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The process of selling a home may be long and overwhelming at times. Apart from financial perspective, there are also a number of other factors to be considered. If you are selling a home in California, there are few legal requirements, disclosures, procedures that are needed to be aware of. There are certain steps to be followed in a home selling process.
Finding a Listing agent
Hiring a real estate agent may save you a lot of time and money and also help to negotiate the terms of the offer with the buyer or buyer's agent. They also may help market your property and make suggestions on makeover of the property according to the market's demands and trends. Once, you select a real estate agent to work with, they may discuss about the motivation of the seller, future plans and expectations of the seller on selling their home.
Real Estate agents have access to multiple listing services (MLS) which is one of the best services available in home selling process in the marketplace which is not accessible to the sellers. MLS is a powerful tool that alerts other real estate agents about the open houses and new listing notifications. The process of selling a home involves a lot of paperwork and they may also help with communications from your loan officer or title company. They make the home selling process and the transactions to be done in a smooth and organized manner. Typically, sellers receive higher offers when assisted by a real estate agent than who sell on their own.
Setting a timeline and fixing a home price
Listing agent may help determine the timeline of selling your property by analyzing the motivation of the seller, reasons to sell their home and the expectations of the seller regarding the price of the home. During the initial meeting, the seller's agent may discuss with the seller about the selling features of the property and may also discuss about the modifications that can be done to the property to make the home price better. A seller's agent works on behalf of the seller and has a fiduciary duty to the seller.
If the home price is too low, the seller's may lose a lot of money and if the home price is too high, there is a risk of the home sitting on the market for months. They also come up with the CMA (Comparative Market Analysis), which helps in fixing a correct price for the home by comparing it with the similar homes that has been recently sold. The Fair market Value of a home is estimated by comparing recently sold homes that are closely similar to the seller's home in square footage, type of construction, age etc.
Property makeover, marketing and listing
The real estate agent may help seller in advertising, conducting open houses and coordinating with the buyers. Preparing your home and Staging your home for the selling process is a very important step which may include the processes of deep cleaning, decluttering, giving it a fresh look by adding a fresh coat of paint. Though the home looks great and had a fresh makeover, it may not look prominent in the website listings if the photos taken are not clear. Having a professional photographer take photos, having a virtual tour or video of the home may give a better idea for the buyers to see whether the home fits their needs and it may help filtering out the potential clients to a great extent. Having a Lockbox provision increases the number of potential clients touring the home as it increases the flexibility. But if the sellers still live in the house, it might be a better idea to go with appointment option. Conducting an open house is a great way to get feedback from buyers or other real estate agents so that the price or the marketing strategy may be adjusted accordingly. The listing description is very important to attract the potential clients. It may be effective if it highlights the home's best features and amenities.
California disclosure requirements
Process of selling a home involves a lot of paperwork and listing agents may help and assist you through the paperwork such as purchase contract, repairs addendum, disclosures, title work, negotiations etc. Some of the disclosures are listed below.
Transfer Disclosure Statement
This is also called as the Seller's disclosure. A seller's disclosure is a legal document that enlists the details about the condition and history of the property including the list of defects present currently that the buyer must know about the home, it usually includes the problems that might have occurred before and the details about the remedy that was done to fix it. It may also include the details about whether the repair that has been fixed need a regular maintenance or does it have the potential to cause any future problems. Usually the questions about the property are answered as Yes, No or Unknown. In California, death in the property has to be disclosed if it was within the last 3 years. Local Option Real Estate Transfer Disclosure Statement helps provide the specific information about a neighborhood or community.
Natural Hazard Disclosure
Natural Hazard disclosure statement allows the seller to disclose all the known natural hazards and risks possible to the home that are being sold. Natural hazards include flood prone zone areas, very high fire risk zone including the forest fire risk zone, earthquake fault zone. property that is close to the airport, property near commercial and industrial usage area, area near former military installation, Toxic mold exposure, Radon gas etc. Natural hazard Report is a report that may be provided to the buyers by the sellers which informs all the known hazards near the property by the sellers.
