Deciding to move out of your current home and live somewhere else can be quite an adventure for you and your family. The anticipation of finding your next home, recalling the memories you have made in your current house, and undergoing the process of selling can create a mix of emotions.
You probably know selling your house costs money, but how much? Here we will outline all the selling costs you will need to know to take some of the uncertainty out of the process.
How To Get A Good Estimate
Honing in on a reasonable estimate for home selling costs begins with understanding the various components that make up the cost. The most significant cost will be real estate agent commissions, which will be about 6 percent of the home’s sale price. These can be negotiated, but usually you will pay 3 percent of the purchase price to the listing agent (sometimes called a seller’s agent) who is helping you sell the home and 3 percent to the buyer’s agent who represents the people purchasing your home. Traditionally, the seller pays both real estate agents’ commissions.
The next set of costs you will incur are for getting the home ready to sell. This includes repairs, improvements, and staging. All together, these components will cost around 3 percent of the sale price.
Finally, the closing costs (title insurance, title transfer, taxes, etc.) will run you about 1 percent of the home’s sale price.
All together, this adds up to about 10 percent of the home sale price. So, if you are selling a home at a sales price of 300,000, you can expect to pay about $30,000 to get it sold. This is a rough estimate, as several other costs can pop up, and each of these costs mentioned can be higher or smaller, depending on a host of factors.
For example, if you are moving into a new home, moving costs would need to be added. However, if you are moving for a job, see if your employer will pay for relocation costs. Furthermore, if you need to replace your roof, furnace, and kitchen appliances, that part of your budget will need to be raised from three percent. If your home is in great shape and requires little to no repair or renovation, that three percent might be significantly less.
Now let's dive a little deeper into each of the categories that make up your home selling costs. By understanding what each entails, you can refine your calculations to determine your own specific costs of selling your home.
First and foremost, determine where you will live before you sell your home. If you’ve found your dream home and have had your offer accepted, that’s great! On the other hand, if you are going to sell and then wait a bit before you buy, that’s fine too. Just make sure you have somewhere to live, like a relative’s or a short-term rental.
Sometimes, homebuyers put an offer in on a new home that is contingent upon the sale of their home. This means they have a certain amount of time to sell their house and then complete the sale of the new one. If this is the scenario you are in, be sure to keep an eye on that timeline so you can effectively coordinate the sale of your current home and the purchase of your new one.
Regardless of when and why you are selling, there are some critical steps you need to take to make sure your home will attract a good pool of buyers. The more people interested in buying it, the better the sales price you will get.
Staging And Curb Appeal
Professional staging companies know how to transform the inside of your home to make sure it appeals to a large swath of buyers. This can be done using your existing furniture and finishings or it can be done by bringing in rented furniture the staging company procures for you. Staging costs range between $2,000 and $4,000, but they often pay for themselves in the end. A study conducted by the National Association of Realtors found that 21 percent of agents said staging increases home value by 6 to 10 percent. Twenty-nine percent of agents said it increases the home’s value by 1 to 2 percent.
If you want to save money by doing this yourself, research staging concepts and styles to help your house put its best foot forward. Neutral colors, open spaces, and minimal furniture is an excellent approach to take. In addition, remove as many personal items as you can. Buyers need to be able to see themselves in a new home, which might be difficult if there are pictures of you and your family hanging on the walls.
Great staging helps once people come through the front door, but what if they don’t make it that far? Many prospective buyers like to drive by a house or walk by the outside before they even decide to set up a showing with their real estate agent. Sometimes, they will determine that a home isn't right for them, just from looking at the exterior.
This is why it’s so important to make sure your home has good curb appeal. How does the landscaping look? What is the condition of the exterior paint? Are there cracks in the driveway or walkway? These are the types of questions to ask yourself. Real estate agents can be a great resource at this stage as well. They know the things buyers look for and can advise which of the needed home repairs may be deal-breakers and which issues are ok to leave as is.
Necessary Repairs And Maintenance
Real estate agents can also advise on what maintenance and repair costs you might need to incur before selling your home as well. One thing they might share with you is the seller's disclosure statement form that needs to be shared with potential buyers before they make an offer on your house.
Sellers are required by law to disclose certain items that potential buyers might want to know about. For example, if there has been evidence of water in the basement, the seller must disclose that information. The age of the roof, if known, is another piece of information the seller must disclose. In addition, all appliances in the home need to be in working order. Otherwise, the ones that don’t work need to be mentioned in the seller's disclosure statement.
It’s also a good idea to disclose what has been done about each problem to put the minds of potential buyers at ease. For example, if you just state that there has been water in the basement, that is a red flag telling buyers to turn and run. However, if you say that there was water in the basement and then you installed a drain and sump pump system that has eliminated the problem, buyers will be more likely to continue considering making an offer to purchase the home. Major repairs like this aren’t cheap, but they will become a major headache if you ignore them, and then your house won't sell.
