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The Hidden Costs of Selling a Home (Seller Beware!)

The Hidden Costs of Selling a Home (Seller Beware!)
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Thursday, 20 February 2020 02:46 PM Current | Bio | Archive

Your home is almost certainly your biggest asset, so selling it represents one of the biggest windfalls of your financial life. But many homeowners only see dollar signs, and are unpleasantly surprised when they realize how much it actually costs to sell their home.

From getting your home ready for market, to real estate commission, to closing, a home sale can require you to lay out a surprising amount of cash on your way to the finish line.

Let’s go over a few of the hidden costs of selling a home that can take homeowners by surprise. For the purposes of this article, we’re going to use a $200,000 home to calculate costs.

Landscaping

Have you ever heard the term “curb appeal”? It’s the industry term for the first impression your home makes when a prospective buyer walks up to it. How important is curb appeal? Well, in general, people form first impressions within seven seconds, so it’s extremely important that your home is outwardly appealing. Landscaping is the best way to clinch that high curb appeal. Make sure all trees and hedges are trimmed, grass is manicured, and that nothing obstructs the home’s facade.

On average, you should plan on spending 1% of your home’s value on landscaping. For a $200,000 house, that comes to $2,000.

Staging

Staging is like landscaping for the interior of your home. It can include everything from cleaning and decluttering, to bringing in all new furniture and accessories, but there’s no doubt that it’s worth it: according to a survey by the National Association of Realtors, 29% of sellers’ agents said that staging increased offers by 1% to 5%, and 21% said staging increased offers by 6% to 10%.

Nationally, the average cost of staging is between $2,500 and $3,200. But keep in mind that if it improves your sale price by even just 5%, that comes to $10,000 for a $200,000 house.

Seller Concessions

A home sale is a negotiation and, ultimately, a compromise, which means that both parties will have to give a little.

The seller will likely ask for concessions— for example, splitting or paying the inspection fees, closing costs, or processing fees. Sometimes sellers will ask for repairs or money for repairs based on quotes from a contractor.

The amount of concessions that a buyer can ask for is often regulated by their mortgage; and the overall market conditions can make a big difference in whether they think they have to leverage to ask for a giveback. But one study found that seller concessions averaged 1.5% to 2%.

For a $200,000 home, that comes to $4,000.

Real Estate Commission

You’ve heard a lot about this expense, and most of it is probably true; real estate commissions usually come to a whopping 5% to 6% of the sale price.

The commission is split between your listing agent and the buyer’s agent, and it covers everything from scheduling open houses, to guiding you through the reams of closing paperwork, to helping negotiate with the other party. Although you could try and save on commission by going the For Sale by Owner (FSBO) route, a lot of data suggests that FSBO listings sell for a lot less than agent-assisted sales, so you’ll end up losing more than you save. And keep in mind that even if you don’t use an agent, you’ll have to pay 3% commission to the buyer’s agent.

One interesting alternative is the discount broker who offers a full-service experience at a much lower commission rate— sometimes as low as 1%. How is that possible? The truth is real estate commissions are completely negotiable. If you’re in a hot area where you think your property will sell quickly, don’t be afraid to ask for a reduced commission.

You can use Zillow and other tools to find out how quickly homes are selling in your area. Chances are your agent will take a reduced commission if they think your property will sell quickly and they don’t need to sink too much time into it.

If you end up paying the typical 6% commission, that comes to $12,000 for a $200,000 home.

Closing Costs

Closing costs are a bundle of fees that includes things like transfer taxes, credit reports, title fees, and inspection and appraisal. Although the buyer typically pays the lion’s share of closing costs, sellers pay an average of 1% to 3% of the final sale price at closing.

For a $200,000 house, that comes to about $4,000.

The Total Cost of Selling a House

We haven’t covered every single expense you’ll run into when you sell your house, but we’ve covered the main ones. When you total it up, this theoretical $200,000 house costs $25,000 to sell. You don’t have to pay it all on the front end, and, yes, you’re receiving $200,000 for your home, so you can afford it. Still, that’s 12.5% of the final sale price.

Make sure you go into the process with your eyes open, so you aren’t unpleasantly surprised along the way.

Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.
 

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DrFrancescaOrtegrenPhD
Your home is almost certainly your biggest asset, so selling it represents one of the biggest windfalls of your financial life. But many homeowners only see dollar signs, and are unpleasantly surprised when they realize how much it actually costs to sell their home.
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