Are you a first-time home seller or maybe it has been a while since you last sold a home and you are wondering, how much money will I make selling my house? Sadly, there is a ton of information out there for home buyers and not enough information out there for home sellers. As a real estate investor, I buy and sell homes monthly and I would like to share some of the common and uncommon costs associated with selling a home in your local market.
What costs are involved when selling a house?
To understand the cost associated with selling a home, we must first determine how much you can actually sell your home for. In the real estate industry, we can get this information by looking at the Comparative Sales Analysis (CMA) in your area. This report will show you the homes that are the most similar to yours that have sold within the last 6 months to as far back as 5 years. You can get this information for free from a local real estate agent. Although you may be pushed to sign a contract with a real estate agent in exchange for that data, you can typically get it without any strings attached.
Realtor Fees: Varies
The Average cost associated with working with a realtor ranges from 5% to as high as 7% of the final sales price of a home. It all really depends on the type of home and the cost needed to market the home effectively. For example, a million-dollar home in a small community like Cypress may need home staging, professional landscaping, and routine cleaning. A realtor would usually charge on the higher in for this reason.
Home Repairs: Varies
Getting your home condition to be consistent with what the market is going for is vital. If the majority of homes selling in your area have granite kitchen countertops, that’s probably something that you may have to consider upgrading as a homeowner. Other considerations include bathroom upgrades, paint color, flooring type, and cabinets. More importantly, you want to make sure that the major components of the home are in good order. This includes the roof, foundation, plumbing, electrical, and central AC and heating. Having a good relationship with a handy person or a general contractor can save you money on this but the price can vary greatly.
Each real estate transaction requires legal work to effectively transfer the title of the home from one party to another. This is considered a closing cost and can vary depending on the laws and requirements of each state. Traditionally, this requires the use of a local title company or real estate attorney to facilitate this step. This cost can be negotiated and split between buyer and seller but traditionally, the seller pays about 1%-3% of the final sales price.
A seller’s cost includes transfer taxes, escrow/attorney’s fees, recording fees, and any property taxes or HOA payments that have accrued.
Debt Payoff Associated with the Home: Varies
There are specific liens and judgments that individuals or entities can be attached to your home. The majority of states out there make it a requirement to satisfy all debts attached to your home before the sale or transfer of title for any real estate transaction. This includes Tax liens, Mortgages, Child support liens, existing lawsuits, HOA liens, and even credit card judgments.
Once you consider some of the main costs, this is a rough breakdown of how much you can potentially make after selling your home.
Final Sales Price – (Realtor Commissions + Seller Closing cost + Home Listing Preparation Cost + All Required Debt Payoff) = How much you can make when selling your home.
Ex. Let’s say you were able to sell your home for $200,000 with an existing mortgage of $100,000. You also enlisted the help of a realtor that charged you a 6% commission and also cost you $11,000 to prepare the listing and you ended up paying 2% in closing cost.
$200,000(Final Sales Price) – ($12,000(Realtor Commission) + $4000(Seller Closing Cost) + $11,000(Home repair expense) + $100,000(Existing Mortgage)) = $73,000.00
Problem – As mentioned, some transactions require too much risk for the homeowner or become so complex that they require a lot of attention and time in order to complete. These are some of the more uncommon and high-risk situations that may occur when trying to sell a home.
Owning a Unique home
Sometimes there are not enough data points when pulling a Comparative Market Analysis report. This can be due to the location of the home or the design of the overall home. It can even be because the home is just far larger than the other homes in the area. Either way, this makes it much harder to determine the true value of what a buyer is willing to pay for the home.
Hidden Costs: Sometimes, homeowners that may be going through a situation like a divorce, pre-foreclosure, or probate are forced to work with the court systems which always leads to expensive attorney fees. These are attorneys that either work on behalf of the city or state and they are usually filing a judgment against your home to make sure the city gets paid. For example, if you owed $10,000 in taxes, paying off the $10,000 isn’t enough. You also have to pay the attorney and reinstatement that file the foreclosure as well. This cost can vary but usually result in a few thousand dollars.
