MONEY selling a home

I’m Trapped in a House I Can’t Afford to Sell

house padlocked
Steven Puetzer—Getty Images

What to do when you're underwater on your mortgage.

Eddie would like to to sell his home, but like millions of Americans, the widely touted housing recovery hasn’t fully reached his North Akron, Ohio, neighborhood. He owes about $60,000 on his mortgage and the two experienced real estate agents he consulted put the value of his home at somewhere around $58,000 to $59,000. Even if he were to find a buyer who would pay the full $60,000 he owes, by the time he paid a real estate commission and closing costs, he would have to bring a few grand to the table.

“Being underwater on the mortgage has me trapped here,” he writes in an email. “As I sit here right now, I cannot even sell my home without taking a loss, and that will prevent me from buying the next house.”

Eddie’s not alone. According to CoreLogic, at the end of 2014, 10 million (20%) of the 49.9 million residential properties with a mortgage have less than 20% equity (referred to as “under-equitied”) and 1.4 million of those have less than 5% equity (referred to as near-negative equity). According to the Zillow Negative Equity Report, “the rate of underwater homeowners was much higher among the homes with the least value.”

What can borrowers who find themselves with little or no equity to do? Here are six options.

1. Cough Up Cash

Coming up with cash to get out of an unaffordable home may make sense if it will save money in the long run. Run a “break even” analysis to find out at what point your monthly savings will exceed the money you must pay to get out. For example, let’s say Eddie would have to come to the closing table with $5,000 to get out of his current home loan. If he saves $100 a month in a different home it will take him 50 months to replenish his savings with the money he paid at closing. After that, his $100 a month savings is money in his pocket. But if he’d save $300 a month on a new home, it would take less than two years to come out ahead. (Of course, that’s a simplistic example that doesn’t take into account taxes, the cost of moving or buying a new home, etc.)

In order to reduce the money they have to pay to get out of their homes, some borrowers are opting to sell their homes themselves to save money on real estate commissions. (Ever wonder why real estate commissions are often 6% of the sales price?) This may be an option for a seller who is comfortable doing most of the work themselves and in no rush. Be sure to factor in closing costs as well. Some may be negotiable, but some won’t be.

2. Let It Go

At some point, it may make sense for a borrower to cut their losses and move on, whether that involves deed-in-lieu of foreclosure, a short sale, a bankruptcy or a combination of those.

In Eddie’s case, he has a very good reason to avoid this route. Over the past two years he’s been diligent about rebuilding his credit scores and has made significant progress, raising his credit scores anywhere from 75 to 100 points or more, depending on which credit scoring model is being used. (You can get your credit scores for free on Credit.com to see where you stand and to track your credit-building progress.)

“He’s worked so hard to improve his credit score I wouldn’t want to recommend anything that would take him in the wrong direction,” says Credit.com contributor Charles Phelan, founder of SecondMortgageAdvice.com. For example, if he stops making his mortgage payments in order to get his lender to agree to a short sale it would cause significant damage to his credit scores. Since he’s not in distress, it probably wouldn’t make sense.

For those who do think it’s time to let go, however, it’s a good idea to get professional advice as there may be both legal and tax implications to walking away from your home. Here’s a complete guide to your options if you are underwater on your home.

And there’s another option that might work: “If a seller can prove that he or she has buyer – as evidenced by an executed purchase contract with a meaningful earnest money deposit in escrow – the seller can use that as leverage to haircut the loan just enough to make the deal close. But just calling the bank and asking them without anything in writing and earnest money won’t do anything,” says Salvatore M. Buscemi, author of Making the Yield: Real Estate Hard Money Lending Uncovered. And if the lender won’t budge, “the buyer isn’t obligated to cover any shortfalls for the seller,” he warns.

3. Pay Down Debt

Paying down the principal balance on your mortgage can get you to positive equity faster. Eddie says he has taken a part-time job to bring in extra cash to do just that.

A word of caution: homeowners need to be careful not to become “house poor” by sinking all their their money into their home, and failing to leave cash available for emergencies. If that happens, it’s easy to end up in a situation where they are forced to run up credit card debt to fill in the gaps.

