  If she gets a price of $500,000 for the home that’s a commission of $25,000! (go ahead – take a moment to catch your breath), but if she gets $520,000 for it, the commission will be $26,000 – $1,000 more.  Not much . . . but perhaps a little motivating.

But wait a minute.  The vast majority of home sales involve two real estate companies one on the listing side and one working with the buyer and the two companies split the commission.  So in our example we’re most likely not talking about $25,000 and $26,000 and a difference of $1000 we’re talking half of that:  $500.  Not quite as motivating.

What many home sellers don’t realize is that the big commission paid at closing goes not to the agent but to the agent’s broker who then splits the commission with the agent.    Let’s assume our agent is on a 70% split with her broker.  Her take for getting the seller $20,000 more is actually $350.  I think you see where this is going:  the notion that a percentage based commission in real estate motivates salespeople to get sellers a better price is really nonsense.

It is 2014.  People are wearing computers in their eyeglasses!  We’re trading stock online for a set fee of $7!  Isn’t it time your relationship with real estate sales stepped into the new Millennium?  If you are thinking of selling, you owe it to yourself to talk to Help-U-Sell Honolulu Properties before you obligate yourself to a bloated percentage based commission.  We’ll get the job done while charging you a logical low set fee that will save you thousands!

*Real estate sales commissions – whether percentage based or set fee – are fully negotiable between the broker and the home seller.  They are not set by law, nor is there a ‘going rate.’ Commissions used in this example are not real and are purely for purposes of illustration.

Understanding Prorations

Estimating a seller’s net proceeds – or a buyer’s cash needed to close – is a complex process that is easy if you know all of the fees that must be paid when a piece of real estate sells.  We’ve been selling real estate on Oahu for more than a decade, so we’ve had lots of practice and are proud of our ability to be very close to dead on.  There are however a couple of ‘wild-cards’ in the real estate settlement process that can vary widely.  That does not mean they cannot be anticipated, but because they can go up or down depending on which day closing occurs, any unanticipated change in closing date can change these figures.

First of these varying fees is the Interest Adjustment.  Remember when you bought your last house?  You probably skipped a month’s payment, starting to make your payments on the first of the next full month.  That’s because mortgage interest is paid in arrears.  The interest in your June 1 payment is actually covering the month of May.  So,  a borrower who closes on the 18th of March (a 31 day month) pays 13 days of interest on the new mortgage – which covers the remaining days in March – and then makes his or her first full monthly payment May 1, seemingly skipping April.  If closing is delayed 5 days, that’s 5 days less interest the buyer must pay at closing.  On a $400,000 30 year mortgage at 3.75% we’re talking about almost $42 a day in interest.

There is a similar calculation for the seller as well.  In the same transaction,  after having made the March 1 mortgage payment, the seller still owes 18 days of interest to bring the mortgage current at closing. Since many real estate closings occur near the end of the month, the Interest Adjustment for sellers can be quite large.  We usually estimate a full month of interest for our sellers, coming up with a worse case scenario.  If we close earlier, there’s a nice bonus.

Taxes must also be prorated with the seller either bringing the taxes on the property current to the day of closing OR receiving a credit for future days that have already been paid.  In Hawaii, the property tax year begins on July 1 and property owners are billed in two equal installments,  one due August 20, one due February 20.  So, back to our hypothetical transaction, the seller who is current on property taxes for that March 18 closing is actually paid up to July 1, and therefore will receive a credit at closing.  The buyer, on the other hand, will be charged an equal amount to cover the taxes for the days after closing up to July 1.

If the seller has an impound account for accumulating taxes and insurance on the property as monthly mortgage payments, it will come into play as well.  Often (but not always) there is a refund.  Conversely, when the borrower closes on a mortgage with an impound account, he or she must make an initial deposit at closing to open that account.  That can vary by lender policy and by date of closing, which makes it one of our wild-cards.

Sellers often get a refund for pre-paid homeowner’s insurance.  Buyers on the other hand must have a policy in place covering their first year in the property when closing occurs.  By the way:  do you have to have homeowner’s insurance?  If you have a mortgage the answer is almost always yes.  If not, the choice is yours, but deciding against it might be the biggest mistake you’ll make in your life!

As you can tell, estimating your net proceeds or cash needed to close is not easy!  And it can be a moving target depending on which day of the month closing occurs.  At Help-U-Sell Honolulu Properties we complete an estimate at least three times for seller clients:  at time of listing, whenever an offer is presented, and a few days before closing.  For buyers, we estimate funds needed to close when an offer is written and negotiated and then again, a few days before closing.  Our goal is always the same: no surprises, and our track record at avoiding them is excellent!