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!

Is Flipping For You?

With real estate on the upswing in most parts of the country – and certainly in Hawaii – there is a lot of flipping going on.  You know flipping, don’t you?  That’s where one person (or a group) buys a house, does a little impressive remodeling, then immediately sells it for a nice profit.

To be a flipper, you have to know how to evaluate a home’s potential for value gain after fix-up, and you need the resources necessary to carry the project for both the remodeling time and the marketing time.  It can be an excellent business that often pays big rewards.  For example, consider a $400,000 condo built in the mid-80s with little updating since.  The flipper might offer $340,000 cash for it, invest $30,000 on remodeling, and sell it for$425,000 – a profit of $55,000 that likely occurred in a 4 – 6 month period.

But, flipping certainly isn’t fool proof. Some flips simply flop.  Perhaps the condo has defects that are not easily spotted that must be remedied.  Perhaps the HOA has strong restrictions about how remodels are handled, adding cost.  Maybe, even after remodeling, the house won’t appraise for the higher value.  Like all investing, flipping comes with risk.

But the question you probably have at this moment has nothing to do with flipper at all.  It has to do with the flippee:  why in the world would a person with a home worth $400,000 take $320,000 for it and walk away from that big piece of equity?

The alternative would be to put it on the market for $400,000 and then just sell it!  But then you have to allow for commission, which would be about $24,000 if an ordinary broker is employed.  Of course, at Help-U-Sell Honolulu Properties, we charge much less:  $18,250 less, to be exact!  Our fee to sell a $400,000 condo is just $5,750.

But back to our example:  let’s deduct $24,000 from the price for commission and, since the house is clearly in need of some work, let’s allow $10,000 for that.  And, since the price puts it in the range most cash poor first time buyers would consider, we probably ought to plan on paying some closing costs.  Let’s allow $6,000 for that.  Now, that $400,000 price will really mean $360,000 – and that’s IF we get a full price offer!  Dollar for dollar that Flipper’s offer is just $20,000 less and requires no pre-marketing prep, no repairs, no open houses, no inconvenience, nothing!  Basically, you’re handed your cash in about 30 days and you’re done!

Though it is still a rare home owner who will agree to a flipper’s terms, some are choosing this option.  It all depends on your goals and what’s important to you.  Of course, Help-U-Sell Honolulu Properties might make the difference for some sellers.  If we handled the marketing on that $400,000 condo for just $5,750 . . .  suddenly the gap between the flipper’s offer and selling it outright is bigger:  almost $40,000 – and that’s enough to offset any level of ease and convenience the flip offer brings.

If you are approached by an investor who wants to flip your house and you are uncertain what’s best for you, call us.  We’d be happy to discuss your situation, review your options and help you make a good decision.

How to Get the MOST for Your Property

Pricing is so important when selling real estate.  In fact, the marketability of your home depends largely on the price you set the day you put it on the market.  Honestly, the best advertising in the world can’t cause an overpriced listing to sell.  Neither can an army of top salespeople.  However, a properly priced listing will usually sell quickly at or near the asking price.

When you put your home on the market, you are unveiling it to a pool of buyers who are already in the market looking for the right house.  They’ve been looking for some time and just haven’t found what they are looking for yet.  Yours might be perfect for some of them.  These buyers – all buyers, really – evaluate a new listing on at least three criteria:  the location – is it in a place they’d consider living?  the floorplan – does it have enough beds and baths? and the price.  If any of the three is not in line with their wants, needs and capabilities they usually opt not to see the home.

That’s why it is so important to hit the market with a proper price, one that is in line with neighborhood values as established by recent sales and is adjusted for the trend in the market.  I think most people understand the concept of using recent sales (comparables) to establish price:  if a similar house three doors down sold for $550,000 two months ago, this house must be worth something near that.  But the trend is also important.  That house that sold two months ago? That’s the date the sale closed.  The buyer and seller agreed to terms (and price) some time before that – usually two to three months before.  If you are in a neighborhood where values are rising 1/2 % a month, that’s 5 months of appreciation that must be considered.  We should be looking at that recent sale as if it were worth $13,750 more:  $563,750!  And though it is rare in Hawaii, sometimes the trend is down instead of up.

