Planning to sell your house? – Costs you should be aware of

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Selling off a house can end up being a pretty disappointing experience if you’re unaware of the involved costs and don’t finally make as much margin as you had expected to. Being aware of all such costs can help you in creation of a practical plan for the purchase of your next home. In general, apart from the amount needed for paying off the mortgage, you must separate at least around 10% (of its market price) towards the selling costs.

home-for-sale

Although every home sale transaction is different in nature, as the applicable laws may vary from state to state, majority of real estate transactions involve the same kinds of fees and expenses everywhere. In general, the pricier a home is, the more expensive it is to sell it.

Let’s go over some of the common expenses associated with selling a home:

Real estate agent commission

You can expect to shell out anywhere around 5% – 6% of a house’s sale amount as the real estate agent commission. This percentage is normally split between the seller’s and buyer’s agents, and thereafter between their brokers. This implies that if you sell your home for $ 400,000, you may end up paying $ 24,000 in real estate agent commission alone.

Please keep in mind that this commission is negotiable in nature and sellers are often able to get some sort of discount on the percentage. Studies have found that as many as 60% of the home sellers who sold their properties in 2015 were able to negotiate some discount on the agent commissions. On the other hand, almost 37% of the buyers were able to negotiate a rebate of minimum $ 500 or a percentage discount on their portion of the real estate agent commission.

Furthermore, the real estate agents are quite likely to accept lower commission rates nowadays considering that the housing inventory isn’t at its best in the present-day United States. And these agents face immense competition from their counterparts in the business too. In addition, online brokerage firms are rapidly replacing the conventional realtors as they’re able to provide innovative web tools and local agent services at discounted rates to sellers.

If you want, you can also do away with the real estate agent involvement completely by marketing and selling your house on your own. This is all the more possible if your house is located in a popular area that gets plenty of traffic. A simple yard sign can bring in hoards of prospective buyers in such an area. You can also advertise your property on free portals like Craigslist and more. However, please keep in mind that you’ll need to get into the shoes of your real estate agent when you decide to sell your house on your own, and take responsibility of some complicated tasks like involving the lawyer for drawing up a contract, negotiating with the buyers and arranging all the paperwork for transfer of the title.

Mortgage costs

Whenever you sell a house, you generally use the initial sale proceeds for paying off the home loan amount. Although it may seem like a pretty straightforward transaction, the amount payable may not be exactly the same as what was listed on the last mortgage statement. The final payoff amount is calculated based on the exact day of closing the account, as the interest accrues daily and you need to pay the outstanding principal and the prorated interest amount up till that date. Please don’t forget to check about any prepayment penalties, if applicable, as you’ll need to factor in that amount too.

Home repair costs

There’s nothing like having a well-maintained and ready-to-move-in home as you may not be required to perform any jobs on it before handing it over to the buyer. However, the chances are that you may need to incur certain expenses for boosting your home’s overall appeal and for justifying its price-tag. It may mean additional expense on fixing those cracks in the walls, getting a fresh coat of paint all over, changing those worn-out bathroom fittings and more.

Apart from incurring such expenses for improving your home’s resale value, you may also need to carry out more repairs after the buyer has carried out a home inspection and asks you for correcting any major/minor faults. You can never predict the extent of such expenses and hence should always be ready with a buffer for them.

Property tax

This is where the things can get trickier as the exact amount of tax due from you would depend on the time of the year. It could be zero if you had paid your property tax recently, or thousands of dollars if the due date is only a week or two away.

Please note that property tax is usually paid in arrears, and hence you may need to pay it on pro rata basis for bringing it up-to-date for the home buyer.

Neighborhood fees and other taxes

If there’s a homeowner’s association managing your neighborhood’s affairs, you may be asked to pay your share of monthly or yearly HOA on a pro-rata basis. On the other hand, if you pay such fees in advance for the whole year or month, you may be refunded a part of your payment later, at the time of closing, or may pass on that amount to the buyer in the form of a paid-for term.

Apart from these, you may need to cough up additional taxes too, depending on the state you’re living in, for instance, a local transfer tax of around 0.01% to 2% of the home’s sale price, levied for change in title of a property from one individual to the other.

Furthermore, if you’ve managed to make a considerable profit on the sale of your property, you may also need to pay capital gains tax to the IRS, provided that your income from such a sale is over $ 250,000 ($ 500,000 in case of married couples who file their tax returns jointly).

Final Thoughts

On the whole, you must equip yourself with all such details before you sell your house. After all, you wouldn’t want to incur any loss just because you hadn’t factored in such costs.

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