Understanding The 3 Phases of Costs Of Selling Your Home
It’s one of the most tragic sights to behold as a real estate agent and what makes it sadder how it hits your home seller repeatedly like waves on the shore. Each wave comes and goes; each time taking another sparkle from the eyes of a home-sellers.
I am of course talking about the unknown costs property sellers face when they sell a home.
This blog post is going to cover all the costs associated with the 3 phases of selling a home. The Preparing to sell, Agreeing to sell and After the Sell phases.
Phase1 Costs Of Selling A House- Preparing to Sell (pre-market).
The costs in phase 1 all happen as a result of you wanting to sell your property and need to happen before you can list it through an agent or on an MLS.
Phase 1 costs mostly depend on whether you decide to go with a real estate agent or not and the current condition of your property. Agents and their brokers can eliminate some of the costs in this section by carrying out the procedures themselves and a well kept modern home will reduce the other costs.
Time. Cost = $0 – Variable.
The decision to sell your house is, unfortunately, more like step 1a rather than a complete step 1. If you’ve decided to attempt to sell your house on your own you’ll have to spend a decent amount of time on your home to make sure you’ve done everything that needs to be done to legally put it on the market as well as to value and price it properly from the start (very important and expanded later on).
Hiring an agent could potentially dismiss this cost as most agents would carry out this service a complementary aspect of their package.
Pre-sale inspection. Cost = 0 – Variable.
How well do you know your home? For the majority of people out there, it’s a lot less than they think and when it comes to knowing your home well enough to sell – it’s probably even lower.
If you’ve lived in your home for a while now; you may think that the little creaks and cracks just add to the overall charm of the home but if a potential buyer comes with an agent and asks questions you can’t answer about those defects it could lead to a serious slash in your home’s value or the cost of a sale.
Going over all the vital areas of your home; listing the defects and becoming knowledgeable on their seriousness can cause a difference in the thousands of dollars. You cannot know what’s causing the wet patch on the ceiling without expecting to pay for it during negotiations
This is another aspect of selling costs that can be avoided through agents doing it in-house.
Pre-sale home repairs. Cost = dependant.
Now that you know the exact state your home is in, you might come to realize that some work needs to be done to get the price you want for it or to even expect it to sell at all on the market.
Remember; you’re always going to need to be able to justify a price that a buyer can’t.
At the bare minimum, if you don’t want to sell below market value, the home has to look as close to new as possible for the new owner.
That means; no leaky faucets, creaky doors, sagging ceilings, plumbing problems, cracked windows and dull coating.
Pre-sale renovations. Cost = dependant.
This point is more for those wanting to maximize on selling their property. Just remember that not all renovations are made equal and it’s favorable to communicate with your realtor or a property developer before investing in reducing the number of bedrooms to ass an indoor sauna.
Great renovations help you sell for more (considering the cost) and sell quicker (considering the market).
Utilities. Cost = What you were normally paying for.
If you’re going to be living in the home until it’s sold, you’re going to have to continue for what you needed to live there. Cleaning, water, electricity, internet; selling your house doesn’t stop debtors from coming after you.
If you’re not living in your home, you’re going to have to pay the cost of having them on, this will carry on to the next phases of costs. Selling your home needs you to market it in its most flattering state. And a dirty home with no water or electricity is anything but flattering.
Phase 2 Costs Of Selling A House – Agreeing to Sell (in the market).
We just covered the costs of getting your property on the market in phase 1, now in phase 2, I’ll be covering the costs of having and moving it on the market.
The costs in this phase are all focused on what you have to spend to get your property sold. Costs will be both financial and personal.
Staging. Cost >/=1% of the sales price.
Phase 2’s goal of selling your home as quickly and profitably as possible will usually be centered around how your property is presented to the public and prospective buyers.
The cost of repairs and renovations in phase 1 can be considered pre-staging tactics to make sure there are no blatant defects that buyers can pick out and bully you with.
But as for staging in phase 2, I’m talking about the cost of fully cleaning the inside of your home, landscaping the outside to look its best and potentially even brining in temporary furniture to help prospects see your home in its best state.
You can hire a professional for this or do it yourself. The goal is to dress your home up as if it’s attending a wedding. The benefit of staging carries over to the next cost.
Open houses. Cost of food or drinks.
An open house is a property advertising tactic whereby the property is opened up to the public for viewing.
A property is only staged when there is the intention to show it to someone; such as with an open house. The costs of an open house are typically focused around getting people to stay longer on the property so, despite the time and inconvenience cost of having to be away from your property while the open house is being run, the only costs will be for food and drinks for the public.
Utilities. Cost = What you were normally paying for.
As stated prior, phase 2 is about presenting your home at its best. Making sure the electricity and water and bill are paid goes a long way when people are checking everything in your home to try to get a feel of what it would be like to live there.
Phase 3 Costs Of Selling A House – After the Sell – Off-market.
The moment you as the buyer has been waiting for and also where the most hidden costs rear their heads if you weren’t prepared.