4. Raise the Price

Increase your home’s value and you may be able to get a higher price. “I began a renovation that will encompass the kitchen (refinishing cabinets, new range hood, new lighting, fresh paint and laminate flooring) the bathroom (a tub surround, a shower door and a new floor), and the living room (these awful white walls will soon be tan),” Eddie says. “Hopefully once these renovations are complete I will see my home value increase by at least $5,000.”

“Cosmetic improvements or little incremental improvements can start to bump the value up,” says Phelan, “because he’s not that far away from having property that’s coming back in the money.” Just be careful to focus on improvements that are likely to increase the home’s value. Be especially careful about going into debt here. If the home doesn’t sell, you’re stuck with that extra monthly payment.

Eddie’s decided it’s worth a try. “Worst case, I will have a house with three rooms renovated,” he says.

5. Rent or Be a Renter

For those who can swing it, another option may be to go ahead and purchase another home now, says Scott Sheldon, senior loan officer with Sonoma County Mortgages and a Credit.com contributor. “If you purchase the new property as an investment property you can use the projected fair market rents to purchase the property to offset the mortgage payment, typically at 75% of the gross rents.”

In other words, purchase the new home as a rental and move into it later. “He is going to be paying a premium, a higher interest rate and higher fees, to purchase the property as an investment property,” he warns. For some, though, this could be a way to snag a property at an attractive price and then move into it later.

What about renting out his current home and purchasing the other as his primary residence? “In order to convert a primary home to a rental property you have to have 30% equity in the property supported with fair market appraisal and have a tenant lined up by closing,” says Sheldon. “This way you can use the fair market rents to offset the mortgage payment of your current home, allowing you to go buy another one.”

Since Eddie is nowhere near that level of equity yet, that option is off the table for the moment. For someone considering this path, remember that becoming a landlord can be quite risky. If your tenant doesn’t pay rent or trashes your property, your costs can mount quickly.

6. Wait It Out

Finally, if none of these strategies work, simply continuing to pay the mortgage and live in the home may be the best option. However, if Eddie stays, both Sheldon and Phelan suggest he look into whether he can refinance his current loan through the Home Affordable Refinance Program (HARP). If he brings his interest rate and payment down, he’ll be able to throw more money at the principal balance. Phelan also encourages him to contact a local housing agency for a free consultation. There may be local programs that could help.

More From Credit.com:

MONEY selling a home

Why Do I Have to Pay a 6% Commission to My Real Estate Agent?

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fotog—Getty Images

Why not 3% or a flat fee?

Selling a house can be expensive. Not only are you probably going to have to lay out some cash to spruce it up so you can get top dollar, you also have to plan on paying a real estate commission, which usually runs 6% of the sales price. On a $300,000 home that’s $18,000 — not a small chunk of change.

So why 6%? Why not 3%? Why not a flat fee of $2,500?

In the 1940s and ’50s, the National Association of Realtors required its members to set commissions at a certain level — and also required its members to either work full time or have enough customers to earn a living as a Realtor — in order to join (only members had access to the Multiple Listing Service). In 1950, the Supreme Court ruled that requiring certain rates was illegal. (After that it became a “suggested” rate, some sources say.)

How it became 6%, however, no one seems to know.

“I have been in the industry for nearly 40 years and know of no one who can say how, when or why it was established originally,” says Steve Murray, president of REAL Trends, which tracks real estate data. “I do know that we have been tracking it since 1991 on a national level (and are used as the source for such data by the Federal authorities) and it has fallen from an average of 6.1% that year to just above 5.18% in 2014. We see signs that it is continuing to decline at this time,” he said in an email.

Is the 6% Commission Outdated?

One thing to keep in mind is that real estate services are generally bundled. Services on the seller side may include marketing, advertising, open houses and help during the negotiation process. On the buyer side, real estate professionals may spend a lot of time finding and showing houses to prospective buyers, as well as helping them navigate the purchase. Similar to other bundled services, like Internet, cable or phone service, however, bundling sometimes requires consumers to purchase services they don’t need.

More and more, consumers are seeking (and finding) an “unbundling” of such services. Years ago, potential homebuyers talked to an agent, seeking advice on areas with good schools and public transportation, or low crime — now they may research it themselves. In addition, they may be checking online for homes for sale and contacting agents about a house that just went on the market, instead of looking to a real estate agent to find them a home. Furthermore, sellers may not want open houses, or to pay for services they won’t use.

