Two-thirds of Americans plan to sell, buy, or refinance homes in 2023. But they’ll face a housing market that has changed dramatically in the past year – and will keep shifting.
Don’t expect bidding wars to drive up your price, for one. Instead, expect to negotiate and possibly offer concessions. And if your home needs some work, get ready to help with the costs or give a little on your list price.
That said, there are still ways for sellers to walk away from a home sale happy.
Here’s how to get ahead of a buyer’s market in 2023 — including what to do when you’re selling AND buying or selling and older home in need of repairs.
5 rules for selling your home in 2023
1. Spend wisely to fix up your home
Homes with the best presentation, condition, curb appeal and appearance will always command a premium. But that doesn’t mean you should jump into extensive renovations to prepare your home for sale.
Instead, focus on repairs and improvements that will help your home compete against comparable ones in your area. Make sure that you’ll regain at least what you put into your home through your sale prices. Make every dollar count, especially in a 2023 real estate market that will increasingly favor buyers.
Your improvements will depend on your home’s age and condition. Also, consider your time frame. How much time do you have before you plan to sell? Use your available time well, especially if you plan to save money. This is no time to sit back.
Give the highest priority to items that allow a good return on investment, especially low-cost but noticeable repairs and improvements. Here are a few items that can provide bang for your buck:
- Repaint your home’s exterior and key interior rooms.
- Landscape your yard and discard items you’ve been accumulating outside.
- Declutter and deep-clean your entire home, area by area.
- Fix leaky faucets, toilets, and showerheads.
- Adjust and lubricate your windows, doors, cabinets and drawers.
- Replace worn or damaged carpeting or flooring.
- If you’re considering a bigger project due to the home’s condition, focus on the kitchen or bathrooms. They tend to have the highest return on investment.
Can you do some of the work yourself? Every dollar you save puts you in a better financial position for your home sale. For example, saving $5,000 on landscaping could enable you to offer a closing credit to seal a deal with your eventual buyer.
2. Manage your cash and credit well
Be careful about your finances, especially if you plan to buy a home after you sell your current one. Don’t take on unnecessary debt without a fairly good certainty of eventual payoff.
How will you pay for the repairs and improvements you are planning? If you have an existing home equity line of credit, or HELOC, that might be a good approach. However, if you’re planning to sell in 2023, taking out a new HELOC or cash-out refinance probably won’t make sense. You won’t recover your costs. If you have a longer time frame, you might find it will pay off, but keep in mind that interest rates are high. However, mortgage interest is tax-deductible, which could help in a longer time frame.
If you have enough cash on hand, that may be your best option. Just make sure you’re not cutting into your savings too much.
Also, you might be able to find a contractor who will take a down payment but wait until the home sells to collect the rest. Usually, the contractor will charge a premium for work that isn’t paid in advance. But that might be worth it to you.
3. Line up good contractors while they’re available
It’s a slow time for many contractors, so now’s a good time to compare quotes and find a good deal to fix your home. Even if you’re considering selling later in 2023, consider having the work done now. Take advantage of the time you have and get ahead of the curve.
Also, talk with an experienced realtor with a network of contractors and vendors who can maximize your renovation dollars. The good news is that many contractors will be glad to have work over the winter, and you probably can get a better deal.
4. Don’t wait to find a good realtor
Speaking of realtors, you don’t have to wait until you’re ready to sell to talk to an agent or two or three. Activity has slowed for most agents, so they’ll be happy to take your call, discuss your plans, and advise you.
You can discuss what improvements you should make, what contractors you might use, and how to best compete in your local market.
Also, many realtors will list your home for a reduced commission, especially if they might also earn your business for your next home purchase. No good realtor should turn down two bites at the apple. (More on this below.)
5. Manage your expectations: Price your home to sell, not sit
The biggest mistake that sellers make is pricing their homes too high. It’s often hard for a seller to have an unbiased view of their home’s value.
As the market slowed in 2022, many sellers chose to take their homes off the market rather than adjust their thinking. As a result, we now have a low supply of homes for sale but relatively few buyers. But with drops in mortgage rates and more seller concessions, more buyers could jump back in this spring.
