In this article we will discuss how and when to sell your property. As a property seller there are many exit strategies for an investment property or one in which you are currently living in. This is a highly informative article and a much needed one for those who have just embarked or are planning to sell their property soon in the local real estate market in India.
When to Sell
A good rule to follow when selling is to time your sale. You should buy when it’s a buyers market and sell when it’s a seller’s market. Let us dwell on this in more detail.
Markets do not appreciate forever. They go higher and higher and eventually prices become so high that most people living in that area cannot afford them. So prices plateau after that or even decline.
Typically across the world, home buyers can afford to buy a property that is three times their gross annual income. So if household income is 1 Cr then that person can get a loan on a 3 Cr home. If your property is in an area where the average household income is 50 lakhs and you know prices of say a 3 BHK home is unlikely to go above 1.5 Cr and your estimates show that in the current market your house is worth 1.4 Cr then it would be a good time to sell quickly and get out of that market.
Lets look at an average graph of home prices for a ten year period from 2011 to 2021.
Observe how low the prices were after the financial crisis of 2008 – 2010 and how the market has recovered. What every investor wants to do is to buy at Point A which is the absolute bottom and sell at Point B which is the absolute top. But this is an unrealistic and risky goal. This is because no one has any clue about where the absolute top is until after you have passed that point. And after you have passed that point, the psychology of home buyers in the market has also changed.
When prices are rising (left of Point B) the buyers becomes nervous and panics. Time is not on the buyer’s side and they feel that to buy a desirable home in a nice neighbourhood at this point will mean paying above market value because the longer she waits the less likely she will be able to get the home of her choice.
But once the market price starts to soften the sellers become anxious and with more homes available in the market the buyer’s mindset changes. Now she thinks that time is on her side and maybe it would be a good idea to delay the purchase for some more time and see if prices drop further. By the time you the property seller actually sell your property, the price may be at Point D.
Which is why in any market you should ideally sell at Point C. Prices are still rising and homes are selling fast. So you need to get out while the going is good. You have to remember that real estate unlike stocks is not a highly liquid asset. In the stock market if you time the market wrong, you can always go online 24 / 7 and liquidate your position and cut your losses. In tha case of real estate if you miss the boat it may be another five or ten years before another good selling opportunity arises.
Let us look at the graph again. From Point A to Point B the risk-reward ratio is in the favour of the seller because the housing market was recovering from the last slump. From Point C to Point B the risk-reward ratio is going crazy high. You’ve had a good run but you are greedy for more and want to hold on to your property for even more time. At this point your risk is very high for a potential gain that is relatively low.
From Point A to Point C you were an investor. But from Point C to Point B you became a speculator. My advice is to watch the market trends – Give the advantage of the last few points of increase to the buyer and get out.
Who to Sell Your Property To
If your property is on rent then as a seller you have three potential buyers: Your tenant, an investor or an end user who is going to stay in the house after purchasing it. Each set of buyers has it’s pros and cons.
Selling your property to the tenant is the easiest option. If your tenant has been living in your property for a while then he knows the property better than anyone else and selling the property to him does not require any advance notice from your side or wait for him to leave and then spend more money trying to get the property ready for sale. You may not get the best amount of money by going this route but you will save on time and money and that makes it an attractive option.
Selling your property to another investor is also an easy job. If your tenant does not want to buy the property then the fact that your apartment is pre-leased to a tenant makes it more attractive for another investor. Again in this case you may not get top dollar because most investors are always looking for value propositions and will drive a hard bargain with you.
The most attractive buyer for a home seller will always be the end-use home buyer who is buying the property for her own use. Since the buyer will be making the property her home the purchase will have an emotional aspect to it. If she really likes your house and the neighbourhood then she will pay market rate or even above market rate to buy the house.
Discuss these above options with your listing agent as your agent will know the local market well and can advise you on the best course of action. Which brings us to the Listing Agent.
Appoint a Listing Agent
Now this is where we need to educate home sellers on the importance of selecting a listing agent. Traditionally in India and even in Mumbai whenever a property seller decides to sell a property, the head of the household will contact about a dozen real estate agents around the block and inform them that their house is up for sale. This is a highly flawed strategy and one that brings little or no results. In the days of yore when the housing market in India’s top cities were not so saturated and when there were more buyers than sellers this strategy may have worked to a certain extent. But in today’s hyper-saturated real estate market this sort of unplanned blind-firing strategy just doesn’t work. Think about this way – If you have contacted 20 agents and none of them are sure that eventually the sale will happen through them, why would they spend extra efforts or monies on marketing your property in the market. The result is that none of the 20 agents go out of their way to market and sell your property and eventually your property languishes in the market for months and even years without finding the right buyer!
