First-time home sellers are typically in for a bit of a shock when they receive the closing statement. Yikes! It seems like everyone in town has their fingers on part of the proceeds from the sale of the home. From taxes to insurance to real estate fees, what you think you’ll get at closing is chipped away until it’s far less than what you expected.
Depending on the condition of your home, getting it in shape to put on the market may require a good chunk of money. Paint, cleaning, repairs, staging and renting a storage unit are just a few of the bills that may occur during this period.
The good news is that some of these costs can be recouped at closing. Following is the return on investment for some common jobs, according to a nationwide survey of real estate agents conducted by HomeGain:
- Cleaning and decluttering – 403 percent.
- Electrical and plumbing repairs – 294 percent.
- Landscaping – 215 percent.
- Staging – 196 percent.
- Interior paint – 107 percent.
After cleaning and decluttering, painting the interior of the home is probably one of the most important prep jobs you can perform. Nothing says “clean” better than a fresh coat of paint. Stick with neutral colors to appeal to the greatest number of homebuyers.
Minor repairs are next on the list, especially of items that are noticeable to homebuyers. These include:
- Sagging window screens.
- Cracked windows.
- Dripping faucets.
- Running toilets.
- Minor aesthetic improvements.
If you’ve lived in the home for some time and haven’t kept up on home maintenance chores, you may want to order a home inspection. Yes, your buyers will most likely order one, but this one is for you – so that there are no expensive surprises while the home is under contract.
The price of a presale inspection of the home varies depending on region, but plan to spend at least $200.
Other items you may end up spending money on to get the home in shape for the market include plants and mulch for the garden beds outside, decorative items such as throw rugs, new towels and a shower curtain, flowers, and artwork (if you aren’t hiring a stager).
Expenses that occur during the listing period depend on whether or not you’re living in the home. A vacant home requires that you keep the utilities on. This means you’ll be paying for lights and heat in two homes.
You may also need extra homeowners insurance during the period the home is on the market. Ask your insurance agent if your current policy covers the house while it is vacant.
If you’ve decided to forego hiring a professional real estate agent to help you sell the home, you’ll need to factor in the cost of marketing. Many marketing venues, such as Craigslist, are free, but others are not. If you have a high-end home, your marketing choices become even more expensive, so be sure to factor these in to the cost of selling the home. If you hire an agent, the costs of marketing your home are included in the real estate fee you pay at closing.
According to the 2012 National Association of REALTORS® Profile of Home Buyers and Sellers, the typical FSBO home sold for $174,900 compared to $215,000 for agent-assisted home sales. So selling a home as FSBO could also reduce the selling price.
Other expenses you’ll need to consider if you decide to sell the home without assistance include:
- Legal fees.
- Open house expenses.
- Closing costs.
- Security (for vacant homes).
Unlike having to dig deep into your pocket for the previous expenses, closing costs will be taken from your proceeds. Before you let out a big “phew!” however, this is the sticker-shock part of the process. While your real estate contract and local government regulations determine who pays which closing costs, the following is a breakdown of what a seller will likely pay at closing.
Real Estate Fees: The name of this one varies according to which part of the country you live in. Real estate fees are the broker’s commissions that the seller pays. Most of the time, the seller pays the entire commission, typically 5 to 6 percent of the sales price.
The total is then split between the two brokerages (unless both the listing agent and selling agent work for the same broker). The brokers then split the fee with the agents, and the amount the agent receives depends on the “split” he has agreed to with his broker.
By law, real estate commissions are negotiable. Don’t wait until closing to haggle, however. Do this upfront when you interview listing agents.
Attorney Fees: In some areas of the country, attorneys are used in the process. Your attorney’s fees will be deducted from the sale proceeds.
Loan Payoff: The balance of the current loan will be deducted from the proceeds, as well as any prepayment penalty fees stated in your original loan documents.
Transfer Taxes: Real estate transfer taxes are those imposed by municipalities, counties and states when title of real estate is transferred within the jurisdiction. Stated as a percentage of the sales price, the percentage varies depending on where you live.
Title Insurance Fees: Unless local customs dictate otherwise, the seller typically pays for the buyer’s title insurance premium.
Notary Fees: A notary will verify your identity and ensure that all documents are properly executed.
Escrow: This fee is dictated by local custom. In some parts of California, for instance, the buyer and seller split the escrow fees.
Property Taxes: Whether and how much you will be dinged for property taxes depends on the timing of the sale. Property taxes will be prorated.
Seller Concessions: If you agree to pay for part or all of the buyer’s closing costs, they will be deducted from your proceeds. Agreed-upon repair costs may also be considered seller concessions and these, too, will be deducted from the proceeds.
HOA Doc Fees: The real estate contract should spell out who is responsible for paying for copies of the HOA documents, and it’s typically the seller.
Expenses Down the Road
Just when you thought the sale of your house was a done deal, along comes April 15.
Capital Gains Tax: If your proceeds from the sale of your house exceed $250,000 (if you are single) or $500,000 if you file a joint tax return, you may have to pay capital gains taxes. Speak with your accountant to learn more.
The expenses outlined above make up just one aspect of determining how much money you’ll realize from the sale of your home. The type of market in which you choose to sell (buyer’s or seller’s) and your outstanding loan balance also factor into the equation.