Alternatives to a Full Commission

Rates can be negotiated. If you are a seller and a contract calls for a 6% commission, you can ask whether the agent will take less. “Offer 4%,” suggests Bob Nettleton, a social media editor for a natural health products website, who negotiated the commission when he used a real estate agent to sell his home. Or, he says, offer 2% if you find the buyer on your own and just need the agent to help with the standard process. He added that other factors, such as home price and how many services you expect, may also affect how much you can negotiate on the commission.

While some worry that a smaller commission gives an agent less incentive to sell the house, it may be relative. After all, a $300,000 house doesn’t necessarily take twice as much work to sell as a $150,000 one, even though it nets double the commission. If someone saw your home on the Internet and called an agent to see it, the agent may not be any less likely to show it even if the commission is lower.

Another alternative is to look into services such as Redfin, ListingDoor or local flat-fee MLS agents that don’t use the traditional commission structure. And of course, some DIYers (or FSBOs — For Sale By Owners — as they are referred to in the industry) are using Craigslist, Zillow and similar sites to market their homes themselves.

But before you automatically think cheaper is better, there can be times when you get what you pay for. Tom Scanlon, a financial advisor with Raymond James in Manchester, Conn., tells this story: “About 20 years ago, we were trying to sell our home. It just wasn’t moving. My wife suggested we drop the price $10,000 to move it. I did the math and called my Realtor. I told her I wanted to rip up our contract. I then told her I wanted to INCREASE her commission to 7%. She drove right over to our house with a new contract. Two days later, the house was sold for very close to the asking price. All of the other agents saw the 7% commission and jumped on it!”

Buying or selling real estate is a costly financial transaction, and the commission is just one part of that. Negotiating a real estate commission may pale in comparison to the extra money you’ll pay over the lifetime of a mortgage if your credit isn’t excellent. Someone with poor credit can end up spending hundreds of thousands of dollars more in interest, than someone with great credit (this tool estimates your lifetime cost of debt, based on your credit standing).

Buyers should review their free credit reports and check their credit scores several months before they start house hunting, in order to give them time to resolve any credit issues that arise. And for sellers, working with a buyer who has already been preapproved can help you avoid the headache of a deal that falls through due to financing glitches.

More From Credit.com:

MONEY selling a home

5 Ways to Deal With the Eyesore Next Door

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Stephan Zabel—Getty Images

Don’t let the neighborhood eyesore put your home sale at risk — take action with these 5 tips.

You’re almost ready to put your house on the market when you realize it: The neighborhood eyesore is going to pose a problem.

Sure, we know some people might view any attempts to hide an eyesore from view as being underhanded, sneaky, and designed to fool unsuspecting buyers. They might envision unscrupulous sellers and agents who keep their fingers crossed, just hoping no one spots the eyesore next door.

If you feel that way, by all means, point out the junkyard behind you that’s worthy of American Pickers, the yard next door that looks more like a prairie than a lawn, or the bail bonds sign spray-painted on the wall across the street.

For the rest of us, here are five ways to resolve these eyesore neighbor homes so that would-be buyers won’t be scared off. And who knows? Maybe if you tackle these unsavory sights, you’ll decide not to sell your home after all.

1. Ask your neighbor to fix the problem

This solution can be tricky. There’s really no easy way to tell someone that his or her house is the neighborhood eyesore. But there are some methods that might help.

“Just writing a friendly note (dropped off with a bottle of wine or another small gift) can sometimes do the trick,” says Ross Anthony, a San Diego real estate agent.

It also can’t hurt to mention to your neighbor that the more your home sells for, the more his or her home will be worth.

2. Be neighborly

You know how people can become desensitized to certain smells? (“How did you know I had a cat?”) Well, people can become so accustomed to the condition of their house that they don’t notice when it looks run-down.

This sometimes happens with elderly homeowners: either they haven’t realized the condition of their home or they simply can’t manage the upkeep. You might think a condo or townhouse situation might better suit your overwhelmed neighbor, but steer clear of that suggestion.

Instead, offer to spruce up the house yourself. “If it is an elderly person, I offer to help,” says Sarah Bentley Pearson, an Atlanta real estate agent.

