sell my home Archives

Seller’s Net Sheet Explained

May 9, 2020 By Rick

A seller’s net sheet breaks down all of the debits and credits based on the accepted purchase price for the property. Let’s take a look at the credits first (the easy part).

Credits

The first thing on the seller’s net sheet is the selling price or the agreed purchase price. In this example I will use $400,000.00 as the selling price. This is the first line item for the credit column.

The second item on the seller’s net sheet is the prorated taxes. In Michigan we pay our taxes in advance. The summer tax covers from July 1st of this year to June 30th of next year. The winter tax covers from December 1st of this year to November 30th of next year. Buyers that are closing in August are paying the seller for 11 months of summer taxes and 4 months of winter taxes. Here’s another example if you are closing in May. The buyer will pay the seller for 1 month of summer taxes and 6 months of winter taxes.

The third item that could be on there is prorated association dues.

Any amounts that were paid by the seller for annual dues or monthly dues will be pro-rated back to the seller. As a result, this turns into a charge to the buyer.

The fourth item that might come up is prorated trash collection fees. The seller is entitled to the prorated amount in municipalities where trash collection is a monthly charge.

That is really it for the credit side! Pretty simple, huh?

Debits

This is where things can get a little complicated. You can not avoid this if you just take your time and follow the math.

Mortgage Pay-offs

Mortgage Pay-offs are first lien position amounts owed that are registered with the county. They are due on the sale of the property.

Assessments

Any assessments from the city, county or state will be paid out of the proceeds of the sale.

Title Insurance Policy

The seller must pay for an insurance policy from the title company. This is to insure the title is clean when delivered to the buyer.

Real Estate Transfer Tax

In Michigan, the seller is responsible to pay the real estate transfer tax unless otherwise agreed between both parties. This tax has two parts. 1) State transfer tax of $3.75 for every $500 of value transferred and 2) County tax of $0.55 for every $500 of value transferred.

Discharge of Mortgage

If you have a current mortgage on your home, when you sell it, there will be a discharge fee recorded with the county. The cost typically falls around $36.00.

Administrative Fees

The listing broker charges this fee to cover administrative costs associated with the sale of your home. This fee is separate from any commissions.

Home Warranty

If the seller has agreed to provide a home warranty to the buyer, then there will be a line item debit for that cost. This can range from $300 to $1,000 depending on the type of warranty and coverage.

Commission

The seller is paying the entire commission amount. The listing brokerage pays a specified amount to the selling brokerage out of the amount collected by the listing brokerage. So if the listing broke charged 7% to list the house and advertised a %3 commission to a potential buyer’s broker/agent, then the listing broker would collect the remaining 4% as their fee for marketing the home for sale. Commissions are completely negotiable!

Seller Concessions

These are previously agreed upon amounts the seller is willing to pay towards the buyer’s closing costs and pro-rations. In general, on conventional loans this amount cannot exceed 6% of the purchase price. In some cases it is an amount “up to”. If all of the costs are covered within the agreed upon amount, the remainder comes back to the seller, .

Miscellaneous

Pest Inspection fees, City Certification fees, Delinquent taxes, etc are all types of debits to the seller.

As a result, when we look at all of the credits and debits, we can estimate (based on the offer price) how much the seller will put NET in their pockets.

I always like to show my sellers several price scenarios.

A) This helps them understand if their list price makes sense or not.

B) This helps them negotiate with better information (knowing their bottom-line).

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What to Expect with the Appraisal Process

May 9, 2020 By Rick

In my experience buyers and sellers have a huge misconception about the appraisal when purchasing a home. The simplest and best way I can describe the purpose of the appraisal is to justify the lender’s investment. It is not to prove the seller has negotiated the best price or for the seller to prove how much equity they are receiving.

So what does the above actually mean? Well let’s start with buyer’s equity position. I have noticed the appraisal usually comes in at or around the purchase price. This is not a coincidence that the buyers and sellers have negotiated the exact appraised value! Instead the appraiser is justifying (if the evidence supports it) the bank’s loan to the buyer which is based on the purchase price. Essentially, the appraiser is telling the bank that if the buyer defaults on their loan, the bank should be able to take the house and sell it to recover their loan amount. This is especially critical when the buyer is putting less money down.

Sellers often like to know that they didn’t leave a lot of money on the table. So they want to know what the appraisal came in at. However, the appraisal is paid for by the buyer and is required by the lender. It is really on for their information. If they decide not to share the appraisal amount, that is their right. Typically the lender will just report that the property appraised and that they are moving forward with their loan approval process.

In some occasions when the buyer is in fact purchasing a home well below market value, the appraisal can come in much higher than the purchase price. That is typically expected by all parties in that case.

The bigger issue is when the appraisal comes in low. In that case, any of the following could apply:

The buyer must come up with the difference out-of-pocket in order to satisfy the lender’s requirement. This will allow the lender to proceed with the loan and purchase.
The seller might agree to reduce the purchase price to keep the deal together and move forward with this buyer.
The seller and the buyer can split the difference (to varying degrees) of a price reduction by the seller and more cash down from the buyer.
The buyer can kill the deal because they don’t want to do any of the above. It is their right by most contracts as finance contingency is based on a loan approval which requires the appraisal. In this case, the buyer gets their Earnest Money Deposit (EMD) back and can move on to another property.

I hope this helps you understand a little more about how appraisals are related to the transaction. If you have any questions, please feel free to reach out to me anytime.

What to Expect During a Home Inspection

May 7, 2020 By Rick

As a seller, you might be wondering what to expect during a home inspection. It can be a little stressful and nerve racking to think about someone poking around your house trying to find things wrong with it. Also knowing that these things can be used to negotiate against you is just a stressful situation all around.

However, if you take my advice about a pre-listing home inspection (read that article here) you will have very little to worry about. If you didn’t do a pre-listing home inspection, don’t worry. I’m going to walk you through exactly what to expect.

Some inspectors will get there early and begin on the outside, including the roof. Although some inspectors will actually get a ladder and inspect the roof, many have started using drones to film the roof and inspect it in more detail once they are back at their computer.
Once the buyer(s) and their agent show up, they will make their way inside. Sometimes the buyers are there with the inspectors, sometimes they are not. I always recommend attending the home inspection for the buyers, but I think it is better for the sellers to leave (go shopping, watch a movie, get something to eat, etc).
On the inside, the inspector will check the electrical, plumbing and mechanical (heating & cooling) system. They will also check all the windows for leaks and whether they open and close properly. Appliances will be tested, by running the dishwasher and turning on the stove. They will note every minor issue they discover.
In the attic, they will look for leaks in the roof. They will check for any discoloration and potential mold. They will also check the insulation and determine if it is up to code and note what type of insulation material is being used.
In the basement the inspector is looking for any evidence of water and potential foundation problems. An unfinished basement is ideal for inspection since everything is exposed and can be expected with the naked eye. This makes it easy to see what type of electrical work and plumbing has been done in the home.
Inspections can take 2-4 hours depending on the size of the home. The home inspector is documenting everything digitally and taking notes. Afterwards the inspector will spend time generating a detailed report and deliver it to the buyer(s). The buyers will review it and then make a decision on whether or not to move forward with their purchase as-is or not.

Based on the results of the home inspection, the buyer(s) then decides to one of the following: a) move forward as-is, b) ask for repairs/credit or c) kill the deal. If the buyer asks for any repairs or credits, they are literally opening up the transaction to re-negotiation. This is where the help of a professional is the most beneficial!

Hopefully knowing what to expect will ease your anxiety about the whole inspection process. Feel free to reach out if you have any questions or concerns.