When I work with sellers on pricing, I like to first establish the range of value for the neighborhood:  what’s the top of the market and what’s the bottom?  These are the ‘boundaries of the ballpark’ in my mind, the limits we don’t want to exceed in either direction.  Then we zero in on the specific house in question and locate it within that range.  At first, we consider the range of value for the house – say it’s $540,000 – $570,000.   It is a range because many other factors influence price.  For example, a family that needs a fast sale would probably want to price lower in the range, while one that has all the time in the world might price on the high end within the range.  $585,000 would  be way too much – and that initial unveiling period  I mentioned earlier would be lost.

As a home seller there are a few things you can do to help potential buyers see your home as being worth the price.  They are simple things, really, and I’ve covered them in the short video below.  If you are curious about your home’s value in today’s market – even if you don’t want to sell right now – we at Help-U-Sell Honolulu Properties would be happy to do the research and give an opinion.  Call (808) 593-8811 or use the easy form below.

Yes! I would like a free estimate of the value of my property!

 

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.

 

Living in a Rental? GET OUT NOW!

You’re a first time home buyer. You’re not sure if owning a home is right for you.  You have questions – we’ve got answers.   Starting at the beginning, let’s consider the question of Why:  Why should you consider becoming a homeowner? We will get to the quantifiable benefits in a moment – the numbers – but let’s examine some of broader truths first.  The greatest single financial asset most Americans have is their home.  The largest portion of Net Worth is usually housed in the equity people create and build in their homes.

Building Net Worth

Building equity becomes the springboard to moving up to bigger and better housing.  Today it may seem difficult to find the $14,000 or $18,000 you may need to buy your first home.  But in five years, when you are ready to trade up, it won’t be.  You’ll have $75,000 – $125,000 in equity in your current home and that’s where your down-payment will come from. Most people trade up a time or two and then temporarily ‘settle,’  staying in  a home for an extended period of time, focused on paying down the mortgage – which creates even more equity.  Now, equity in the home becomes financial power.  It can be borrowed against to finance everything from home improvements, purchase of rental property, college tuition or even retirement. To contrast, as a tenant, you have nothing more than the certainty that your rent is going to go up. You’ll pay it, but you’ll be building nothing.  In fact you’ll be helping your landlord build wealth instead. As long as you are going to have to pay for housing (few of us have found an acceptable way to live for free), you might as well pay for housing that grows in value, creates wealth and purchasing power for you.

Sense of Place

There are financial reasons to buy, sure, but there are other reasons to buy, softer reasons. Because they are living at the will and whim of a landlord, tenants tend to move around more often than homeowners.  There is a near transient lifestyle that goes with renting that rarely exists with home ownership.  As a homeowner, your children can grow up knowing they grew up there, in that house, played in that tree, slept in that room and so on. You decide when and what color to paint the living room and how you’ll remodel the kitchen.  This sense of home – being a place in which you have set down roots – is a great emotional reason to be a homeowner.

Tax Benefits

Currently, mortgage interest on your principal residence is fully deductible on your Income Taxes as are the real estate property taxes you pay.  The best way to illustrate this is with an example. Let’s assume you are renting a nice 2 bedroom apartment, paying $2,000 a month.  You are thinking of buying $440,000 home using an FHA Mortgage with minimum down-payment.  Homeowner’s Insurance on the new home will be about $800 a year and property taxes will run about $4,000.  Here is how the numbers break down: Downpayment:  $14,000 plus any closing costs.  Most will likely be paid by the Seller, but you should still be prepared with a few  thousand dollars to set up impound accounts for taxes and insurance and any other expenses not covered by the Seller.  Estimated cash needed to close:  $17,000

