Sell in February or wait until May/August?

Question

Trulia claims that August is the best time to sell my house based on their charts. Zillow claims May.

I sold one house in February of last year for 15% over asking the first day on the market. It's a primary residence and I'm not fond of the neighbors. Having lived here for 2 years I'm ready to move on. The house has tripled my down payment with appreciation, etc. I'm planning on using the proceeds to buy three more houses that are a little more average (it's in a neighborhood of million dollar homes).

Zillow claims May is the best time to sell, with 13K higher sale price on average. Trulia claims August, with 70K higher sale price. Not sure which is accurate.

I'm planning on moving back into a rental I own.

I'm also debating just holding onto the cash to pool even more cash for diversification or investment during a down turn.

Phillip Bicker · Answer

You actually just nailed the reason for much of your opinion of Realtors -

"All the realtors I used in the past were high school educated and people who were barely surviving in the industry".

The $70k you mentioned is a substantial sum of money for the listing of your homes. That is $34,950 for the two buyers agents combined and $34,950 for the listing agent(s) for your two properties. After broker split 70/30, the listing agent for both of your homes would take home $24,465 which is a great payday.

Either way you are going to have to pay the buyers' agents if you want to get the most money from your home, even if you can get away with paying 2.5% instead of 3% and save $5k. You may miss out on a buyer even with this reduction and one less "competitor" may be more than $5k in opportunity cost.

I know for a fact that you last comment about "super star" agents being worth while is accurate. You are personally paying $34,950 ($21k for $700k home or $14k for $465k home) but a good agent will be able to increase your closed price of each home by this amount and greater, especially at this price point. If you personally listed a previous property and got 15% over asking on first day, it begs the question what would have happened if your house was properly marketed by someone who does this day in and day out and proactively markets the property to as many potential buyers as possible as well as all of the mega agents in the area?

Also, like I said with first post, if you do volume (multiple home sales/purchases) most agents, even the best ones, would be willing to reduce their commission.

You also mentioned cookie cutter contracts a 10th grader can fill out... I've personally seen about 10 FSBO contracts that the owner or buyer filled out that, including a couple that were completely unenforceable should anything have happened during the process. Some were atrocious, some were ok, but most fell out of contract at some point of the due diligence period due to misunderstanding items in the contract. While I agree that these are not overly complicated documents, they do contain very important contingencies/clauses that are often overlooked/misunderstood and can lead to major issues down the road if there are any complications. Much of the liability of selling of a home is lessened when an agent is involved as the risk and liability is often placed on the agent/brokerage instead of the owner of the property.

By the way I agree 100% that many, if not the majority, of agents do not receive the much needed training and knowledge required before representing these large transactions and are not worth the commissions. However as a highly educated and experienced agent with a Masters and a CPA license I can tell you that there are also many agents that will be worth more than the commissions you pay in terms of net profit to you, liability during and after the transaction, and time/energy expended on the overall process.

Ok, I think I should get off my high horse now... I just wanted to get my two cents in.

Jack B. · Answer

It's over 1 million in real estate selling two of my houses (700K and 465K). At 6% that's roughly 70K. I've sold myself 15% over asking when realtors wanted to post it really low to get it to sell quickly and move on to their next commission. I have an MBA from a top school and have been doing this for a while, no need to pay the realtors I've used in the past to fill out cookie cutter contracts a 10th grader can fill out. :-)

All the realtors I used in the past were high school educated and people who were barely surviving in the industry. I highly doubt they will outperform me. I do still pay 2.5% buyers commission, reduced from 3% as it's difficult to get greedy buyers agents to show a house to their clients if you go below 2.5%....

But like I said, unlocking doors and filling out cookie cutter contracts with a HS diploma doesn't warrant 70K split between four people just to sell my two houses. Same with buying. Even  my realtor admitted I know more about this stuff than her and that it seems like all I need her for is to unlock the doors for me to take a look. Next year I'm getting my own realtors license so I don't even need them for that....

Yes there are some super star realtors out there worth their commissions, but the vast majority have no credentials that makes them any more competent at it than your average Joe...and I'm an investor with multiple expensive properties so I'm not your average Joe.... :-)

I've found the Redfin agents to be complete idiots. High performers don't take 35K salaries at Redfin....those are the people who are basically receptionists who can't do any better...

Phillip Bicker · Answer

Just read the comment about you listing on your own. Glad you have been able to make it work. Just make sure you are still getting full market value - you may consider paying buyer's agent if they come with a buyer as these are usually the most qualified/motivated buyers that are willing and able to pay top dollar. In Seattle this may work - but in Denver most FSBO's actually end up leaving money on the table even with paying full commissions.