The repairs you should consider making aren't limited to what you must disclose to buyers. Other items that will likely be found during the home inspection should be addressed as well. For example, a broken window isn't something you need to disclose, but it’s something a buyer will most definitely find out about and include when they request repairs. Take care of it before listing the house so you can oversee the work and get the best price.
Beyond fixing the broken items, you may want to consider some home improvements as well. The cost for these is incredibly varied, as you might imagine. Painting a few bedroom walls is a very different project than a complete kitchen remodel.
The best way to approach home improvements is to consider which projects will get you the most significant return on your investment (ROI). Hardwood floors (installing new ones or refinishing old ones), for example, have an average cost of $2,600 with an ROI of about 100%. This is also an improvement that most buyers will appreciate, as hardwood floors are very popular right now.
If you want to go big, consider the kitchen. This is the one room that can make or break a buyer’s opinion of a home more than any other. We spend most of our time in the kitchen when we are home. Not only is it where we cook and eat, but it also becomes a magnet for gathering both for your family and guests. A brand new, open floor plan kitchen with all new appliances can be a significant selling point. A complete remodel with all new cabinets, appliances, stone countertops, and hardwood floors will cost you between $26,000 and $149,000, with the average ROI being in the range of 53 – 72%.
Make sure your home value can rise compared to the local market before you invest in home improvements. For example, if you have the most expensive house in your neighborhood, the price might not be able to increase that much, even if you make significant improvements. If your home is on the lower end in terms of local market price, there may be potential to ask quite a bit more in terms of the sale price once you are done renovating it.
Negotiating The Deal
Once the home is ready to sell, it’s time to get offers, negotiate the best selling price possible and work toward selling the house fast. Your real estate agent can handle the heavy lifting here, but having a basic understanding of the process will help you know the right questions to ask them.
First, your agent should begin marketing the property by having professional photos taken and listing the house online. When they put it into their MLS (multiple listings service), it will populate on thousands of websites geared toward house hunters.
This is the bare minimum, and a good real estate agent will spend a significant amount of time and money on other marketing tactics. This includes paid online ads, email campaigns, brochures of the home, open houses, and more.
Much of the work they do will depend on how hot the real estate market is. If it is a buyer’s market (one where buyer demand is low and inventory is high), they will have to work extra hard to find someone willing to agree to the sale price you are looking for. If it’s a seller’s market (one when inventory is low and buyer demand is high), they may get multiple offers quickly at an even higher sale price than what you are asking without having to market the home too much.
Seller’s agents should walk you through their marketing plan before you even decide which one to work with. Ask lots of questions, and make sure you select the agent that will go the extra mile to sell your home.
Real Estate Commissions
For all the effort a seller’s agent puts into selling your home, they are paid agent commissions. This is usually 6 percent of the purchase price but can vary in range, depending on the type of home. For example, if a home is listed for $2,000,000, the real estate agent commissions might be closer to 4 percent. The total commission, usually paid for by the seller, is split between the buyer’s agent and the listing agent.
Real estate agent commissions are negotiable. If your listing agent ends up representing the buyer as well as you, they might give you a discount. After all, they make a commission on both sides of the deal. Iron out these details with your agent before the home is listed and make sure everything is in writing.
If you aren’t getting any offers, you may have to make some concessions to get a deal done. This can be in the form of a credit against the home’s price ($300 for carpet cleaning, for example) or covering some of the buyer’s closing costs.
Let’s say, for example, the buyer finds that the garage door needs to be replaced during the home inspection. Instead of paying for a new door to be installed before the closing process, the seller could offer to help with the buyer’s closing costs. If the price of the new garage door is $2,000, the seller could give that much to the buyer at closing, reducing their overall closing cost.
If the buyer is asking for seller concessions and the seller agrees, the agents will need to write everything into an addendum for the real estate transaction to move forward.
In addition to seller concessions, a home warranty can be used to entice a buyer to move forward with the home purchase. Sellers typically pay for the first year of coverage for the home warranty, and if something that is covered needs repairing, the buyer won't have to pay for it. Usually, home warranties cover items such as washers, dryers, furnaces, and air conditioners. Additional items like a hot tub or pool can be added to the home warranty at an additional cost.
Finalizing The Deal
Once you have agreed on the sale price, negotiated any concessions, and the buyer’s mortgage has been approved, you are ready to begin the closing process. Understanding your closing costs is essential, so you don’t get blindsided right before the home sale finish line.
Closing costs consist of numerous fees paid by both the buyer and the seller to complete the home sale transaction. The main fees included in closing costs are recording fees, title fees, property taxes, escrow fees, transfer tax, and the mortgage payoff. You will also need to account for capital gains tax when selling a house.
Once all the calculations are made, the buyer and the seller will get a detailed report of their closing costs to review with their agent before getting to the closing table.
The cost to sell your house is a complicated calculation. Selling a home has many moving parts and different people involved, which costs money. Once you calculate what it will cost to sell, you are probably thinking about determining your net profits. Check your mortgage statement to find your loan payoff amount and subtract that from what you will get when you sell. Then, you will have a solid estimate of how much money you will make when you sell your home.