Home-sale mistakes that cost you money
Real estate is a local experience, so be prepared for varying conditions depending on where you live. In much of the Midwest, West, and South, for example, sellers have the most leverage, according to Lawrence Yun, chief economist at the National Association of Realtors. But buyers have the advantage in the Northeast and other parts of the Midwest. In especially hot markets like San Francisco, Seattle, and Dallas, final sale prices are usually at or above asking, and bidding wars are not unheard of.
Even so, there’s plenty you can do to affect how much money you make on a home sale or spend on a purchase, according to our survey of real estate pros. A lot, it turns out, rides on your choice of real estate agent. A disturbing finding of our survey was that 86 percent of agents said they witnessed other agents engaging in poor business practices, which could cost consumers money. About a third said they saw agents steer buyers toward homes that would give them higher commissions. Others said some brokers exaggerate when marketing themselves. And 27 percent knew of brokers who tried to persuade clients to sell a home for less than it was worth.
In a typical transaction, the money you stand to gain from making smart moves—or lose from making poor ones—can be substantial, from 11 to 20 percent of a home’s value, according to our survey. Dodging the following errors will lead to the smoothest, most profitable buying or selling experience.
Use these top 5 ways to boost the value of your home and avoid these 4 red flags that can ruin a home sale.
Rushing into a deal
One of the more costly mistakes home buyers make is agreeing to too high a price on a home, according to the real estate agents in our survey. A related mistake is overestimating one’s knowledge of the real estate market. “It’s not until you’ve been in the market in a particular area for a while that you know what homes are really worth,” says Brendon DeSimone, a real estate agent and author of “Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling” (Changing Lives Press, 2014). “If you make an offer on the first house you fall in love with, you risk spending too much based on emotion, not practical sense.” So take your time, go see lots of homes, and get a good idea of the local price scale. A tip: If you do enter into negotiations on a house and they come to a standstill, don’t be afraid to walk away.
Biting off more than you can chew
Of the surveyed agents, 33 percent said another mistake customers make that puts them in a more financially untenable situation is underestimating the costs of home ownership. It’s not enough to calculate the monthly mortgage. You also need to factor in your closing costs and all of the additional fees you’ll owe. Many of the fees are negotiable, such as the home inspector’s fee, the cost to do a title search, and your attorney’s fee. And find out what the current homeowner pays for utilities, taxes, and other monthly costs, so you can be sure you can really afford that home. Also get estimates for repairs you want to make to the home before you move in.
Failing to upgrade your credit score
To get the most favorable rate on a loan, you have to have a strong credit profile, and that means a credit score of at least 740, says Greg McBride, chief financial analyst for Bankrate.com. Recently, if your score was 740 and you applied for a $300,000, 30-year fixed mortgage, you could qualify for a 3.75 percent interest rate, with monthly payments of $1,389. If your score was below 680, the best national rate we found on Bankrate.com was 4.25 percent, with a monthly payment of $1,476 for the same loan; over the life of the loan, you’d pay $31,130 more. Don’t wait until the last minute to scrutinize your credit reports and make any necessary changes to improve your profile. If you find errors, be sure to dispute them.
Not shopping around for a mortgage*
When shopping for that mortgage, compare the deals you can get from a mix of large national banks, online banks, local regional banks, credit unions, mortgage brokers, and mortgage companies. Interest rates can fluctuate daily, so try to shop on the same day or within a few days, if possible. Keep in mind that while lenders, brokers, and agents can be informative, they also have a stake in the transaction. You shouldn’t rely only on the information you get from those that have something to sell. The Consumer Financial Protection Bureau offers a toolkit that lets you check interest rates by state, understand loan options and advises you on how to win at the closing table when you are ready to finalize your purchase. Another good idea: Get pre-approved for a loan before you shop; sellers take preapproved buyers more seriously.
Skipping the home inspection
“One of the biggest causes of buyer’s remorse I see is people who do not do a home inspection and find out later there were big problems with the house,” says Betty Gross, a real estate agent in New York. You want to be present during the inspection to learn about any costly repairs that might be needed and to get basic info on the home, such as where the electrical panel is and where you shut off the water. A home inspector can also point out repairs that will need to be done in the next few years. You can find licensed home inspectors in your area on the website of the American Society of Home Inspectors.
Overpricing your home
This is the most costly mistake, cited by 43 percent of surveyed agents. “If you price it too high, it will just sit on the market, agents will stop showing it, and buyers will assume there’s something wrong with it,” says Jeanette Cook, a real estate agent in Burlingame Hills, Calif., a suburb of San Francisco. “You may have to drop the price far below what you think it’s worth just to entice people to look at it again.” A good agent will show sellers the sale price for at least five similar homes nearby that sold in the past two months.
Overpaying the commission
Unless your agent is a close relative or friend, he or she will charge a commission, or percentage of the sale price, and may even lead you to believe that the fee is inflexible. But, in fact, 63 percent of the real estate agents in our survey admitted that they negotiate their fees at least half of the time. And despite the widely held belief that 6 percent is the standard broker’s commission, almost half of the agents we surveyed typically charge just 4 percent or less.
Check out the best ways to finance home repairs.
Hiring the first agent you meet
Selling a home is one of the biggest financial transactions most people make, so you need to have someone you trust. Ask friends and family for recommendations and meet with at least three candidates. You can often find an agent’s state license number on his or her site, or you can ask for it. Then do a Google search for “(name-of-your-state) real estate licensing division.” Some state real estate licensing divisions will disclose complaints that have been filed or whether a license has been temporarily suspended. And see whether an agent you want to hire is a member of the National Association of Realtors; members are supposed to adhere to a strict code of ethics. Check references from at least three recent clients. (Related: Don't let a real estate agent's bad behavior cost you money.)
Neglecting to do a Google search for your address
Make sure nothing negative comes up, such as an old lawsuit or public records that have inaccurate information about your home’s number of bedrooms, say. Also check your home’s street view on Google Maps. If it fails to show improvements you’ve made, make sure your broker addresses that in the listing.
Putting your home on the market before it’s ready
Don’t put the “for sale” sign on your lawn until it’s show time, says DeSimone. With 92 percent of home buyers using the Internet as part of their search, according to the National Association of Realtors, photos are key. “You wouldn’t put a picture of yourself wearing a bathrobe on Match.com,” he says. “Your agent should arrange for a professional photographer to take shots of every room and your yard.”
An earlier version of this article implied that consumers should not use mortgage brokers when shopping for a mortgage. The article has been updated to more accurately express that mortgage brokers are an option to consider, along with other mortgage providers.
This article also appeared in the March 2015 issue of Consumer Reports magazine.
More from Consumer Reports:
It’s time to buy a new phone, here’s why
Dos and don’ts of itemized tax deductions
Top 5 ways to boost the value of your home
Consumer Reports has no relationship with any advertisers on this website. Copyright © 2006-2015 Consumers Union of U.S.