Everybody lives somewhere. If you own a house and need to sell it before you can build your new, dream, forever home on your land, don't let selling that house stop you from moving forward. Here are some tips and tricks I've seen that work for getting your old house sold so you can move on to making your dream happen.
- Don't get emotional about your existing house. To you, it's home, and might contain lots of family memories. That's how it should feel. It doesn't feel that way to a potential buyer. People who look at your house as a potential new home for them are shopping around, comparing the features, location, and size of your home to all the others they've looked at. Try to view your house through their eyes.
- Figure out the minimum you need to sell the house for in order to raise enough cash for your new home. To do this, you'll need an idea of the amount of cash you'll need to put down when you get the construction loan to build the new house. That's a question your construction loan bank will answer. Here's a link to an article that talks about how much cash you'll need.
- Take the answer to number 2 above (how much cash you need), and add that to the amount you owe on your current mortgage. (Cash needed + Mortgage Payoff). Now you have the number that pays off your mortgage and leaves the cash you need for the new house.
- Take that number and divide it by 0.93. Why? Because when you sell your house, you need to take into account the fact that you'll have transaction costs - Realtor commissions (yes, hire a Realtor - read this article on why I say that), pro-rated taxes, and other closing-related costs. I usually figure that will add up to around 7% of the total sale price. So, 100%-7%=93%, which is why you divide the amount you need by 0.93. The result is the MINIMUM sale price you can accept to result in generating enough to pay off your mortgage and give you enough cash to be the down payment on your construction loan. Of course, if you have another source of cash you can use, you can subtract that amount from the amount of cash you need to get from the sale of your house.
- Put your house on the market by hiring the right real estate agent. Yes, hire an agent to sell your house for you, and you'll end up with more money in your pocket than if you try to sell it yourself. No, don't hire your sister-in-law or the lady at church just because you know and trust them. Knowing them outside of their profession doesn't make them the best choice for selling your house. Read an article about finding the right real estate agent here.
- Find the answer to this question: can you start building before selling your old house? For this answer, you'll need to talk to the bank that's doing your construction loan. Here's an article that talks about finding that bank.
- You might not need to answer the above question, if the answer to "am I comfortable starting to build the new house before selling the old one?" is NO. That's OK - some people are OK with that, some are not.
Getting all this stuff figured out in advance will put you in a much better position to comfortably start the process of building that home you've been dreaming about for your family. Don't let having a house to sell be the obstacle that keeps you from making the dream happen sooner rather than later.
A home builder for over 20 years, Tim is the "son" in Turner & Son Homes. He is the CEO of the company and partners with his dad, Ben, who has been building since 1964.
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