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Several times in your life there comes a time when you need to sell your home.  It may be for a job transfer or promotion. It may be for a move up as your family grows. It may be for a move down as your family shrinks. It may be because you ran into financial trouble and need to sell your house to avoid damage to your credit score. It may be because you just cannot afford to properly maintain your home. In later life it is because you lost your spouse and find it difficult to move on living in a place with so many memories. It may be because you just need help in taking care of yourself and your home is not the best place to get the help you need. And you may have inherited a house you really don’t want. That is life.

So how many ways can you sell your house?

  1. Call a Realtor.  I am a Realtor myself and I can tell you don’t just pick a realtor because you know then form church or some social group. If you want to sell your house interview several Realtors. Find the ones that are the big producers.  These Realtors are truly professionals and know how to sell a house. I just had a call yesterday from two sisters who inherited a nice house in a nice neighborhood. The house is priced well. Yet it has been on the market for almost a year.  I think you see my point.
    1. Pluses – Your home gets listed so thousands of people can see it. It’s pretty much hands off on your part. 
    2. Minuses – You have no idea when it will be sold. You don’t know if the buyer’s mortgage will be approved or when.  You don’t know what it will sell for. You pay a 6% commission for their effort and marketing expenses. If your house needs repairs to the point that it cannot qualify for a loan, such as an old roof, you may need to fix it first.
  2. Sell to an Investor for cash.  I sometimes hear that “You are just trying to steal my house.” To someone who only sells a house a few times in their life it may certainly look that way. Investors pay very high interest rates on the money they borrow because it is large sums for short periods. They will fix and update the house to bring in the highest possible price. I’ve flipped over 35 houses and I can tell you that I find problems the current homeowner knew nothing about such as termite and water damage.  I always find something. In the end an investor makes about 10% profit. That is a higher than a 6% commission but then the Realtor didn’t fix, update, paint and re-carpet the house did they? 
    1. Pluses – You know exactly what you will clear on the house as it is written in the purchase agreement. You know exactly when it will be sold. You don’t need to do any repairs because the investor is not getting a bank loan. The sale can take place as fast as the Title Company can process the paperwork.
    2. Minuses – Cash is king. If you are selling for cash expect a substantial discount from the retail price of the house.
  3. Sell the house and hold a mortgage.  If you don’t need all the cash from this house to buy the next house this may be a good option. You take a down payment and then finance the balance at whatever interest rate you negotiate.  You aren’t lending the buyer money. You are turning equity in the house into a stream of payments, plus interest. If you have an existing mortgage you can still do this using a “wrap around” mortgage.
    1. Pluses – Great way to develop a stream of income for your future years.  It also can be used as an estate planning tool. You spell out in the note who the payments are going to after you pass. So you get cash flow now and your kids get the cash flow when you’re gone.  If you would incur a substantial capital gains tax it spreads the taxes out over a long period of time instead of taking a big hit upon the sale of the house.
    2. Minuses – You aren’t getting all cash now. You do have some risk of the buyer not paying in the future in which case you foreclose and then resell the house.
  4. Contract for Deed.  This works very similar to the previous one except for the deed.  In the case of #3 the buyer gets the deed at closing. In this case you hold the deed until paid in full.  This works much the same way as buying a car. The bank holds the title until it is paid. You will do the same. 
    1. Pluses – Great way to develop a stream of income for your future years.  It also can be used as an estate planning tool. You spell out in the note who the payments are going to after you pass. So you get cash flow now and your kids get the cash flow when you’re gone.  If you would incur a substantial capital gains tax it spreads the taxes out over a long period of time instead of taking a big hit upon the sale of the house.
    2. Minuses – You aren’t getting all cash now. You do have some risk of the buyer not paying in the future in which case you foreclose and then resell the house.
  5. Split Funding.  In this scenario you take a substantial down payment and the balance at a future date. 
    1. Pluses –If you would incur a substantial capital gains tax it spreads the taxes out over two periods instead of taking a big hit upon the sale of the house. The proceeds can be deferred until you are in a different tax bracket or if you have a future expense you know about.  Essentially a forced savings plan.
    2. Minuses – You aren’t getting all cash now. You do have some risk of the buyer not paying in the future in which case you foreclose and then resell the house.
  6. Barter.  This is old school but it still works. Say you want to RV for a few years but you don’t have an RV.  Trade the house for an RV. 
    1. Pluses –It gets you want you want without having to wait on a buyer to qualify for a mortgage. 
    2. Minuses – Since there is a transfer of real property there are still closing costs and transfer taxes to be paid. But these can be negotiated for the buyer to pay.  Check with your accountant on the capital gains liability.
  7. Third Party Financing. This is similar to the buyer going to a bank to get a loan. The difference is you the seller put the buyer in touch with a private lender who then pays the seller the money and creates a note and mortgage with the buyer.
    1. Pluses – Much faster loan process than going through the red tape of a bank.
    2. Minuses – Need to know a private lender or someone who knows a private lender.
  8. 1031 Exchange.  This is a tax law that allows you to “exchange” properties of equal or near equal value without incurring a tax liability.  You essentially sell one house and buy another without incurring any capital gains from the sale of the house you own now. 
    1. Pluses – Saves your capital gains until a future date.  It allows you to buy property that is more desirable to you and to sell one that is less desirable.
    2. Minuses – You must use an arbitrator who will hold all the money for the transaction until completed.  There are short time frames for finding a new house when you sell the old house.

Most people are familiar with options one and two. Very few are aware of the other six.  So when you are ready to sell your current house, remember the other ways and find the way that works best for you in terms of return, speed of sale and tax savings.