Lead paint and Megan's law Disclosure
Lead paint disclosure is a mandatory form that discloses about any known presence of lead in the home, if the home is built before 1978. Lead exposure is very harmful especially for the young children and pregnant women. In California, Megan's law disclosure form is usually attached to every residential lease agreement. Megan's law is a computer database that has the directory of the registered sex offenders that are made available to the public by the Department of Justice.
Transfer Tax
When the real estate is transferred from seller to buyer, the transfer of ownership is usually recorded in the county office. Once the transfer of ownership is recorded, tax is imposed. The state levies a transfer tax of 55 cents per $500 of home value. Depending upon the location of the state, transfer tax is paid either by the buyer or the seller. Some counties and cities may also levy transfer taxes. There are some exemptions to the transfer tax in scenarios like the homeowner gifting the property mortgage free or homeowners who transfer property into a revocable trust.
Showing your home
Presenting the home in a right manner is very important to sell the home faster and for a higher price. Real estate agents may provide advice and tips to the sellers regarding presenting their home for showings in a way it might leave a lasting impression on the potential home buyers. In a multiple offer situation, they may guide the buyers by explaining them the pros and cons of the offer and may recommend when to give a counteroffer.
Real estate agents have a lot of knowledge in weeding out unqualified buyers by asking them the right questions to determine the seriousness and motivation of a prospect. This saves a lot of time and narrow down the potential buyers. They may ask questions like are they planning to pay by cash or are they prequalified, have they been looking at any other homes etc.
Offers and negotiation
The more the buyer is willing to put down as an earnest money, the more serious the offer looks in the Seller's point of view. Once the seller receives the offer, depending on the terms disclosed, the seller may decide to accept it, reject it or make modifications. The modifications made are sent as a counteroffer to the buyer with modified terms and conditions. If for any reason the buyer decides to back out from the deal for any reasons other than that are outlined in the purchase contract, then seller may keep the earnest money. If the deal falls through due to any contingencies listed in the purchase contract, then the buyer may get their earnest money back.
Agents are usually well known about the current market data and they may help with the negotiation part by helping the buyers to understand what terms of the offer are worth negotiating and what are not. They may also assist the sellers to know when to accept the deal or give a counteroffer. If the home receives multiple offers, the agent may help you decide the best offer based on the type of financing, contingencies added to the contract, amount of down payment, credit score, proposed terms of offer and when are they choosing to close. Some of the contingencies that are usually included are Financial contingency, Appraisal contingency, Inspection contingency etc.
Home inspection and negotiation for repairs
A home inspection is a process where a qualified home inspector examines the safety and condition of the real estate property and provides a report. It is a very important step to consider during both the buying process of a home. They usually examine the interior structure, exterior structure, plumbing system, electrical system, sewage etc from the foundation to the roof and look for the signs of damage caused by water, fire, insects etc to assess the real condition of the property before buying and selling. After the property's condition is assessed, the home inspector provides a Home Inspection Report. A home inspector may only be able to assess the problematic areas, for example, defects in the structure of a home may only be corrected by hiring a proper structure engineer.
Home Inspection contingency is a clause added to the purchase contract before buying the home. It typically means that the offer to buy the home depends on the results obtained from the home inspection report. The buyer may decide to cancel the contract or negotiate the repairs to be taken care of with the sellers. Usually the contract offers the buyers a time period of 7-10 days to respond to the sellers of any objections or negotiations regarding the inspection report from the date the purchase contract is signed. The contract is not legally binding until the period ends. The rules of the Home inspection and the number of days vary from state to state and in some states, they are added as a clause in the purchase agreement. Usually the negotiation between the buyers and sellers are done within the time period in writing.
Home appraisal process
Appraisal is a process in which the home value is estimated by an opinion of a professional. This process helps in determining whether the home price listed is appropriate for the current home's condition, location and their features. It may help the lenders to make sure that the borrowers are not overpaying for the property as the home serves as the collateral for the loan. The value is determined by various factors such as location, square footage, number of rooms and bathrooms, functionality, floor plan, amenities etc. The appraiser also makes sure to have a visual inspection in the interior and exterior of the home to find any areas that may affect the property's value and any areas that need repairs.