After making the decision to sell your house, your first job is to hire the right listing agent. Talk to only one professional real estate agent (not 20!) and entrust him the task to sell your property. Give the agent a sole exclusive mandate and make the agent responsible for the task along with deadlines. It will be then the listing agent’s job to spread the news about your property to other agents in the market and find buyers for your property through other marketing means such as flyers, newspaper ads, internet ads, social media etc. etc. Whatever be the case, once you have hired a listing agent do ensure that all queries about the property including those from your own contacts are only routed through the listing agent. This makes the whole selling process relatively peaceful, professional and highly effective as opposed to the chaotic, confusing and total ineffectiveness of the shooting-in-the-dark strategy that happens when you contact multiple agents to sell your property.
How to Find the Right Agent
Selling a property for most people is usually a once or twice-in-a-lifetime task and to be honest most people don’t know which agent to contact for the task. Most of the agents that people eventually work with are referrals from friend, family and other investors. But just because a referral has come from friends or family do not blindly assume that the agent is right for your job.
My suggestion is to contact us at Gupta & Sen if you have a luxury property or high end property to sell. Or else simply go to real estate websites like 99acres, makaan.com etc. and search for properties similar to your own. What you should be looking for is an agent who is the most active in your geographical area and in your asset class. At the end of the day you should be looking at the number of quality listings that an agent has whether on other websites or on their own website. Those are the kind of agents who are busy with a lot of work and may already have buyers for your property before you have even started the marketing. Good real estate agents always have a pipeline of buyers for any type of properties.
Things to know about your prospective agent:
- How many years has the agent been working full time in the local market?
- Does the agent have a “feel” for the current market? For example does the agent have any idea on what are the things that can make your property sell fast? What are the upgrades and touches that are worth paying for and which ones are not?
- Does the agent think like a property investor? What is the percentage of the agent’s clients that are investors vs. end user home buyers?
- How does the agent market his listings? Does he use the latest tools and techniques available to marketers today such as video tours, online advertising apart from open houses and flyer ads? Does the agent also have a good network of sub brokers who can refer home buyers?
- At what price does the agent recommend that you list the property and why? Some agents will use unrealistic selling prices saying “Sure I will get you that price” in order to just entrap unsuspecting sellers. And then they will fail to perform. A professional and result-oriented agent will first do a CMA (comparative market analysis) and find out what similar properties are selling for, list it at a median price and do a quick sale.
- What is the exclusive contract duration for? The industry standard is for the seller to sign a contract with the listing agent for 6 months. If the agent is unable to sell the house in 6 months then the seller is free to find another agent. On your side you should also talk to the agent and ask him, “What price should we list it at so that it sells within 3 month?”
- What is the agent’s commission? The industry standard in India currently as of 2021 is for both the seller and the buyer to pay 2 % each to their respective agents though some agents take 1%. An exception could be made for selling in bad or uncertain times where there are many comparable properties available and few buyers. In such cases it might make sense for you and your agent to hike the commission percentage to 2.5 % or even 3 %.
Making your House Market Ready
Before you put your property on the market for sale you should ideally spruce up the house. Do a paint job, replace small things that need fixing such as fixtures and accessories. Do a house cleaning and get rid of stuff that you don’t need. This process is called “make-ready”.
Deciding on Your Budget
Deciding how much money to pool into making-ready your house depends on who you assume your ultimate buyer to be. If you’re planning to sell it to a property investor who may use it as a rental it may not make much sense to put in “extras” like granite countertops, expensive fixtures or new flooring. These extras will cost a lot and will not really help the investor-buyer to raise his rents much if at all.
On the other hand if you are planning to sell it to an owner-occupant who will end up staying in the house then doing a higher-end rehab will help you get top dollar for the house. But even then you want to ensure that every rupee you end up spending in rehab will add atleast two rupees or more to the selling price. Why spend two lakhs on a Jacuzzi if it raises your house value by only a lakh.
Talk to your real estate agent – the one whom you choose – and ask him for advice on what improvements to the property makes financial sense.
Dealing with Contractors
If your house needs large scale repair and renovation work before putting it on the market for sale then you should definitely ask your real estate agent if he can recommend any vetted contractors who can get your property ready for sale. If you find yourself in a situation where you have to go out and screen and hire contractors you are in for quite a lot of trouble and heartburn. Reliability and Competence are traits which vary widely between different contractors. There are contractors who will say they can do anything and try and get the bid and then do an unprofessional job. Some contractors aka fraudsters will take your advance deposit and not show up for the job. This is surprisingly common. Expect to babysit ALL contractors until they prove to you that they don’t need babysitting. Which is why getting a referral from a trusted source for a contractor is your best bet for a smooth and hassle-free renovation!