Negotiating and Seller Concessions
The honest truth is that if you are experiencing any of the issues already mentioned, this limits your pool of potential buyers to the pickiest of the lot. There is a ton of a risk that needs to be taken on and that is used as leverage to ask for price reductions or more help with closing costs. It is common to ask for anywhere between 5%-10% reduction in-home price depending on the risk involved. The buyers may also ask for the seller to pay more of the closing costs in the transaction.
These are cost associated with owning the property while you are trying to sell it. This includes taxes, insurance, HOA payments, mortgage costs, utilities, maintenance, and most importantly opportunity cost. All these costs may vary and holding costs are probably the greatest reason homeowners lose out on money. This was a lesson that I had to learn the hard way. Unexpected issues always occur and each issue pushes back home sales for weeks. The cost adds up and can end up costing roughly an additional 2% – 4% of the sales price if things go wrong.
Moving expenses and storage
Moving expenses are another big issue. I had a client who needed to sell his father’s home that flooded. The home was completely inhabitable, but luckily they were able to move the main furniture and important belongings to their upstairs. They ended up relocating their father to where they were 400 miles away and had to find a way to relocate and then store their father’s belongings. The move was a major headache but I offered to fund the relocation expense which did cost me several thousand dollars but my client happily reduced the final sales price accordingly to compensate me back.
Home sales proceeds are considered capital gains and might need to be reported on your federal tax return. Luckily, many homeowners are eligible to exclude up to $250,000 of profit ($500,000 for married couples filing jointly) from their main home from tax, as long as they haven’t used the tax break on another home sale within the past two years. The tax break applies if it was your primary home for at least two out of the previous five years. But I have many clients that convert their previous homes into rentals before selling. This cost varies and you should seek out a reputable tax accountant or tax attorney to assist in determining what your capital gains cost will be after you sell.
Mistakes to avoid when selling a house
- Don’t sell based on emotions, rather do your due diligence on the number and act with realistic outcomes.
- Price your home accordingly with the market to sell at a reasonable time to avoid costly holding expenses
- Prepare your home sale to optimize the price, don’t skimp on the visuals in your listing or avoid major repairs that are needed.
- Do not sell during the Winter Months
- Hire a real estate agent if your home has been optimized for your market.
Why it makes sense to sell to a real estate investor
The most important thing all real estate investors do is to determine how much money they will make when they buy a home. They have done multiple transactions and have contacts with contractors that work well and work quickly for a fair price. They are also able to help navigate complex issues and look to find win-win scenarios to make sense of a real estate transaction. For example, it may take a first-time home seller 6 months and $50,000 in repair cost to get their home ready for the market. In the same circumstance, a seasoned investor can probably achieve the same result or better in about 3 months for about $35,000. It may make sense to sell to an investor and not have to take on the risk of managing an entire home project only to find out that you chose the wrong cabinets, flooring, or paint color. That can be anywhere from a $15,000 to $30,000 difference. At the end of the day, that investor will make the same offer to you, so, if you think that you would end up making around the same amount of money regardless of doing it yourself or selling to an investor. Save yourself the time and hassle.
Find A Houston Real Estate Investor | Ricky Pok | Wabi Sabi Realty Group
As always, it is important to do your due diligence when deciding to work with someone regarding selling your house. I started Wabi Sabi Realty Group as a way to help distressed clients that I couldn’t do otherwise while I was working as a mortgage lender. I was always troubled about how we had to decline or pawn off clients just because they were facing a situation that became way too complicated.
At Wabi Sabi Realty Group, we buy homes in any condition for all cash, without any fees or inspections, and have years of experience in the Houston, TX market. We are also dedicated to seeing all transactions through and are willing to invest upfront on transactions to make sure there are no complications during the home selling process.
If you or someone you know maybe dealing with an issue that may require a real estate investor, please do not hesitate to reach out. Even if you believe that a real estate agent may be better suited, still feel free to reach out and I can definitely put you in contact with the top agents in your local market. For more information about how we can assist you, please give us a call at (281) 306-5721 or fill out the form. We will be happy to talk to you about how we can buy your house for cash and close at a time that is convenient for you.