Best way to maximize profit when selling?

Question

Hello all, I have a single family property that I've been renting out for some time and I am thinking it is about time to sell so I can roll this into maybe a smaller multi-family property or multiple single family properties. However, I am a first-time seller. A lot of the books I've read only really go into a cash-out refinance, and not too deeply into the actual selling of a particular property (beyond stating it can be sold and maybe mentioning a 1031 or taxes). I may have just missed it, but is there a resource that goes in depth with how to know you're in a good sale and getting the best offer/reducing fees as much as possible?

I am looking at the number of fees and commission when selling, and am wondering if there are any good ways to make sure I am not losing a large chunk of the profit in the sale? I know there are individual investors who would look into buying, perhaps, but I have never done a sale before -- so would still involve a lawyer or realtor to look things over. I have also seen real estate trusts, iBuyers and other types of syndication.. are those generally not a good idea, when selling investment properties? What do most people tend to lean towards, or does it just matter what is available/most suitable? I am in the Las Vegas, NV area

Ke Nan Wang · Answer

We have gone through a number of drills like this so I can speak from my experience in northeast Florida. For a single family use property our best bet here is to list with a residential real estate agent and sell the property to a home owner to maximize profit. With interest rate this high, the only investor who would purchase the houses in our market and rent it out would be either it's in a killer STR location, or a 1031 exchanger. If your property is not a killer STR property, then don't target investors for the purpose of netting the best profit.

In Florida, seller's typical sales cost for commission and seller's closing cost is about 8%. Then to market the property to home buyers, the property needs to be vacant, may or may not be staged, and in its best condition possible for photos and showings. In your case, you can look at the comps in your area and determine your sales price. In our market, the days of putting another 25% on top the best comp in the market and expecting to sell is over. Unless you don't mind the property sitting on the market for months. Right now we are looking at listing right at comp price or maybe slightly below if it's obviously inferior in some ways.

You have to evaluate the cost to bring the property to that pristine condition, closing cost, and the time and effort putting into the fix upper, repairs and commission + closing cost.

Let's say your house is valuated at $340k right now. You think you could spend $30k to bring it into a pristine condition and you can list it for $370-380k. Listing it with an agent and sell it conventionally will net you around $340k-350k. If right now someone walks up to you saying he/she can take the house right now for $310k cash, AS-IS and quick close. You have to evaluate is netting that extra 30k over a traditional sale and going through all the headache worth it?

Sometime it is worth it to someone and it isn't to someone else.

Market the property in its best condition will yield the highest gross sales price. Also listen to your prospect's feedback, and you can pretty confidently trust that your first offer will most likely be the best offer. So work with your first offer and don't blow it up because you can't come to terms with the buyer on a $5k spread. Last year I had a seller, tried to catch the COVID hot market wave and listed a house, valuated at $350k and listed at $390k. The first offer was 360k. We negotiated but couldn't close the gap between 370k (buyer) and 380k (my seller) even I almost bugged the seller to take it and walk away with 370k. So the house sat on the market, then later 340k and my seller couldn't take it lower than 360k. Along the way there were multiple prospects, multiple under contract escrow instances where the buyer found issues and I advised my seller to give the buyer credit to close the deal and let it go and he wouldn't listen. Blow up one deal after another. And the drill continued and guess what was the final sales price? Months later we closed at $267k... Of course height site is 20/20, this was my worst sales record ever, and I learned from it too.

Hope this helps you to decide your course of actions.

Basit Siddiqi · Answer

I think a good tip is to potentially fix / update the property where someone would want to live in the property.A retail buyer will pay more than an investor.Best of luck.

Phillip Dwyer · Answer

@Rahni Walden Here's a few things I think would maximize the sales price:

1.  Give tenant notice to vacate, then list it for sale vacant.  You want to maximize the number of showings

2.  Make it move in ready.  It costs a buyer more to close on a house now, so you want to make it easy for buyers to close.  Your target market for max price is likely owner-occupants.