So, sellers in 2023 should prepare to make deals. First, you and your realtor need to have a conversation about what your house can fetch in the coming months. Ask the agent for a comparative market analysis of your home. The best defense for your price is a tight, well-researched CMA and a house in prime selling condition.
The National Association of Realtors predicts that price appreciation for homes nationally will slow to 5.4% in 2023, compared to 10.2% in 2022 and 17% in 2021. Also, keep in mind that home values have been dropping from their mid-2022 highs in some markets.
Options for older homes that need extensive repairs
Older homes can present challenges, so sellers might take different approaches.
1. Sell it “as-is” to regular buyers or investors
Sometimes, it makes sense to throw in the towel and sell your property “as-is.” Your situation and time frame may lead you to this option.
A good realtor can prepare a comparative market analysis (CMA) for you at a listing appointment. The agent will also advise you on negotiating inspection contingencies and issues that arise from them.
You can still get a good offer for an “as-is” property in this market. Investors are always looking for properties in disrepair so they can fix them up and flip them.
And buyers who are priced out of other homes may be interested in your fixer-upper. They can use FHA 203K loans to pay for renovations if it’s their primary residence.
2. Donate it to charity and get the tax write-off
If the home is in bad shape, consider donating it to charity. You’ll get a generous tax write-off for the home’s full market value as if it didn’t need repairs. In addition, in many cases you can carry over the deduction for up to five years. And you avoid any capital gains taxes.
I recently had a client with a one-acre plot of land in Potomac, Maryland. Unfortunately, it failed its perc test for a septic system, dropping its value. So, instead of selling the land for little more than he paid for it 30 years ago, he donated it to a charity and got full market value as a tax write-off.
What if you’re selling AND buying?
As we discussed earlier, buyers hold more cards in this housing market. But it’s hard to consider it a true buyer’s market. Mortgage rates have dropped almost a point from their 7% peak, but they remain double what they were a year ago. So purchasing power has fallen.
Here’s what to do if you’ll be on both sides of the table: selling and buying.
1. Crush your debt as if you were a first-time home buyer
Suppose you’re planning to buy a bigger house and counting on getting the best interest rate for that new loan. You don’t want maxed-out credit cards and other debt harming your credit score. That would mean a higher rate.
Also, you want a healthy debt-to-income ratio, which lenders will review closely.
2. Put your listing agent to work finding you a new home
If you’re going to use your seller’s agent as your buyer’s agent once your house sells, put them to work NOW looking for homes for you.
With luck, the agent can scout out some good deals for you early. They might even arrange an off-market deal so you can buy your home without contingencies, such as needing to sell your current home first and extinguish the mortgage before buying another one.
The good news is in this market, more sellers will entertain offers with contingencies. They may be in the same boat as you, offering closing help for buyers.
As previously mentioned, using the same agent for both transactions gives you leverage to negotiate a discounted commission for the sale. The agent will then likely make a larger commission on your purchase, and that commission comes from that seller. (Of course, it’s worked into the selling price, though.)
The commissions depend partly on what’s customary in your market and the competition. Here’s a state-by-state comparison of average commission rates.
3. Work with a lender to get a rate buy-down and longer lock
Mortgage rates rose to 7% but have dropped closer to 6% in recent weeks. Some economists predict they could hit 7% again, but nobody knows for sure with all the economic factors at play.
One good way for buyers to approach this volatility is by “buying down” the mortgage rate. That means you pay for percentage points to bring down your rate.
You might even negotiate a concession with your seller to pay for the buy-down. A smaller concession on this can often beat a bigger lowering of the home’s price. For example, a $6,000 concession for a rate-buydown could save your more than a $20,000 drop in the selling price, depending on the home’s value and your mortgage rate.
To that end, many lenders have been offering rate buydowns and longer rate locks. Long locks enable you to shop with confidence, knowing that a rate increase won’t knock you out of qualifying.
In this market, you might need every available tool to make the numbers work.
Source: listwithclever.com ~ By Daniel J. Goldstein ~ Image: Canva Pro