But it’s not just elderly neighbors with houses that could benefit from a little TLC — just think of all the work you did to get your house in selling shape!

Alexander Ruggie of 911 Restoration in Los Angeles says that if the next-door neighbor has a poor paint job, a wobbly fence, or a caved-in garage, there’s no reason you can’t offer to help fix the problem. “Most people would be surprised how much they can convince people to do when they offer to help do it.”

3. Notify your HOA

If you live in a community with a homeowners’ association (HOA), let it know about the unkempt house near you. One of the main reasons HOAs exist is to prevent homes in the neighborhood from becoming eyesores that could drive down the value of your home.

Your HOA might send a letter to the offending neighbor warning him or her to fix the problem or face fines. Or the HOA might take care of the problem and then bill the homeowner.

4. Call the city

If your neighbor won’t mow his or her lawn, get rid of the junk outside, or let you help tidy up, you can always call your local government.

“If there is a really bad problem, like the grass is a foot tall and there are junk cars on the front lawn, your neighbors are probably in violation of local codes and can be forced to clean up,” says John Z. Wetmore, producer of the TV show Perils for Pedestrians.

Do this well in advance of putting your house on the market. The city could give your neighbor up to 90 days to meet housing codes.

Wetmore also suggests that you “walk around the block and pick up any litter along the public streets and sidewalks.”

If the house is a bank-owned foreclosure, find out which bank owns the property by checking county title records. Insist the bank maintain the property.

5. Plant view-blocking trees or install a fence

It might be worth the investment to block an unsavory view. If you plant trees, choose ones that are at least 6 feet tall to give you an immediate sense of privacy. Privacy fences should also be 6 feet high.

If your neighbors are noisy, putting in a small waterfall can drown out the racket.

“You only have one first impression,” says Ross Anthony. “You want potential buyers to fall in love with your home before writing it off due to an unkempt neighboring property.”

More From Trulia:

MONEY home improvement

3 Money-Smart Ways to Boost Your Home’s Curb Appeal

yellow victorian style house
Stewart Cohen—Dream Pictures Dallas, TX

Cosmetic fixes can put a prettier face on a plain-Jane home, and the bill doesn't have to hurt.

Just as every mother believes her son is a handsome devil, we homeowners tend to see the best in our houses—or at least we become comfortably familiar with the way they look.

But let’s face it, to the objective eye, not every man is George Clooney and not every house is a Frank Lloyd Wright masterpiece. There are a lot of drab, even downright gloomy façades out there, especially among homes that were built shortly after World War II, when many builders abandoned traditional architectural styling to streamline costs and mass-produce housing.

Thankfully, the cosmetic surgery required to put a beautiful face on your home doesn’t require a big-ticket construction job. “Creating curb appeal isn’t about trying to transform the house from a plain-Jane ranch into a grand Victorian,” says Charlotte, Vt., architect Ted Montgomery. “Just changing one or two little details is all it takes.” It’s an investment that will boost your home pride, endear you to the neighbors, and generate a lot more interest from buyers someday.

To find inspiration, you can hire an architect (about $100 an hour) to offer ideas and maybe sketch a plan (expect these to take a few hours each). Or look at similar homes in your area while keeping the following strategies in mind.

Subtract Flaws

Assuming the house and yard are already well maintained, job one is to get rid of blemishes left by a penny-pinching builder or the misguided efforts of previous owners:

Replace the garage doors. The most prominent facial feature of many homes is a pair of big garage doors, which all too often are flat, lackluster slabs of steel or vinyl. Trade them for more visually appealing doors with moldings, windows, or an old-fashioned carriage-house look ($3,000 to $8,000 a door, including labor). See DesignerDoors and ClopayDoor for examples.

Remove siding. Sometimes ugliness is only skin deep. “Peek under dreary aluminum, vinyl, or asbestos siding and you may find well-preserved wood clapboards,” says Asheville, N.C., architect Jane Mathews. If so, remove the siding, repair the old wood, and give the house an attractive paint job ($10,000 to $20,000). If not, you could paint the siding or replace it with fiber cement siding, a no-maintenance product that looks like real wood ($15,000 to $25,000).