3.  Hire an agent that has a track record.  This agent can guide you on item 2 above, so that you're not throwing money away on things that won't move the pricing needle.  The agent can guide you on number 4 below as well.

4.  Know the market.  Be willing to pay buyer closing costs if that's what the market dictates.  Don't over price. Price it where it's likely to sell, so that you have the opportunity to get the most eyes and offers on the listing.

Regarding your question about selling directly to investors, iBuyers, ect, those buyers are only buying when they can make a profit.  There is no emotional attachment to the house.  You'll get the most for the house by maximizing the expose to the largest number of potential buyers (owner-occupants).  Good luck!

Jeff Nash · Answer

Rahni, in my opinion your best option generally is to avoid the tax hit (assuming your relinquished property has appreciated and there is some depreciation recapture) and have the maximum net proceeds available to be rolled into one or more replacement properties.  This can be achieved with a 1031 exchange. You’ll incur the typical closing and selling costs like with any real estate transaction, but that is the cost of doing business. The main drawback of a 1031 exchange is the 45 day rule and having to identify the replacement properties, but if you are diligent and plan properly that is usually not too big of an impediment and can work depending on how motivated you are. If you really want to invest in hard assets upon a sale that is an option and happens more frequently, but if you want to just take a more passive approach and are primarily motivated to lower your tax bill and get passive income you can also opt for a Delaware Statutory Trust (DST).

I’ve just addressed some highlights here as this 1031 option usually involves a 20-30 minute discussion with a qualified intermediary (QI) to ensure this is the best option for you based on your own goals and objectives.  @Whitney Nash (my wife) is a 1031 QI and goes through the entire process with the qualifying Q&A upfront and works directly with all necessary parties involved (typically title companies, lenders, realtors, tax professionals, attorneys, etc) from start to finish. Hope this information helps to some degree.

John McKee · Answer

Sell it yourself and hire a lawyer to do the paperwork.  That is the best route to save money in addition to the 1031 strategy.

Dave Foster · Answer

@Rahni Walden, Your question is first about maximizing the sale.  The two biggest expenses of your sale will be the realtor commissions and the cost of title insurance (if you are required to pay for it).  Other closing fees are relatively small.  And in general the cost of title insurance is eith regulated or consistent state by state.  So there is not a lot of opportunity to shave costs there.

When it comes to a realtor there's certainly the opportunity negotiate commissions.  The question is- should you and how much.  A good realtor is who gives you the assurance you've priced your property right.  They should have had extensive training in establishing comparative market valuations.  And like @Evan Polaski said the MLS listing ensures the most eyes on your property so your wait for a contract is less.

The fees cited by @Evan Polaski and @Ke Nan Wang are very typical and consistent nationwide with some market fluctuations.    Add to that a fee of $1000 or less for a 1031 exchange so you can indefinitely defer the tax and you've got a recipe for a winning transaction.  Sometimes it's tempting to sharpen your pen too much and save pennies but lose dollars in how your transaction unfolds and how quickly it happens.

Evan Polaski · Answer

@Rahni Walden

A single family home should 100% go on the MLS.  You can google flat rate listing agents to possible save on the commission you will pay, but this those typically come with limited services too, like photographs, writing a description, etc.

In this crazy market, and I don't think Las Vegas is much different, there are more buyers than sellers.  And owner-occupants will always pay more than investors.

Interview some agents that specialize in your area, ask what their fees are (and 8% is high for any market, anywhere.  National average is 6%, and that can be negotiated down), what services they provide, and what their pricing expectation is with comps to support it.

At the end of the day, the MLS is going to get the most eyes on the property.  Assuming it is in livable condition and not in need of a full gut remodel or full of mold/fire damaged, etc, an owner-occupant will pay your more than any investor will, since you are selling to someone's emotions versus a profit motive.

Best way to maximize profit when selling?

Most Popular Reply