  • Mortgage Amount: $386,000 + FHA Funding Fee (UFMIP) $6,755 = $392,755
  • Mortgage Payment (30 year fixed rate at 4.5%):  $1,990 principal and interest
  • Taxes: $4,000 / 12 =  $333/ month
  • Insurance: $890 / 12 = $67/ month
  • Mortgage Insurance:  $434/ month
  • Total Payment:  $2,824

It would appear that owning that home will cost $824 a month more than staying in the apartment . . . but appearances can be deceiving.  Let’s look at this example after tax savings. You’ll be paying $33,888 in mortgage payments the first year to live in the new home ($2,824 X 12).  But, believe it or not, $17,544 of that will be mortgage interest, all of which is tax deductible!  Also, your property taxes of $4,400 are deductible for a total of $21,944 in tax deductions.  Assuming your income is sufficient to make this purchase possible, you are likely in a 25% tax bracket.  So the $21,944 in deductions translates to about $5,486 less in income taxes you will pay, all because you bought a house!  $5,486 / 12 =  $457.16 a month. Now take that $457.16 in tax savings and apply it to your total housing payment of $2,824 a month and your net housing expense is $2,366.84.  So for $366.84 a month more than your rent payment, you can leave that apartment and have a nice $400,000 home. 

Investment

But that’s just the beginning.  When you buy a home, you’re investing in real estate.  I feel comfortable saying that because historically, real estate has gained value over time.  Contrast that with, say, your car, which depreciates about 15% the moment you drive it off the dealer’s lot!  Appreciation rates can vary greatly year to year, but over time have been fairly predictable.  Typical U.S. appreciation for houses has been in the 2.5% – 3.5% per year range and it has been historically higher here on Oahu.

So let’s assume you buy that $400,000 home today and keep it five years before selling it to move up.  What will it be worth?  Bear in mind, nobody knows what appreciation will be, so the best we can do is guess, conservatively.  But let’s guess home values increase an average of 3% per year over that period. Your $400,000 home will be worth about $463,700.  A $63,700 increase in value. During the same period you will have paid your mortgage balance down to $358,027, so your Equity (the amount of wealth you will have built) will be almost $105,673. You got into the house with $17,000 and five years later have $105,673.  That’s a 621% increase in your housing fund! How can that be?!  It’s simple:  you are benefiting from an increase in the house’s value, which includes the $392,755 you originally borrowed to buy it.  You’re not only getting the increase based on what you put in, your getting in on what you borrowed as well!  Now that’s how to effectively use Other People’s Money! You’re a first time home buyer. You’re ready to get serious about your financial life, to begin building something for yourself and your family rather than for your landlord, give us a call.  We’ll help you discover what you can afford and show you how we can get you started on your own real estate journey NOW.

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!)

For Sale By Owner?

The For Sale By Owner option can be very attractive to some homeowners. They are sure with a little advertising, they could find a buyer on their own without the heavy expense of a Realtor’s commission. Think about it: if your home is worth $450,000 and you’ve agreed to pay a commission of, say, 6%* . . . well, that’s $27,000! And maybe you have just $80,000 in equity in your home. Suddenly that $27,000 commission is equal to 33.75% of your equity!! Surely you shouldn’t have to give up that much just to get your home sold!

There are, however, a number of reasons why you might want to be cautious about going For Sale By Owner, notably:

Safety. How will you know who is walking through your home? How will you protect yourselves and your valuables? Perhaps you are giving a tour to someone who may return when you aren’t there.

Financial and contractual protection. How will you protect yourself in a legally binding contract negotiation? Are you so knowledgeable about real estate law and finance that you can avoid making costly mistakes? Unless you are in the business everyday, negotiating a real estate deal on your own behalf is a little like attempting to fill your own teeth when you have a cavity!

