Selling Your House (Script 405)
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Selling your home is one of the biggest financial transactions of your life. You should know several things before the “For Sale” sign goes up on your lawn.
- 1 Before you sell: what is your home worth and what should it sell for in today’s market?
- 2 Do you need a realtor?
- 3 Should you have a lawyer?
- 4 What is a listing agreement?
- 5 What do you pay the agent?
- 6 Do you have to pay the commission even if the agent doesn’t sell your house?
- 7 Do you have a mortgage on your house?
- 8 What happens after you sign the listing agreement?
- 9 Which things in the house are included in the sale?
- 10 What are “subject to” clauses?
- 11 Tax and the capital gains tax exemption
- 12 Summary
- 13 More information
Before you sell: what is your home worth and what should it sell for in today’s market?
One way to find out is to get a professional appraisal. This will give you a value for your home based on what comparable homes in your area have sold for and what it would cost to replace your home. The charge will vary with the appraiser, but is often between $200 and $750.
Another way to learn the value of your home is to contact several reputable real estate agents who do business in your area. They will look at your house and, for no charge, tell you what price they would list the house for and what they’d expect it to sell for. Remember that realtors are not professional appraisers and it is often advisable to seek a professional appraiser’s opinion instead where greater certainty is desired. This, however, will require that you pay the appraiser a fee.
Do you need a realtor?
You may decide to market and sell your home by yourself, though most people prefer a professional do the job. If you decide to use a realtor, pick someone you trust and whom you are comfortable with.
Should you have a lawyer?
Selling and buying a house is complicated and the potential for disaster is great—one mistake could cost a lot, or result in months or years of stressful litigation. Further, there are many possible types of real estate fraud and to protect yourself you should hire a lawyer. Likewise, you should consult a lawyer before you sign a listing agreement with a realtor to ensure the terms being sought by the realtor are accurate, fair, and legal.
What is a listing agreement?
It is the contract between you and your real estate agent with the terms for selling your house. Today, most listing agreements for residential sales are standardized forms from the local real estate board and are multiple listing agreements. A multiple listing agreement means your agent can advertise and show your home to realtors in their own agency plus realtors with other agencies. This allows many potential buyers to learn about your home. Many agents prefer that the agreement continue for a 3-month term, but you can also choose to list your home for a shorter period if you desire. If your house doesn’t sell within that time, you can either extend the term of the listing agreement or change agents.
What do you pay the agent?
The listing agreement sets the amount of the agent’s pay, or commission. In BC, commissions can vary widely, so it’s a good idea to shop around. Some agents charge a flat fee. Others charge a percentage. For example, they could charge 7% on the first $100,000 of the sale price, plus 2.5% on the rest. In this case, if your home sells for $400,000, the commission would be $14,500. You pay this commission to your agent, who shares it with the buyer’s agent.
Do you have to pay the commission even if the agent doesn’t sell your house?
Normally, your agent is entitled to a commission when a buyer—who is ready, willing, and able to buy your house—signs an offer to purchase, and you accept it. Sometimes, even if the transaction falls through, depending on the listing agreement, you may still have to pay a commission. You may also have to pay the commission if you sell the house yourself while the listing agreement is active, or even after the listing agreement has expired–if the agent had previously shown the house to the buyer or was the effective cause of the sale. For these reasons, it is helpful to consult a lawyer during the process of selling your home.
Do you have a mortgage on your house?
If you have a mortgage on your home, you will have to contact the bank, credit union, or other lending institution that holds the mortgage before you sign a listing agreement with a realtor. This is done to find out certain important information, such as:
- How much do you owe on your mortgage?
- Can the buyer assume (meaning take over) the mortgage? If so, will the buyer need to have a certain income to qualify?
- Can you pay off the mortgage? If so, is there a prepayment penalty? Sometimes a lending institution will waive the penalty if the buyer takes out a new mortgage with them, or if you take out a new mortgage with them.
Get the answers to these questions in writing to avoid any unpleasant surprises later.
What happens after you sign the listing agreement?
If someone offers to buy your home, your agent will bring you an offer to buy. It is usually written on a standard form provided by the local real estate board. Read all the fine print. Every word is important. You should have your lawyer check the offer before you sign it. Once you and the buyer sign the offer, it is a binding contract of purchase and sale.
Before you sign an offer, discuss with your agent anything in it that you don’t like and write in your own terms instead. It then goes back to the potential buyer as your counteroffer (considered to be a new offer altogether) and becomes the contract of purchase and sale if the buyer accepts.
Which things in the house are included in the sale?
When someone buys your house, all the things that are “fixtures” go along with it, unless you and the buyer agree otherwise. The defining a fixture can be difficult: generally, a fixture is anything that’s attached to the house to the point where its removal would damage the house or require repair. The bathroom sink is an obvious example. As objects like chandeliers are sometimes items that home owners are interested in taking with them following the sale of their home, it is important that these fixtures are explicitly excluded from the contract of purchase and sale. Better yet, before you put the house up for sale, replace the chandelier with a simple, inexpensive replacement. The washer, dryer, fridge, and stove aren’t fixtures, but you may be able to use them as bargaining tools if the buyer wants them.
What are “subject to” clauses?
They are conditions that must be met before the deal to buy your house proceeds. Common ones include the buyer getting financing (for example, a mortgage) and the house passing an engineering inspection. If you get an offer that is subject to the buyer getting financing or any other condition, make sure the buyer has only a short time to remove the condition. Your home may be off the market for the time it takes the buyer to remove the condition, and you will likely want to keep that period short.
As well, the “subject to” clause should be specific. Don’t accept a general clause, such as “subject to buyer obtaining satisfactory financing.” If the buyer changes his or her mind, all the buyer must do to get out of the deal is to say he or she couldn’t get satisfactory financing. Instead, put details in the clause about the interest rate, the principal amount, monthly payments and so on, as well as the deadline for when the buyer must remove the clause. Again, a lawyer who practices real estate law can be helpful in this process.
Tax and the capital gains tax exemption
If your home is your principal residence, you don’t have to pay tax on any profit (capital gain) you make when you sell it. You should see a lawyer about whether the principal-residence tax exemption applies to you.
First, get a realistic idea of your home’s market value, then choose a realtor you trust. Read the fine print of your listing agreement and the offer to purchase carefully. If you have any doubt, especially about the offer to purchase, have a lawyer check it over before you sign.
- For more information on house mortgages and financing, check script 408, called “Mortgages and Financing a House Purchase”.
- For more information about the contract of purchase and sale, check script 406, called “Buying a House”.
- As well, read the booklet called “Selling a Home in BC Information Booklet” prepared by the Real Estate Council of British Columbia.
[updated October 2017]
The above was last reviewed for accuracy by Nathan Ganapathi and Anna Kurt, and edited by John Blois.
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