You love your current home but you are realizing that it is not meeting your current needs. Maybe you are an empty nester now and realize you don’t need as much square footage as you once did. Or at the opposite side of the spectrum, your family is growing and your two-bedroom home just isn’t big enough.
From purchasing your first home, you learned about every document and all the things you needed to pay for. Now being on the selling side of the transaction, you have a price range in mind for a new place. Having lived at your current home for a few years you have some equity built up and have paid down your mortgage.
How much will you have left over after you sell your current place? Most people need the proceeds of their current home sale as a down payment on their next place. Let’s break down both the common and optional costs sellers should take into account when selling their home.
Your current mortgage
This shouldn’t be a surprise as a lot of people move before their mortgage is paid off. Be sure to get an accurate payoff amount as it can differ from the remaining balance due because of interest charges. Your mortgage could have a prepayment penalty depending on what you signed which will have to be factored into your costs.
Real estate agent commissions
When you sign a listing agreement with a realtor, you are agreeing to pay the agent a percentage of the home you are selling. That can range from 5-7% of the full selling price. A flat rate can be negotiated out as well. Out of all the costs, commissions are generally the largest expense a seller must pay.
If you sell with equity on your home, the amount it subtracted out of that cost. If the mortgage on the house is underwater, then the agreed upon fees will have to have to come out of your pocket.
Depending on when you sell your house, you will be responsible for a prorated share of the property taxes when the home sells. This can be close to nothing or thousands of dollars if it is just before your taxes are due.
Deed transfer tax or realty transfer fee is a tax that is calculated based on the fair market value of a given property within a given area. Contributing factors to the deed transfer tax value include property location, and levies imposed by state, county and municipal entities. From the Minnesota Department of Revenue, the full deed tax rate is .0033% and .0034% in both Hennepin and Ramsey counties.
The purpose of title insurance is to protect against loss caused by issues connected to the title of the property. Most homes and the land that it sits on has had numerous owners over the years. Over time, there may been a forged signature while transferring a title, unpaid real estate taxes, or other liens on the property. This insurance would cover any legal fees that might occur.
If you need a mortgage to purchase your home, title insurance is a requirement. Unlike your mortgage insurance, which lasts until either your loan is paid or you hit the 20% payment option, title insurance is a one time, upfront payment. Its coverage is indefinite if the owner that purchases it or any heirs have any interest in the property. Once it sells, the new buyers need to buy their own policy.
HOA Dues and Special Assessments
Much like your property taxes, you will be responsible for your HOA dues if your home is within an association. Before you home can sell, the balance will have to be zeroed out before a new owner can take over and any liens on the property are satisfied.
Associations that need repairs that cannot be covered by the association reserve funds will have to special assess the owners. These special assessment payments depending on the agreement, are either required to be paid in one lump sum or through a payment plan.
Depending on the situation, when a home sells with a special assessment, the remaining amount should be paid by the seller. If there is a payment plan in place, it can be negotiated so that the new owner can continue the payment plan that is in place.
Most buyers will like to do their due diligence on a new property and have an inspection done before they purchase. Depending on the results of the report, there may be repairs that are mandatory before a home can sell. Unless the home is going to be sold “as is”, the amount of money you will have to pay out depends on what the inspection uncovers.
Unless you kept all your boxes from a previous move or have a resource that can give you free boxes and packing material, you should budget in moving fees. You might hire out a moving company, rent a truck or moving vehicle, and may pay friends and family to help you move. Also, factor in the cost of fuel to go back and forth, and with all your food packed away, you might be going out to eat for your meals for a day or two. These potential costs can add up quickly, so ensure that you budget properly.
Throughout the entire process of selling a home, utilities should be kept running up until the very last day before closing on the sale. Even if you are not living in the house up until closing, for showings and inspections it is important that lights work, water runs, and that your HVAC is running properly no matter what the current season is. Be prepared to have a final electric, gas and city utility bill to be paid even after the house is sold.
Capital gains taxes
While this isn’t a very common expense, there is a specific threshold before capital gains tax comes into play, which can be up to 20% of the profit made from selling.
If you’ve owned the house for at least 24 months and it has been used for your primary residence during the last five years leading up to the date of closing, you can receive an exemption up to $250,000 for a single filer and $500,000 for married joint filers of the gain from the home sale.
Depending on how competitive the local market is, it might be a clever idea to offer a few benefits to potential buyers. In a slow market, offers like these can help set your home apart from others and bring in more traffic.
Ways to help lower the anxiety of purchasing an older house is to offer a home warranty that covers most of the repair costs for items such as the HVAC, appliances, electrical systems and plumbing. For the price tag of around $400, you can purchase a year home warranty. The agreement should be looked over by the buyer so they understand completely what is covered and what is not.
While you know that you should thoroughly clean, unclutter, and remove personal items, having your home staged can help make it more visually appealing. Stagers can vary in price from $250 to over $1000 depending on the extent of the staging. They can rearrange your current furniture, change interior design or even bring in their own furniture.
On top of physical staging, digital staging can take place. Your real estate agent should take care of standard photography for your home. If you have a unique property a drone video or a virtual tour may be in line and can cost extra money outside of the standard listing agreement.
Paying a portion of the closing costs
The home buyer is responsible for mortgage fees, home inspections and appraisal expenses. Combined they can add up anywhere from 2% to 5% of the total selling price. If the market is slow, enticing potential buyers by offering up front paying a percentage of closing costs can help close a deal faster.
Don’t expect to pocket your full selling price
If your home sells for $250,000, don’t expect to leave closing with a check for that amount.
Let’s run a specific scenario. If your home sells for $250,000 and you still owe $132,000 on your loan, you would be sitting with $118,000. Now between paying commission fees and other costs we discussed, take roughly another 8% from the total sale price which is another $20,000. Under this scenario the sale of your home you would walk away with around $98,000.
The more you owe on your mortgage, the more crucial those unexpected costs can affect you and the sale.
Now that you understand the hidden costs of selling a house, are you aware what buyers are looking for? We break down the do’s and don’ts of preparing your house to sell.