Even if you’re a newbie to home selling, it’s easy to understand how the total cost of selling your home is calculated using the simple analogy of booking your next vacation. While a website might list the price of your airfare and hotel room for your vacation, you don’t expect that to be the only thing you’ll pay. You expect other expenses like food, entertainment, and car rental to make the final total even bigger once all is said and done.
Likewise, you can think of home selling much the same way. Yes, the Realtor is often open about their commission, but the rest of the costs won’t be finalized until the buyer closes. This makes it very difficult to estimate and plan ahead. In fact, many sellers even make mistakes and assume the average 6% commission of selling a home will be their only expense. On the contrary, nowadays, the cost of selling a home is usually about 10% of the property’s selling price.
Below is a review of expenses you might not have anticipated along with an estimate if you should expect to pay when the time comes:
- Agent’s Commissions (5%)
As the home seller, you should expect to pay commission fees to your agent/listing agent and the buyer’s agent too. On Long Island, commission fees will be approximately 5% of your home’s sale price. In case you opt to cut your costs by selling your home yourself, you should still expect to pay a commission of 3% to the buyer’s agent. Since the National Association of Realtors report that nearly 88% of all buyers retain an agent, as a seller, the chance of dodging this fee is small.
- Home Prep Costs (1%)
Getting your house “show ready” is essential to selling your home at the price you want. It needs to be sufficiently neat to attract buyers. An option would be to spend money to stage your home. While not required to sell it, nearly 77% of buyer’s agents recommend staging to make your property more attractive to buyers who can picture themselves living there. Likewise, 38% of seller’s agents won’t put a home they’re selling on the market until they stage them.
At the bare minimum, you will need to declutter and clean your property. Be prepared to pay for storage fees to keep your furniture tucked away out of view while you try to sell your home. You might also need to do basic fixes like a new paint job or new flooring especially if you’re selling in a very competitive market. You might also need to rent furniture if your current pieces are outdated or don’t fit the package you are trying to sell. Of course, you can always pay a professional stager to do the same. You should expect to pay about 1% of the final sale price of your house for these pre-listing preparations.
- Seller’s Concessions (1.5% to 2%)
It isn’t out of the ordinary either for the buyer to request that the seller pay miscellaneous costs that include processing fees, inspection fees, and transfer taxes, among many others. Buyers will usually do this when their funds have been exhausted after paying the down payment and don’t have enough to pay the closing costs. Seller’s concessions will usually have a maximum amount capped dependent on the kind of loan the buyer takes out.
For example, the maximum is 3-9% for conventional loans and based on the down payment size. FHA and USDA loans have a maximum of 6%.
- Repairs (TBD)
Once you’ve approved an offer, you can expect the buyer to have a 3rd party inspector to see if your home has any problems. Any home that has been lived in will usually need some work to accommodate the expected wear and tear. Buyers will generally ask you to be responsible for the repairs or request a credit that covers the estimated costs.
If you agree to make the repairs, it is left to you to set it and add the time and cost to your moving budget and timeframe. If the buyer will take responsibility for the repairs, you will be required to credit the costs, and have it directly deducted from your net cash on your total house sale.
Whatever you and the buyer decide, you should always keep the repair costs transparent and added to your overall home selling cost. MrCashBuyer has encountered all sorts of repairs needed from simple replacement of fixtures that fall under $1000 to major renovations that cost over $25,000
- Transition/Overlap Costs (1%)
Many home sellers fail to take into account the transition or overlap gap between when they sell their old home and move into their new home. This will be yet another expense you should plan for. Most folks will usually need to sell their old property first before even putting a down payment on a new one. Since this won’t always be a smooth transition, you should expect to plan for funds to pay for temporary housing whether a hotel or a short-term apartment rental based on your needs. You might also need to keep your belongings stored while you wait.
These transition costs from old home to new home can often include holding costs for the time period you are still the legal owner of your old home in which case you will still be held liable for costs that include HOA fees, mortgage, and property taxes. Data has shown this so-called Transition/Overlap cost can be about 1% of your home sale price based 1 and a half months.
- Closing (2%)
Why You Should Beware of Low Appraisals
Another issue you might encounter in selling your house is receiving a low appraisal. So, you’ve found the perfect buyer for your property. They’ve made you a competitive offer, and you’re literally ready to move on. But you learn your home’s appraisal is well below its sale price. What’s next?
First, you might try an appraisal rebuttal. Any expert realtor can assist you with this. However, an appraisal rebuttal might not help your case much. So, what can you do?
You and the buyer need to agree on one of the following options:
- Buyer pays the difference in cash. This is possible if the appraisal is very close, allowing the buyer to pay the difference. However, many buyers will not want to spend any more money they haven’t planned on.
- You and the buyer can divide the difference evenly. Again, this largely depends on whether the buyer has funds left over after paying the down payment to do this. Don’t expect buyers to easily agree to shell out more of their cash.
- You’ll need to just accept the difference is a loss. Unfortunately, if your appraisal has an over 5% difference, this can be a big chunk of change. Based on past experience, this will usually be the case with low appraisals.
- If you will be taking a major financial hit due to a low appraisal, your best option might be to cancel your contract with the buyer. Keep in mind, you will need to start from scratch to find a new buyer and everything that it entails, including more expenses. Furthermore, if you are already prepared to move into your new home, this might sour your plans or push them back. You also can’t be sure your next buyer will immediately mean a nicer appraisal.
Since your home will probably be the most treasured thing you will own, you should get the best price possible when selling it. It will also decide what your next home will be since you will most likely put up the down payment based on your property’s sale. Of course, your down payment amount will likewise affect how much your future mortgage will be.
Therefore, when selling your home, keep everything else in mind apart from the commission.
Consider all the fees we’ve covered above and decided if you will be paying them out-of-pocket or from the total sale price of your home. Determining these factors early on means you will be prepared for them before they even pop up in the home selling process.