Real estate Q&A: “How much does it cost to a sell a house?”
So you bought a home back in 2012, around the time things bottomed. You’ve been checking out recent comparable sales in your area and stand to make a huge gain if you sell.
Once you do the math, it looks like you could bring home a six-figure profit. But what math are you doing? Are you simply taking the difference between what you paid and the potential sales price? If so, prepare to be disappointed.
There are many, many costs that go into selling a home, that similar to buying a home, are often ignored. Let’s talk about all those costs so you can get an accurate estimate of what you might actually take home when you sell your property.
6% Commission Comes from the Seller
First and foremost, you’ll likely lose 6% of the eventual sales price just from the real estate agent’s commission.
Both the listing agent and buyer’s agent will likely earn three percent of the sales price in most transactions. This figure could be only 5% collectively (or less) but let’s assume it’s the typical 6%.
If you sell your home for $200,000 after buying it for say $100,000 a few years earlier, you’ll be on the hook for $12,000 in commission alone.
That already knocks the price down to $188,000, which is quite a bit different than the $200,000 sales price you tell everyone about.
Solution: You could look into a for sale by owner listing or attempt to negotiate a lower commission to reduce this large cost.
Title, Escrow, Transfer Taxes Paid by the Seller
While 6% of the purchase price seems like an awful lot, it’s just the tip of the iceberg. We also have to consider the many fees that go into transferring a home from one individual to another.
You can’t just sell someone a home without some major assurances and lengthy paperwork, and the taxman will also come into play.
One costly item you as the seller will foot is the owner’s title insurance policy premium. This can be pretty expensive, maybe around another $1,000 or more, depending on the purchase price.
An escrow fee will also be charged and this is customarily split between buyer and seller in many parts of the country.
Again, you could be looking at $1,000 price tag for escrow services, of which maybe $500 is paid out of the home sale’s proceeds.
Then we’ve got taxes, such as city and county transfer taxes. The county transfer tax can amount to another few hundred bucks depending on purchase price, and again is paid for by the seller.
The city transfer tax is even more expensive and yes, it is often times paid by the seller in full. It will vary by city, and can range from just a couple bucks to something in the teens (though higher cost cities tend to be split by buyer and seller).
Say the city where you’re selling charges $4.50 per $1,000 in sales price and it’s our $200,000 home; the seller pays $900. Ouch!
Interest, HOA Dues, Property Taxes, and More
But that’s not all folks! There are even more costs associated with selling your home that you should be aware of.
For example, when it comes time to sell, you’ll get a lender payoff from the loan servicer that holds your mortgage. You might think you only owe X amount but once they factor in interest and mortgage insurance premiums, it could be quite a bit more.
Oh, and the HOA may have costs for you as well, such as transfer costs and/or remaining HOA dues, depending on when they’re paid and when the sale closes during the year.
Additionally, unpaid property taxes (pro-rated) could rear their ugly head, further cutting into your supposed profit.
Also look out for survey fees, attorney fees, permits, and other reports you may have to pay for.
You’ll also have to prep your home for a sale, which may include things like a fresh coat of paint, new sod in the yard, and other odds and ends around the house. These too can add up.
Home staging is another common tactic some sellers employ these days and it’s not free. It can cost $1,000 or more depending on the size and scope of the job. Of course, you’ll be told it will pay for itself via a higher sales price.
Then there are the unexpected things that might come up, such as repairs that may be required after the home inspection. If you don’t want the deal to fall through, you may have to give up more money to fix little things around the house, such as a termite treatment.
The buyer’s may also want a home warranty, which could come out of your pocket as well. Let’s not forget opportunity cost either…the time your home is sitting on the market, especially if you already have another home you live in.
Let’s not forget the closing costs associated with a loan on a new home, or capital gains taxes you may owe if you turn a profit. And don’t even get me started on moving costs, which can be thousands upon thousands of dollars.
When it’s all said and done, you might wind up with a lot less than you expected, but this is just how real estate works. It’s not a liquid transaction…it’s a cumbersome one that involves a lot of costs and hands along the way. This is why it’s not just an investment, but also a place to lay your head.
Common Fees to Sell Your Home
In total, you might lose anywhere from 7-10% of the sales price of your home thanks to real estate commissions, taxes, fees, repairs, and so on. When attempting to figure out what you’re going to walk away with, go ahead and subtract a percentage in that range so there aren’t any surprises.
On our $200,000 home, it wouldn’t be out of the question to give up $15,000 or more in sales-related costs.
To summarize, here are the many fees you may have to pay when selling a home:
- Real estate commission (potentially 6% of sales price)
- Title insurance
- Escrow fees
- City and county transfer taxes
- Property taxes (pro-rated)
- Recording fees
- Mortgage interest, mortgage insurance premiums, prepayment penalties
- HOA fees and transfer costs
- Home repairs
- Home staging fees
- Home warranty for the buyer
- Various reports, surveys, and inspection fees
- Capital gains taxes (depending on holding period, occupancy, etc.)
- Moving expenses
- Closing costs for next home (if applicable)
- Vacancy costs if property sits empty while for sale