Costs to expect when selling a home
If you're thinking about putting your home on the market, you may expect that you can calculate your potential profits in a pretty simple way. Subtract the amount remaining on your mortgage from the estimated sale price and presto – the balance is the amount that will be deposited in your bank account.
Chat with recent home sellers and you'll find the process isn't nearly so easy. Several expenses can whittle down the amount of money you'll receive, potentially leaving you with much less than you expected to collect.
It's important to prepare for these costs, especially if you're counting on receiving a certain sum from the sale to put toward your next home purchase. Many of the expenses will be unavoidable, but anticipating them will give you a more realistic expectation of how much you'll net with the sale.
While giving a home its best appearance before listing it won't take money directly from the sales proceeds, it will still result in a lower balance on your bank ledger. However, these steps may be necessary to help attract buyers and sell your home at the best price possible.
You might want to save money by completing some steps on your own, such as washing the windows or putting on a fresh coat of paint, but you can also consider hiring a professional to get the most refined look. Ilona Bray, writing for the legal site Nolo, says you'll also need to anticipate paying to repair any noticeable defects. You may want to hire a landscaper to give your yard a makeover and boost the property's curb appeal.
When listing the home, a professional photographer can make a big difference. Daniel Bortz, writing for Realtor.com, says polished images will make your home look more attractive and do a better job of appealing to buyers. Of course, this service can easily cost several hundred dollars.
If you expect to move out of the home before listing it, you may want to hire a staging company. Since buyers may have a difficult time picturing themselves in a vacant home, staging will arrange furniture and other décor to help showcase the rooms. While this service can be expensive, it can also contribute to a higher sales price.
You can't ignore the upkeep of a vacated home while it's on the market. Bridget Sielicki, writing for the financial site Bankrate, says you should keep paying for utilities. It's especially important to maintain air conditioning and heat, since this will make potential buyers more comfortable when visiting the home and avoid catastrophes such as burst pipes in the winter.
You'll be responsible for any regular mortgage and homeowners insurance payments while the home is on the market. Bray says some insurance policies also charge extra for periods when the home is not occupied.
Services and fees
Once you accept a buyer's offer, the sale proceeds will first pay your lender to cover any outstanding balance on the mortgage. Sielicki says this figure may be a little higher than the amount you actually owe due to prorated interest. Some lenders also charge prepayment penalties if you pay off the loan before the end of the mortgage term.
Some of the money from the sale will go toward paying real estate agent commissions. Jeanne Sager, also writing for Realtor.com, says the listing agent typically receives 5 to 6 percent of the sales price, and will split this commission with the buyer's agent if they used one.
Closing costs will also cut into the sum that goes into your bank at the end of the sale. Who pays for these expenses, which include services such as title insurance and recording fees, depends on how the sale is negotiated. They may be paid entirely by the buyer, but your agent may also agree to cover certain costs or even pay the closing costs entirely in order to help close the sale.
While some closing costs are negotiable, others will be unavoidable. Bortz says these include any outstanding property taxes you need to pay, transfer taxes, and perhaps a prorated share of your utility bills.
In rare cases, you'll need to pay capital gains taxes as part of the sale. However, these only apply if you receive a windfall of more than $250,000 on the transaction when selling alone or more than $500,000 if married and filing jointly.
A few other services can also whittle your profits down a bit. Bray says you may opt for the convenience of a moving service to relocate to your new home. You may need to purchase some new appliances or other items if you agreed to leave certain materials at your former residence. Some sellers also offer a home warranty, paying for this service so the buyer will be covered for any unanticipated repairs in their first year of ownership.
In a worst case scenario, the costs involved in selling a home will outweigh your profits. If this occurs, you'll need to write a check from your own financial reserves to cover any expenses left over at the end of the process.
However, most sellers will be left with a check or transfer that can give a considerable boost to their bank account. It just might be a little more trimmed down than expected.
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