Phase 3 costs only show up once the sale of the property has been or is near closing.
Realtor and brokerage commissions. Cost = 5%-7.5% of Sales Value.
This cost is only incurred if you opted to go down the route of selling your property through a real estate agent.
Note that you only have to make a single payment to either the broker or the agent who will ration the amount between themselves (usually a 50:50 split).
Utilities. Cost = Enough to leave all utilities active when new owners move in.
It’s likely but not always a fact that you will likely have to pay for a minimum of a month’s worth of utilities for the new owner who purchases your home.
This is less an aspect of courtesy and more a realization that it’s more probable that a deal closes within a month than at the start of a new one.
Mortgage Payoff. Cost = Remaining mortgage + 2%-4% prepay.
Before a property sale can be legally closed, you as the seller are obligated to pay off your outstanding mortgage loan for your prior purchase of the property.
There is also the consideration of having to pay a prepay which is the payment penalty for paying your loan ahead of schedule. This can range from 2% – 4% but will typically only take effect if you’re selling and paying off your mortgage at an abnormally fast rate such as within 5 years.
You should always consult your mortgage agent to become aware of this fee.
Negotiated closing costs. Cost = variable.
These occur as special contingencies likely made by a qualified buyer who is willing and able to purchase a property but has signed a contract to only do so if the buyer executes specific actions.
If the seller agrees to the buyer’s terms then the property is considered sold, the buyer may pay a specific amount with the intention to pay the remainder once the negotiated closing contingency is carried out.
Such contingencies can involve carrying out specific repairs or renovations to the property. The cost is likely negligible unless the seller has agreed to pay a premium for their execution.
Capital gains tax.
If you sold your home for significantly more than you bought it for, the net between your original purchase price and current sales price would be taxable capital gain.
It is important to check in with your tax association for this figure as it is likely that unless you’ve sold another home recently, you would eligible for a specific capital gain tax break for gaining an amount below a specific threshold; whereby no capital gain tax would be charged.
How to not lose money selling a house
Since we’ve covered the essentials of what you should be aware of when it comes to the cost of selling a house; I think it’s fair to give a quick rundown of some key ways to not lose money needlessly when you sell your property.
Not losing money when selling a property comes down to understanding and using “sellers leverage” to sell quickly and at a favorable price.
Seller’s leverage is a term that refers to stacking and making apparent the power of the seller during negotiations. Being in a good neighborhood, making the proper renovations, having multiple offers from buyers, selling at the right time and pricing right are all aspects that influence the seller’s leverage.
Utilizing the above allows you to earn more and earn faster as explained below.
Don’t go at it alone.
Don’t rush to avoid paying a 6% commission fee if you hire a real estate agent if an agent could have helped you negotiate an additional 7% – 13% sales price for your home.
Remember that the listing agent gets more for helping you sell more. And they probably have a better plan to get you more than you do.
Act to sell, not to save.
Skipping on repairs and renovations may save you a bit in the short term, but could potentially cost you a lot when it comes to the negotiation table.
A buyer is more likely to value the cost of a renovation if they have to do it themselves than if you had done pre-sale. Give a buyer a huge list of defects and they’ll charge you for it as if the renovations are going to be done by a brain surgeon.
Timing right when selling your home requires 2 different considerations. The season and your state.
Seasonal timing states that you’re more likely to sell better in the warmer times of summer than the colder seasons of winter. This is because, on average, more people are likely to go out and house search when it’s warmer.
Personal state timing has to do with your current home equity (The value of your home – how much you owe for it in mortgage). If you sold your home now; would you earn enough to pay off your mortgage, cover the costs of selling stated above, the costs of moving to your next home and earn a decent profit?
The highest offer isn’t always the best offer.
Higher offers can often come attached with higher risk contingencies. Buyers willing to pay more may include more of these contingencies that could lead to a no sale down the line which would set you back to square on. It is important to weigh offer value to contractual risk.
Some of the highest risk contingencies are Financial, home sale and inspection.
Financial; if a prospective buyer is unable to qualify for a mortgage, this contingency in the contract allows them to exit their offer
Home sale; if a prospective buyer is in between selling their home to purchase yours, this contingency allows them to exit your offer if they do not earn a specific net from selling their old property.
Inspection; if a prospective buyer makes you an offer with this contingency, they are permitted to renegotiate repairs and renovations, their offer or outright cancel their offer if they find specific defects with the property.
It is important to understand the risks of these contingencies as well as to value them appropriately when selling your home to a buyer who insists on them.
Pricing correctly with consideration to the state of your property, the current market, your neighborhood, and other factors could be the deciding factor on whether your home is taken off the market quickly or left to rot for years on an MLS.
Pricing incorrectly is more likely to cause you to drop the price in the future than it is to find you a potential buyer. Keep aware that the more price drops and longer a property are listed on an MLS the more skeptical buyers become of it; thus adding to it taking longer to sell.
It is always best to price right from the start.