Not sure how you came up with the $70k for selling two houses - I might need to move to Seattle! Half of commission goes to buyers, half to sellers agent and then their broker usually takes a big portion of that piece as well. So on a $500k home at 3% - a listing agent's brokerage is paid about $15k and then pays out around 70% or $10.5k to the agent. Two homes would be $21k which is still good money, but a good agent will be able to get far more for your home than you would by yourself, making up for the commissions paid.

Anyways, it sounds like you are set without an agent, so no need to go back and forth on that point - but good luck with the sale/purchase anyways!

Jack B. · Answer

Delaying my move and sale by one month not only makes the best sense for getting new rentals rented out timing wise, but it also gives me an extra month to get the yard and house in shape. My tenants at the other rental I'm moving back into are on a MTM lease (all of my rentals are). I felt like giving them 30 days notice to move out after the holidays would be iffy since they've been good tenants. Now I'll just let them know mid January that they'll have to be out end of February. That's roughly 3 times as much notice as I'm required to give them (20 days) but not so much notice that they find a new place right away and leave me paying the mortgage on my own for an empty rental while I wait to move back into it.

The first weekend falls on the 3rd and 4th in March just like it does in February so that's another  bonus. But my biggest reason to sell now ish rather than August is because I can't risk trying to find tenants on 5 rentals during Thanksgiving and Christmas. Paying 10K a month for several months mortgages and then having to rent the houses out at winter discounted rents is a bad/risky way to go. I think that's the biggest reason I'll be better off doing this now ish.

In fact last summer I was shocked how easy it was to find good tenants. Both of my new rental purchases part of a 1031 exchange rented VERY quickly. I had plenty of qualified tenants to pick from. Over qualified at that....

Phillip Bicker · Answer

Congrats on building the equity and being ready to capitalize on that appreciation - good luck! Feel free to PM anytime with Real Estate questions or help finding an agent in your area.

Jack B. · Answer

I usually sell myself and do pretty well. I get quite a bit over asking. I also use a service like Redfin only better and actually competent. Selling myself on the MLS saves me 42K in commissions between the two houses, and buying through the service where I get a sizeable refund (not the menial sum Redfin pays, their realtors are idiots IME). Between the two I end up coming out 70K ish ahead. The transaction costs for real estate are outrageous IMO. Realtors getting paid 70K to sell two houses as a listing agent with cookie cutter contracts is a joke IMO and IME.

Jack B. · Answer

Yeah, I think I'm going to move out early March instead of what I had originally planned (early February). Gives me one extra month to get the house ready (yard has moss everywhere now), only delays my move by one month, buys me even more room for error, and I'll move back into what is currently a rental but was a primary residence 3 years ago just in time for the PMI to fall off AND get the land tilled to start planting my garden for the spring/summer.

Phillip Bicker · Answer

One last piece of advice - even a professional/quality agent would likely consider a discounted commission if you are willing to use them to both sell your current home and purchase two new properties (think volume discount).

As you likely know, sellers typically pay the commissions so to save yourself some money, find someone who is willing to take a reduction in the sales commission by you signing a buyer's agreement for your investment properties (where the commission is then covered by the seller).

That said, please make sure not to select an agent solely on commission as this can cost you major $$$ down the road in lost sales potential/poor negotiation/poor marketing and/or staging.

Phillip Bicker · Answer

@Jack B. That is a very valid point and important to consider. After getting your home ready to list (you should start on this now if you haven't already) I would give yourself a 45-60 day window to list, get under contract, and sell your home and then 45-60 days on the buy side to find, get under contract, and close the rentals. So if you list mid March expect a late April/early May close. Then you immediately search out your rentals and hopefully get under contract by mid May and close mid/late June. Late June still gives you a nice buffer to be able to get those tenants in during the peak summer months with any delays like you mentioned. Just make sure that whatever month you get tenants in, make the initial lease term end during the peak summer season so you can find tenants quickly.

Jack B. · Answer

You make some interesting points. I agree that Trulia's data seems inaccurate. One other thing I just thought of is that since I'm looking at putting the money into new rentals, that is also an important factor of timing. If I sell in spring, even with room for error (delay finding a buyer, delay closing, delay finding a replacement properties, delay closing on replacement properties, etc.) I should still be able to market my new rentals in mid summer, peak tenant finding season. I did this last year where I sold a rental in winter (listed February, closed early March). That gave me enough time to find and close two houses, one by April, another by May, and I was able to get them both rented by the first of June.

If I wait until August to sell, I'll be trying to find 5 tenants in November and December, the worst times ever to find tenants, and likely stuck paying 10K in mortgages for several months to find tenants at discounted rental rates.

I think I will list no later than April. on both of the houses I'm looking at selling. It's time to sell them as they have more than 50% equity positions and I need to re-leverage as well as sell them before major capex starts coming up.