Capital gains tax
Home is usually considered as a capital asset and are subject to Capital gains tax.
Rental Property
If your home is a rental property, then it is usually not eligible for the exemptions as in the primary residence. The time period of owning the home has a great impact on the taxes assessed. If the property is owned for less than a year, then the capital gains tax on the property are usually assessed as an ordinary income. This tax amount varies depending on your tax bracket. If the property is sold after owning more than a year, then the tax amount may be considerably lower. The improvements made on the property and closing costs may be deducted from the capital gains.
Primary residence
There are some benefits on selling your primary home if met with certain conditions. You must have lived on your primary home that you are selling for at least for a period of two years to be eligible. But, the period doesn't have to be consecutive. For example, You may live in the home for a year, then rent it for a few years and then live for another year. They are still considered to be two years. You are eligible as long as you have lived in the home for 2 years. You may deduct $250,000 from the capital gains if you are single and $500,000 from the capital gains if you are married from being taxed. The cost of repairs, losses in investment due to tenant unable to pay the rent, improvements made on the property and closing costs may be deducted from the capital gains.
1031 exchange
Though the investment property doesn't have any exceptions when it comes to Capital gains, there is a way in which tax may be deferred. 1031 exchange is a process of replacing one investment property to another that is of same value or more to avoid capital gains tax on the property that is being sold. This is done by rolling over the profit gained from one property to another. It may done only with the properties intended for the business or investment purposes. The property must be a like kind. The former primary residence may be eligible for the 1031 exchange if met with certain conditions.
Prepayment Penalty
Some mortgage options may have Prepayment penalty if the mortgage is paid off early. It may occur during selling or refinancing the home. Most lenders charge a prepayment penalty for the first few years of the loan term if the mortgage is paid off early as the lender is losing all the interest on the loan which is an incentive for the lender for providing the loan . The prepayment penalty is usually 2-3% of the loan balance which may help recoup the costs of the lender.
Choosing a title company
Title company usually provides services related to title, escrow and closing. Having an Escrow account is very significant to the sellers in the selling process of their home. An Escrow account is an account that holds all the money involved in the transaction and the title of the home safe. It helps make sure the title is disbursed to the right person and the money is disbursed at the right time. It helps make sure all the mortgage amounts and obligations are met before disbursing the title to the buyer.
Title companies may also help the buyer and seller in the closing process acting as a closing agent by coordinating the signing of documents needed for the closing process and may also take care of the deed recordation and the transfer of ownership. Some may prefer to use attorneys in place of title companies to assist in the closing process where the attorney serves as the closing agent. But, this process is rare as typically attorneys charge more than the title companies.
Closing and surrendering the keys
Process of Closing involves the seller signing the documents relating to the legal transfer of ownership of their home to the buyers. Some of the costs that may be included in the seller's closing statement are transfer tax, agent's commission or attorney fees, recording fees, any credit to the buyer agreed during negotiation and any outstanding fees. The settlement agent is responsible for recording the deed to the county records. The keys including the home key, mailbox key or any other special access key if the home has an HOA may be handed to the buyer during the closing process or to the title company depending on the terms of the agreement.
Moving to your new home
There are certain processes the mover can follow in order to ensure that they are fully prepared to relocate to their new home. Moving is one of the big task and can become overwhelming if not planned properly. Plan a relocation checklist to make the process smooth and stress free.
If you are moving to a new city or state, you may have to research details about those places in advance to get an idea about the cost of living, schooling, neighborhood, supermarkets, Groceries etc. it is advisable to pack an essential bag with essentials for at least a week like clothes, food, toiletries, chargers so that you are covered if your packers truck is delayed during transportation. Getting a truck with loading ramp makes the loading and reloading easier during the move. Gather and carry all the financial records, medical records, important documents, receipts and contact information in one place. Refer for few tips on moving with kids and moving with pets.