10 common selling costs for homeowners
As a homeowner, selling a home at the right time — and to the right buyer — can be a pretty lucrative move, especially right now. The housing market has been soaring since rates dropped to new lows at the start of the pandemic. Even as rates have inched back up, swaths of buyers and investors continue to scoop up properties at record pace in markets across the nation. With home inventory shortage and stiff buyer competition, bidding wars are now common, and home sales prices—which skyrocketed significantly in early 2020 — continue to increase.
Thanks to the state of the housing market, many homeowners who list their homes for sale are able to cash in on big profits. According to a recent report on year-end home sales from real estate data curator Attom, the typical profit for home sellers in 2021 was $94,092 — up by 45% from the previous year when the average home sales profit was $64,931. And, it was a 71% increase from the average home sales profit in 2019, when sellers made about $55,000 when selling their homes. And that’s just the average profit: Homeowners in many markets across the country have the opportunity to rake in much higher profits by selling right now, as housing inventory remains at record lows in many regions.
While there are opportunities to capitalize on the buying trend that has taken hold nationwide, selling a home can also be a costly venture. Sellers are on the hook for numerous fees and costs related to the listing and closing on the sale of their homes, which can eat into the home sale profits significantly if they aren’t careful. That said, there are ways to maximize the profits earned on the sale of a home. It starts with carefully weighing the pros and cons of listing a home in a hot market, and it ends with understanding the common fees associated with selling a home.
Knowing the fees associated with selling a home will give you a clear idea of how to maximize profits. To help, Realm analyzed insights from banks, mortgage lenders, and real estate experts to determine 10 common costs that can be expected when selling a home.
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The home inspection is one of the more common selling costs for homeowners—and, while the price of this inspection varies, it costs about $400 on average. While a home inspection is typically the responsibility of its buyers, sellers who want to optimize their chances of getting offers quickly may want to pay for the report before listing their homes for sale. Offering this type of crucial information to buyers can be a great tool for selling property quickly as it will save potential buyers a step and provide insight into the condition of a home. As a seller, investing a few hundred dollars in a home inspection will help you know if there are any issues that need to be addressed before listing your home. This allows you to take care of anything that would become a source of contention with buyers—and, in turn, maximize the sales price of the home.
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Home repairs and staging
Sellers will likely need to invest in a few home repairs — and some staging — before putting their homes on the market. While neither expense is required — repair issues that turn up during a home inspection can often be negotiated with a buyer—both expenses can be a smart investment when selling a home. Making the necessary cosmetic or structural repairs to a home can make it easier to get past the inspection with a buyer. A professional stager can make a home look a lot more appealing to buyers, too. How much you pay for repairs will depend on what issues you are trying to remedy. If you’re touching up paint cracks, filling in wall holes, and swapping out worn baseboards or outdated trim, it may run just a few hundred dollars, but bigger repairs will come with higher price tags. Staging services typically run about $1,500, but the cost can be as high as $10,000, depending on the staging company you choose, the size of your house, and the city you live in.
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Real estate agent commission
When selling a house, the sellers are typically responsible for paying the real estate agent commission for both the buyer and seller’s agents. This is another cost to account for before making the decision to list a home — and it could be a hefty one. How much you pay for the real estate agents' commission will depend on what your agreement is, but in general, it will cost between 5% and 6% of the home’s sale price. For example, if your home’s sale price totaled $350,000 and you agreed to pay 5% to the agents — 2.5% to the buyer’s agent and 2.5% to your agent — you would be shelling out $17,500 in real estate agent commissions. That money would be paid out of the purchase funds turned over by the buyer at closing, then split between the two agents. The remainder, minus any other costs or mortgage loan payoffs, would go to you.