Lose the funky railings. Swap out bad porch or stoop railings, such as black iron bars or chunky pressure-treated decking components, for visually interesting banisters and spindles that are worthy of their prominent placement ($1,000 to $10,000).

Add Character

Like a dimple or a cleft chin, the addition of an interesting architectural element can give your house some distinctiveness.

Install a salvaged door. The typical post- war front door is decidedly dull, but the entry should be your home’s focal point, says Corvallis, Ore., architect Lori Stephens. For interesting replacements, look in an architectural salvage yard (see page 26). Consider a recycled mission-style oak door, a six-panel Colonial with blown-glass windows, or arch top French doors ($400 to $1,600; more if you’re converting a standard opening to an arch top).

Add moldings. Many newer homes lack exterior trim; the siding just butts up against the windows and doors. A contractor can give the house a more sophisticated, traditional look by cutting back that siding and slipping in wide, flat moldings around the openings and possibly at the corners of the house and between its stories ($3,000 to $4,000). It’s best to use a synthetic product like cellular PVC for your new moldings, since it looks like wood but will never rot.

Enhance the roof. A straight, unadorned roofline makes a house look about as interesting as a shipping container. So consider adding windowed dormers (a.k.a. gabled peaks) or extending the eaves (the roof overhangs) a few feet beyond the front of the house with detailed moldings on the underside ($2,500 to $10,000 per dormer or eaves extension). This is major surgery, though; do not attempt it without first getting an architect’s input.

Enhance the Effect

Invasive procedures aren’t always necessary. Just adding the right accents can transform your home’s outer look—not unlike a pair of stylish new specs or a good haircut.

Replace light fixtures and hardware. Lose generic shiny brass or black house numbers and mailbox and porch lights (especially bare-bulb fixtures) and substitute something unique and substantial, perhaps made of antiqued copper, bronze, or brushed nickel. For ideas, see Rejuvenation and Restoration Hardware.

Plan for a nonstop flower show. Most of the flowers in your yard probably bloom in the late spring, which makes for a beautiful May—or whenever the big show happens in your climate—but leaves you with a bland yard for the other 10 or 11 months of the year. A local nursery can help you choose and plant additional bulbs, shrubs, and trees with different bloom times (as well as plants with colorful autumn foliage and winter berries), so there will always be something performing ($50 to $250 a shrub, $500 to $1,500 a tree).

Add color. A paint job ($2,000 to $10,000) in pleasing hues can make any structure appealing. “But don’t choose a bright, high-contrast color scheme—that only exaggerates a house’s flaws,” Montgomery warns. For subtler suggestions, check out the book House Colors by Susan Hershman ($26 at Amazon) or go for the colors of nature—muted greens, deep reds, and pale yellows—and keep the body and trim close in color. That will give your home a friendly, peaceful look rather than make it say, “Hey, look at me!” Sort of like an average-looking guy choosing a simple charcoal suit instead of a flashy powder-blue one that only a Hollywood star could pull off.

For more on money-smart home upgrades, check out The Money Guide to Home Improvements, available on newsstands June 12.

MONEY home improvement

How to Squeeze the Most Value From Your Home

woman in kitchen
Getty Images

Buyers and sellers are getting busy, but if you're planning to stay put, low rates on home equity loans and lines of credit make this a good time to remodel.

In part one of our Spring Real Estate Guide, we told you what to do if you’re in the market for a home this year. In part two, we offered tips for sellers. Today we’ve got advice for those who want to say put and add value with smart home improvements.

It’s always nice to remember that the value of your house should climb while you’re enjoying it—and at a great mortgage rate (assuming you take the advice below about refinancing!). If you’re at the love-it rather than list-it stage of your life, remodeling may be a good option. Nationwide, 57% of home-owners surveyed recently by SunTrust said they planned to spend money on home-improvement projects this year. But be warned: The competition for contractors in many markets is fierce. You may have to wait your turn in line.

If you’re staying where you are, here are three ways to get the most out of the home you’re in.

Hit the refi table. According to CoreLogic, roughly 30% of all primary mortgages still carry an interest rate of 5% or higher—even though the average fixed rate today is 1.3 points lower. If you took out a $300,000 loan in mid-2009, say, and refinanced the roughly $270,000 balance at today’s rates, you’d cut your payments by about $370 a month.

