My Equity

If you’re like most people, your home is the biggest single investment you have. You expect it to increase in value over time, and you probably have more money tied up in it than in any other investment.

  • This money is your equity
  • A large chunk of it disappears when you pay a real estate commission at closing.

On this page you’ll learn:

  • What constitutes the equity in your home
  • How real estate commissions affect your equity
  • Why you should price your home fairly and stick to it

A Quick Word to Buyers

Buyers and sellers alike benefit when there is no real estate agent involved. The term "fair market value" has a different ring to it when the middleperson is taken out of the equation, and prices trend toward a truer value when they no longer reflect real estate commissions.

EQUITY

Equity is the value of the unencumbered interest in your home. It’s the difference between the fair market value of your home and the unpaid balance of your mortgage, plus any other outstanding debt on the home.

Real estate commissions are the fees earned by real estate agents; they are based on the selling price of the property. In New York City, commissions are are typically 6% and sometimes 5% for high end properties.  In any case, commissions can represent a large portion of the property's equity, easily consuming tens of thousands of your dollars that would have gone into your pocket.

Your equity increases in two ways: as you pay off your mortgage and as your home appreciates. It decreases when you borrow against your home.

But nothing reduces your equity like a real estate commission. With the information and resources available to you on sites like ownersandbuyers.com, more of that equity stays with you when you sell your home.

HERE ARE THREE ASSERTIONS FOR WHY YOU SHOULD CONSIDER SELLING YOUR HOME YOURSELF:

Lower Cost of Selling

If you sell your home using a real estate agent, the commission you most likely be charged is 6%. For an $850,000 home, that’s $51,000. For a $1 million home, it's $60,000. You have to ask yourself what you’re getting for all that money. The cost of selling your home on your own is negligible by comparison, and the result is the same: your home will sell.

Retaining Your Equity

Let’s say a couple decides to sell their home. It has a fair market value of $900,000 and they have $200,000 of equity in the home (and a mortgage balance of $700,000).  They decide to use a real estate agent and agree to pay a 6% commission, or $54,000. The apartment sells for $900,000. After the closing, the couple realizes they've lost 30% of their equity. The $54,000 commission paid at closing means that instead of walking away with $200,000, they only walked away with $146,000. Use our Equity Calculator to see how much equity you would save by selling your home yourself.

Staying Close to Your Asking Price

Studies show that when real estate agents sell their own homes, those homes stay on the market an average of 10 days longer than their clients’ homes. The same studies also show that the selling price of real estate agents’ homes is on average 3% greater than that of their clients.*

Here’s why.  A couple who lists their home with a real estate agent for $900,000 may hear from the agent that someone has offered $875,000 for the home. The agent might insist that this is a good offer and that the sellers should take it. Why would the real estate agent be so eager to accept a price that’s $25,000 below the seller’s asking price?

It’s simple.  With an offer of $875,000, the price of the home is reduced by $25,000, but the $54,000 commission is reduced by only $1,500. It’s not worth it to the agent to wait for a higher offer (as she might if it were her own home). Meanwhile, the seller walks away with $23,500 less than he would have, had he waited for a higher offer.

This situation happens every day. If you choose to work with an agent when selling your home, be sure that together you come up with a fair asking price for your home and do your best to stick to it. After all, agents stick fairly close to theirs.

SUMMARY

As you can see, there are tremendous financial advantages to selling your home yourself. That's not to say it's for everyone. It does require more effort, and some people have no problem giving up a large portion of their equity in order to have a real estate agent do it.

But selling your home yourself can be easier than you think.  In our Owners’ Resources, we show you how to:

  • price your home correctly; and
  • prepare it for individual showings and open houses

At ownersandbuyers.com, we want you to walk away from your closing with your equity intact.

*Freakonomics, by S. Levitt (Harvard, MIT) & S. Dubner

Adapted, with permission, from our friends at www.dwellwell.com.