Selling a home comes with costs but it can provide big financial relief. Maybe it means paying off an existing mortgage or helping to buy a bigger and better house.
However, the relief can be short-lived if the costs to sell the home weren’t calculated ahead of time, taking a chunk out of the earnings.
To avoid any surprises, we’ve detailed a complete list of all the costs involved in selling a home to help sellers understand what they’ll need to invest ahead of time.
The costs detailed below will vary depending on the seller’s market, as well as the time, money and effort they can put into the sale.
Preparing the House
A seller will likely need to do some work to prepare the house before sharing it with potential buyers.
The best way to gauge what to invest in renovations is to look at comparable homes that sold recently in the area and then aim for appealing to the right type of buyer that fits the seller’s situation and market.
Some sellers might need to catch up on maintenance and others might need to take on serious renovations to appeal to buyers. A pre-sale inspection is an added cost that can alert a seller to potential issues that might hinder the sale. This helps to avoid offering the buyer credits to cover issues with the home.
Following the traditional route of listing a home on the market includes inviting potential buyers to view the home. Staging the home during this period can increase interest and bring in higher offers but could cost more money. Landscaping also impacts a home’s appearance, so a seller might want to invest in sprucing up the yard.
Commission and Fees
A seller can invest in help or manage the sale on their own. Below are the types of services to choose from and the costs to use them:
The more common route of hiring a realtor involves paying an average commission of 5-6% of the home’s sale price to list a home on the market. On a $200,000 home, a 6% commission would equal $12,000. The benefit is that a realtor will manage much of the work in finding buyers and coordinating the sale.
A newer option is to apply for an instant home offer through an iBuyer. iBuyers are tech-based home investors that buy and sell houses online, primarily to streamline the process, both for themselves and their customers.
They’re fairly new real estate investors that have grown in specific markets across the country within the past five years. They often charge slightly higher fees than realtors, around 6-9.5% plus a repair allowance and an additional offer discount of 3-5% to account for risks and other costs. The benefit is that they offer fair market value to buy homes quickly, as-is.
- For Sale By Owner
Sellers who have more time to spend than money might try the option of For Sale By Owner or FSBO. They could try managing their own listings on sites like Zillow, Trulia, and Realtor.com. According to the National Association of Realtors, 50% of buyers found their homes online, compared to 28% that found homes through a realtor in 2018. The benefit is more control over the process and potential dollars saved, but this is a larger time commitment for a seller.
Pay Existing Mortgage
Before completing the sale of a home, the seller’s existing mortgage will need to be paid. The payoff amount could be higher than the latest balance, as it’ll include interest.
To know the full costs, a seller should check with their lender on the terms of their mortgage, which could include prepayment penalty fees for paying off the mortgage early or a due-on-sale clause meaning the mortgage must be paid in full when the house sells.
When it’s time to close on the sale of a home, all of the agreed-upon costs will need to be paid. Many items included in closing costs can be negotiated and can be split between the buyer and seller.
Closing costs for the seller often include the following:
- Commissions and fees the seller agreed to in order to sell the home, including the realtor commission or iBuyer fee.
- The seller might agree to pay a credit or concessions to the buyer for the unsatisfactory conditions of the home.
- A house warranty, costing up to $500, to reduce risks for the buyer by covering major repairs or replacements that might be needed within a certain amount of time.
- Fees to ensure the title is clear and can be transferred to the buyer, such as title insurance for up to $1,000.
- Closing paperwork and financial transactions are handled by a third party agency such as a realtor, escrow agency or attorney who will charge an additional cost.
Taxes and Fees
Depending on the timing of the sale of a home, property taxes might be owed by the seller for the remainder of the year or become the responsibility of the buyer. This is also true for any Homeowner Association or neighborhood fees.
The seller is also responsible for knowing their requirements for a transfer tax and capital gains tax. Some states require a transfer tax on any real estate transactions. In some cases, the seller will owe a capital gains tax if they earned a certain level of income from the sale.
Costs to Move and Buy a New Home
Beyond the costs of selling the current house, there are costs involved in the next steps.
If the seller needs a mortgage for their next home, they’ll pay for that home’s inspection and appraisal, as well as other costs associated with the lender’s process for approving their loan. Buying a home with a mortgage or not, there are costs associated with the sale.
Beyond the costs of physically packing and moving, if a seller moves out of their home before selling it, they’ll still need to pay for utilities. Potential buyers will need to see the home in full working order. The seller would also need to pay higher home insurance, switching to coverage for a vacant home. Insurance companies require this as vacant homes pose a higher risk for break-ins and damage.
Know the Costs Involved in Selling a Home
A sale can go smoothly if a seller knows what to expect from the start. This includes knowing how much time and money they’ll need to invest, which helps a seller determine what services to hire for and what options best fit their situation.
With this information, a homeowner can take on the sale of their home knowing they’re on the right track, to fully enjoying the relief of closing the sale.