You might consider making a few other changes. First, don’t assume that your current lender will offer you the best deal this time around—different lenders are marketing different kinds of loans.

You might also want to switch to a 15-year fixed-rate mortgage, especially if you are a decade or so from retirement and looking ahead to reducing your debt. You’ll pay more each month: about $170 more than the current payment on the $300,000 30-year mortgage at 5% cited previously. But you’d retire the loan nearly a decade sooner and save tens of thousands in interest.

There’s a good reason some homeowners haven’t refinanced at all: They couldn’t. In 2012 about a quarter of homeowners owed more on their homes than the houses were worth. Thanks to rising property values, that’s changing. Today only 11% of owners have negative equity, according to CoreLogic.

If you’re one of them, you may still be able to refinance, perhaps without having to bring cash to the table. Borrowers with FHA and Veterans Administration loans are eligible for “streamlined” refinancing, which looks at payment history rather than equity. For borrowers with conventional mortgages, the Home Affordable Refinance Program (HARP) is still available and has undergone some improvements since it was introduced in 2009. If you were turned down before, it’s worth another shot, says Keith Gumbinger, vice president of HSH.com, a mortgage information provider.

Get the right renovation financing. For a project that requires a one-time loan and at a fairly predictable cost—say, a bathroom—you may want to consider a home-equity loan, says Gumbinger. The 5.9% rate isn’t all that favorable, but you have the security of its being fixed. For a larger project in which you’ll need ongoing access to funds, a home-equity line of credit can be a better option since it operates like a credit card. HELOCs are now ringing in at 4.8%. The downside is that the rate is variable, so if you won’t be able to pay the debt off in two years, it might not be your smartest choice.

Think about the next owner. According to a 2014 survey by Houzz, 53% of homeowners who are remodeling say they are hoping to increase their home’s value. Yet most upgrades won’t help your resale. The most common remodeling projects are kitchens and bathrooms—9.5% and 7.7% of all upgrades, according to Harvard’s Joint Center for Housing Studies. But according to Remodeling magazine’s 2015 Cost vs. Value report, you’ll recoup only 70% of costs on a bathroom remodel, 59% on a bathroom addition, 68% on a major kitchen remodel, and 79% on a minor kitchen. (The only project that recoups more than its cost: installing a steel front door, which runs from $500 to $750.) That doesn’t mean you shouldn’t renovate; just know that you’re not going to get back all of what you put in.

No matter what project you choose, consider adding improvements to appeal to aging baby boomers. According to the Joint Center for Housing Studies, just over half of existing homes have more than one of five key features for aging in place. Notably, only 8% have wide doorways and hallways or levered door and faucet handles. Those could become huge selling points. Just think: Those renovated doors could provide the perfect entrée to your next great home.

Read next: If You Want to Buy a Home Here’s What You Need to Do Now

MONEY Housing Market

6 Smart Real Estate Moves That Will Pay For Themselves

Whether you're new to the housing market or already live in the home of your dreams, these 6 moves can help put money in your pocket.

 

  • Rent Until You Can Stay Put

    rental sign in front of apartment buildings
    Alamy

    When deciding whether to rent or buy a home, don’t forget the fees, commissions, and closing costs that come with buying, says Darrow Kirkpatrick of CanIRetireYet.com. Local prices and appreciation trends matter too. Use the rent/buy calculator at Trulia.com to see the tradeoffs. A good rule of thumb is to rent if you might move in three years or so. (For more help with the decision, see “Should I Rent or Buy a Home?“)

  • Ready to Buy? Remember 28/36

    woman looking at real estate signs
    Dave and Les Jacobs—Getty Images

    Eight years after the real estate crisis, lenders are making mortgages more accessible. But don’t go back to the old days of high borrowing, even if a lender offers some wiggle room. Housing should take up no more than 28% of gross monthly income; housing plus other debt, 36% or less.

  • Fix Up Your Home—the Cheap Way

    home with new driveway
    Greg Nicholas—Getty Images

    Looking to sell fast? Curb appeal literally gets buyers in the front door. An overlooked simple project: a fresh seal coat on the driveway, which “gives a pop” of a first impression, says Kokomo, Ind., agent Paul Wyman.