Marketing know-how and ability. As a For Sale by Owner you can advertise your home in the paper, and on Craig s List. You can put a sign in the yard and hold an open house. But can you mount a comprehensive marketing campaign that puts you in touch with dozens, even hundreds of local buyers, any one of which might be perfect for your home? That’s what we do at Help-U-Sell Honolulu Properties. Getting the best price and terms for your home is a function of exposure: the more potential buyers who are exposed to the property, the greater your chances of getting top dollar.

Access to your ‘Best Buyer.’ As a For Sale By Owner, you can find some kinds of buyers. You can find the local trade up buyer. They’ve been looking for a year for the perfect home, and one of their top requirements is: it’s got to be a bargain! Plus, they have a home to sell before they can close on yours! And you can find the investor. You know: he wants to pick up your home for 80% of value, remodel the kitchen and ‘flip’ it for a nice profit! What you probably can’t find as a For Sale By Owner is the capable and ready-to-buy out of towner, moving to Oahu from somewhere else. They almost always work with Realtors – and are usually your Best Buyer. Think about it for a moment: if you were moving to a strange city, would you trust yourself to find the right house in the best neighborhood for a great price? No, you’d probably seek professional help.

Usually, when a new For Sale By Owner sign goes up, dozens of Realtors show up wanting to list the property. I find that often, after a few days, most such sellers agree not to list, but to pay any agent who brings an acceptable offer a normal buyers side commission. In our $450,000 example that would be $13,500 – with no representation, no marketing, no protection at all.

What they don’t realize is that with our Low Set Fee pricing, they could get the FULL SERVICE of a licensed professional Realtor for LESS than even that $13,500!

We are different. We charge less … a LOT less. And we get the job done. In more than ten years I don’t think I’ve ever heard a home seller gasp when they saw our fee on the closing statement. Instead, they usually smile, nod and say ‘Thank You!’

Before you try to go it alone with no help, no expertise, no marketing and no protection, find out what we can do for you for a Low Set Fee. I think you’ll be pleasantly surprised.

How about getting started with a Free Home Evaluation? We’ll be happy to provide a market analysis and have an objective conversation about the pros and cons of For Sale By Owner.

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:

Getting On The Same (House Hunting) Page

Sometimes I work with couples to help them find  their dream home, only to discover that they have different dreams!  What’s important to one is not important to the other, or worse, is at odds with what the other wants.  When two people have different ideas about what they are looking for, househunting can look more like arm wrestling!  It’s important for everyone to be on the same page before the hunt begins, and for this reason I offer the following exercise:

Begin separately.  Each person sits down alone and competes the Wants & Needs Assessment:.

House-Hunters-Wants

Sit together and review the exercise.  The first three questions are easy and will likely produce some agreement.  The real work begins with the lists of 10 items.

First, cross off any items on which both parties agree.  Then note any items that conflict.  For example, if one list says ‘One story, NO STAIRS!’ and the other says ‘Split Level or Two Story,’ . . . well you can’t have it both ways.  Don’t Debate these, just circle them.

Now you have three kinds of items on  your lists:  crossed off items on which you agree, circled items on which you disagree, and remaining items which don’t conflict with one another.  Start with them.  Talk about each item, why it is on the list, how  you picture it in your new home and so on.  Note whether the item is a 1, 2, or 3, and transfer it to a new combined list along with the items you crossed off earlier.

Move on to the circled items.  These are in conflict with one another so they must be negotiated.  How important is each?  If your desire for no stairs is a 1 and your partner’s desire for a Split Level is a 3, no stairs probably ought to prevail and be transferred to the combined list.  If the two items share the same number, for example if both are 2’s, your conversation will be more in depth.  Listen to one another.  Ask yourself how flexible you can be.  Gradually come to an agreement; or agree to disagree.  Transfer the result of your discussion (even if you agree to disagree) to your combined list.

Share the list with your agent.  Talk about the exercise and what you learned.  And then start looking at houses.

Now, remember those items you agreed to disagree on? It’s amazing how quickly the disagreement evaporates when a great house that meets most of your other needs comes along!

You can download a PDF copy of the House Hunters Wants & Needs Assessment HERE.

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!