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Capital gains tax
Sellers may also be responsible for paying capital gains taxes when they sell their homes — but that isn’t always the case. In general, if a house is sold for a profit after less than one year of owning it, the seller will likely be on the hook for short-term capital gains tax, which is paid to the IRS and may run as high as 37%. At that tax rate, the capital gains tax paid can eat into the profits significantly. On the other hand, if a home is sold for a profit after one year but within less than two years of owning it, the seller may be required to pay long-term capital gains instead, which range from 15% to 20%. However, sellers may not always be on the hook for capital gains taxes, as the IRS will exclude them from this type of tax if certain conditions are met.
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Selling a home won’t get the seller out of paying at least part of the property taxes owed for the year. Sellers will likely be required to pay at least the prorated property taxes owed from the start of the year until the day of closing — if not the property taxes for the full year. This amount is typically calculated by the title company at 125% to 150% of the previous year’s property tax amount — or the most recent assessed value if it’s higher — and it comes out of the proceeds of the home sale at closing. The tax money paid is then held in escrow by the title company until the property taxes are due. If there are any excess funds after the property taxes are paid, they will be sent back to the seller by the title company.
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Before a home is sold, the title company will research the property to verify the seller owns the home and that no one else has a claim to it. This is done because disputes over ownership can be costly and legally challenging. As part of this process, lenders will want a title insurance policy put in place at closing to protect them against losses from any ownership claims or disputes that arise after the sale of the house — and this comes at a cost. While the title insurance purchase costs can be the responsibility of buyers, sellers regularly cover the costs associated with title insurance instead. As such, expect to pay at least part of the lender’s title insurance policy at closing — which can range from a few hundred dollars to more than $1,000 on average, depending on the cost and location of the home.
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If there is a mortgage loan on a home, the mortgage payoff will be one part of the costs associated with selling it. The mortgage payoff is exactly what it sounds like — it’s the process of paying off the amount that’s left on the mortgage loan — including the principal and interest. This is done with the proceeds from the sale of the house, and the money goes directly to the lender from the title company. Any sales proceeds that are left over after the mortgage payoff are issued to the seller after the other closing costs have been accounted for. The total amount paid for the mortgage payoff will depend on how much is owed on the mortgage loan at the time of the closing.
If a home is being sold in a community with a homeowners association, or HOA, there will likely be some HOA fees owed at closing. Many HOAs charge transfer fees to cover the costs associated with transferring the ownership records to the new buyer — and while the buyer can cover these costs, it’s typically the seller who does so. These fees include the costs for preparing documents, issuing amenity passes to the new owners, and other administrative costs. If HOA fees are paid on a monthly, quarterly, or annual basis, prorated association fees to the HOA may be owed as well. These fees vary based on the agreement with the HOA, but in most areas, the seller will pay a few hundred dollars for the HOA transfer fee. The prorated association fees, on the other hand, will typically be based on the time spent in the house before selling it to the new owner.
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Loans tied to the property
Did you borrow from your home equity to remodel a home or cover another large, unexpected cost? Well, if you took out a home equity line of credit, a home equity loan, or have other loans that are tied to the property, the costs of the loan payoff will need to be covered as part of selling the home.
There are also often secondary loans that are tied to the home that will typically be paid from the proceeds of the home sale. To ensure the title is free and clear to transfer to the new owner, the title company will take these funds from the proceeds at closing and issue them directly to the lender or lenders. The amount paid for these loans is dictated by what is owed for the principal and the other terms of the loan agreements with the lender or lenders. To find out what is owed, contact the lender and ask for the loan payoff letter or quote.
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Additional closing costs
While the buyer typically pays the bulk of the closing costs in a real estate purchase, the seller is still responsible for paying some of the costs. In general, the closing costs paid on residential properties will total about 6% to 10% of the purchase price, with the split negotiated between the buyer and seller. These closing costs include the title insurance and agent commissions, and may also include line items such as city and county transfer taxes, escrow fees, and any other costs the seller agreed to help the buyer out with for the purchase of the home.
Story written by: Angelica Leicht
Published by Realm
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