  • Fix Up Your Home—the Luxe Way

    attic bedroom
    Martin Barraud—Getty Images

    You’ll get the most bang for your buck by adding living space, says Craig Webb of Remodeling magazine. An attic bedroom and basement remodel average $51,700 and $65,400, but, he says, “buyers will appreciate that you made space that wasn’t previously available.” (For a rundown of major projects and what they return in your area, check out Remodeling‘s annual Cost vs. Value survey.)

  • Ditch the 30-Year Mortgage

    Local and Express subway signs
    John Ott—Flickr Creative Commons

    The 30-year mortgage has been called the best friend of the middle class, since it allows families to buy bigger homes. But is that in your best interest? Meet your new buddy: the 15-year loan. The shorter term makes you stay on a tighter budget. The trick is to commit before picking a house, because “that really forces you to save,” says financial planner Ron Rogé. Say you can afford $1,950 payments on a $400,000 home with a 30-year loan at 3.75%. With a 15-year at 3%, you’d have to settle for a $310,000 home. But you’d have a better shot at retiring debt-free. And the total cost savings are immense.

  • Pick the Right ‘Hood

    Ample Hills Creamery ice cream shop, Prospect Heights, Brooklyn, New York
    Richard Levine—Alamy Brooklyn, New York

    “Don’t buy in the part of town that’s already hot—you’ll have missed the opportunity to buy low and sell high,” says Stan Humphries, chief economist at Zillow. Look in an adjacent area “and wait for the cool to come to you.” And don’t listen to that old saw about buying the worst home on the best block. That will bite you when it comes time to sell. One surprising indicator of value? Starbucks. “Homes within a quarter-mile of Starbucks doubled in value, whereas the average home in the U.S. appreciated 65%” from 1997 to 2013, Humphries says.

    Adapted from “101 Ways to Build Wealth,” by Daniel Bortz, Kara Brandeisky, Paul J. Lim, and Taylor Tepper, which originally appeared in the May 2015 issue of MONEY magazine.

MONEY selling a home

If You Want to Sell Your House This Year, Start Doing These Things Now

Living room
Michael Grimm—Gallery Stock

With home prices recovering and interest rates still low, now may be the time to act. Here are 8 things successful sellers need to know.

In part one of our Spring Real Estate Guide, we told you what to do if you want to buy a home this year. In today’s part two we’ve got tips for sellers. Stay tuned for part three, with advice for those who want to say put and add value with home improvements.

If you haven’t sold a house in the past decade, brace yourself. Today’s buyers are demanding. They’re savvier about market dynamics and data and want to see houses on their own schedule, says Redfin’s chief economist, Nela Richardson. “We’re finding that buyers want access to your house when it works for them,” she says. “They don’t want to wait for the open house.” Baking cookies won’t cut it anymore.

Some things in your favor: Low interest rates are your friend too. Buyers know that rock-bottom mortgages can’t last forever. If interest rates start to tick up, there could well be a rush to buy. On the other hand, if rates go up too far, that will almost certainly dampen prices. “As a buyer’s monthly payment goes up with rising rates, something’s got to give—and that’s likely your home price,” says Keith Gumbinger, vice president of HSH, a mortgage information provider. In other words, sellers: If you snooze, you may well lose.

Your Action Plan

Sell first, then buy. The dilemma most sellers face is whether to buy a new place at the same time. In general, it’s smarter to sell before you buy—there’s nothing worse than having to carry two mortgages at once. You may be able to rent your house from the buyer for a few months, or at least find a short-term rental elsewhere. The one thing you don’t want to do is try to buy a new place with the contingency that you have to sell your old place first. Nothing kills a deal faster, especially if you’re up against other bidders.

Don’t just list your home—market it. Gorgeous photographs, video walk-throughs, perfect floor plans—buyers want it all. You need an agent who can develop a full-blown marketing plan, including social media. “People are doing so much more research ahead of time, going through listings online, and weeding out properties before they see them,” says Benjamin Beaver, an agent with Coldwell Banker in San Angelo, Texas. That’s especially true of millennial first-time buyers, who have grown up with information on demand.

And a top-flight agent can help pay for himself. Redfin found that listings with photos taken by a professional got 61% more views, and homes listed between $200,000 and $1 million sold for $3,400 to $11,200 more than similarly priced homes. A video tour including views of the neighborhood (parks, restaurants, main street) is another great tool. “If your photos capture an interested buyer, the video can help boost their interest,” says Rae Wayne, a real estate agent in Los Angeles. Plus, a video can help drive additional traffic to your listing.

Negotiate with your agent. Bernice Ross, the CEO of RealEstateCoach.com, has a brilliant method for testing a potential agent’s bargaining skills: Ask her for a reduction in her commission—and then think twice about hiring her if she agrees. “If they can’t negotiate a full commission on their own behalf, how are they going to negotiate the best price for you?” she says.

Don’t “test” the market. Pricing right is an art these days. The last thing you want to do is accidentally list too high out of the gate. Not only does it require cutting the price—in many cases to less than the estimated value—but it also means more time on the market. “It’s not like the old days where you put in a 10% buffer,” says Jacquie Sebulsky, a broker with Cascade Sotheby’s International in Bend, Ore. “People are savvier, and many agents won’t even show a house if it’s overpriced.” According to Zillow Talk: The New Rules of Real Estate, a house that is priced right will sell in about half the time of one that is overpriced.

Another reason to price right: traffic. In the first week a listing goes on the market, it gets four times as many visits as a month later, Redfin found. Moreover, if you do end up dropping your price, says Richardson, it sends a signal to buyers that you’ll come down more. “One agent described it to me as ‘blood in the water,’ ” she says.

To help you arrive at a price, your agent should show you up to 10 comparable active, pending, and recently sold (in the past three months) listings and sales. The most recently sold and the ones that are pending are the best; six or even four months ago may not reflect today’s market, says Brendon DeSimone, a broker in New York City and the author of Next Generation Real Estate. Automatic valuation tools, such as from Zillow and Trulia, are definitely great sources of intelligence. They’ll show you how quickly houses are selling in your market, how close they are going to asking price, and more. But data can tell buyers only so much. “The computer can’t see the inside of the house,” says Ross, “and it can’t see if your house has a view.”

Go green. With homes selling at a healthy pace, you probably don’t need to make any major pre-sale upgrades. One that does pay off: the front lawn. A 2012 Texas A&M survey found that curb appeal increases sales prices by up to 17%. “Green grass is huge, whether that means new sod or just fertilizer and lots of water,” says Wayne. Sustainability and low maintenance are the top trends for residential landscape projects, according to the 2015 Residential Landscape Architecture Trends Survey, so you might add simple native plants. You don’t have to spend a lot. See what’s on sale at Home Depot. It only has to be green, not gorgeous.

Fix what’s broken. Paul Reid, a Redfin agent in Southern California, recommends getting a home inspection and fixing any problems before you list the house, despite the out-of-pocket costs. “First-time homebuyers in particular don’t want to come in and do a ton of work,” he says. “They’re making a huge financial commitment and don’t want a money pit. I’ve seen it time and again where a buyer will get in escrow, have the inspection, and back out because the list is overwhelming.”

Go clean. Ten years ago it was mostly upper-end sellers (and maybe desperate ones) who went to the trouble to “stage” their home. Now, the idea that you need to clean out your closets, clear off the counters, take down your photos, and pare down the furniture and accessories is Real Estate 101. That said, you don’t need to hire anyone (though you may need to find someplace to store all your junk). Two areas not to forget: the entrance (that expression about not getting a second chance to make a good first impression is true) and the bathrooms. “I like to say that big, fluffy, white towels can add $10,000 to the price of a house,” says Sebulsky.

Give yourself a deadline. It’s true that houses tend to sell faster in spring and summer (in large part because families want to be settled before the new school year begins). And if your home is still sitting come Labor Day, think twice about keeping it on the market into the fall. “By then a lot of people have made their choices, and if your house has been on the market for six months, people automatically assume something is wrong,” says Sebulsky. Every market is different, of course, but winter may actually be a better option. There’s less competition from other sellers, as well as some pent-up demand after the holidays. Bonus: Anyone trudging through open houses during the winter “tends to be pretty serious about finding a house,” Sebulsky says.

Get more answers to your questions about home buying and selling:
How do I make my home attractive to buyers?
What renovations will pay off when I sell?
Will I pay income taxes on the sale of my home?

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