With home values picking back up, many homeowners may be already dreaming of the money they’d make selling their home. Although the aim is to make money on a home sale, or at least break even, it’s easy to forget one important thing: selling a house costs money, too.
A joint analysis by online real estate and rental marketplace Zillow and freelance site Thumbtack found American homeowners spend upward of $15,000 on extra or hidden costs associated with a home sale.
Most of those expenses come before homeowners see any returns on their home sale. Most of the money is spent in three categories: closing costs, home preparation, and location.
Here are a few hidden costs to prepare for when you sell your home.
Pre-sale repairs and renovations
Zillow’s analysis shows sellers should plan to spend a median $2,658 on things like staging, repairs, and carpet cleaning to get the property ready.
Buyers are generally expected to pay their own inspection costs; however, if you’ve lived in the home for a number of years and want to avoid any surprises, you might also consider spending about $200 to $400 on a home inspection before listing the property for sale. That way, you can get ahead of surprise repairs that may decrease your home’s value.
Staging is another unavoidable cost for any sellers. Staging, which involves giving your home’s interior design a facelift and removing clutter and personal items from the home, is often encouraged because it can help make properties more appealing to interested buyers. Not only will you need to stage the home for viewing, but sellers often need to have great photos and construct strong descriptions of the property online to help maximize exposure of the property to potential buyers. If your agent is handling the staging and online listing, keep an eye on the “wow” factors they add on. Yes, a 3-D video walk-through of your house looks really cool, but it might place extra pressure on you budget.
You could save a large chunk on home preparation costs if you decide to DIY, but if you outsource, expect a bill.
Location drove home-selling costs up for many respondents in ZIllow’s analysis, as many extra costs were influenced by regional differences — like whether or not sellers are required to pay state or transfer taxes.
With a median cost of $55,000 for closing and maintenance expenses, San Francisco ranked highest among the most-expensive places to sell a home. At the other extreme, sellers in Cleveland, Ohio, pay little more than a median $10,100 to cover their selling costs.
Generally, selling costs correlate with the cost of the property, so expect to pay a little more if you live in an area with higher-than-average living costs or have a lot of land to groom for sale. Take a look at Zillow’s rankings below.
Closing costs are the single largest added expense of the home-selling process, coming in at a median cost of $12,532, according to Zillow. Closing costs include real estate agent commissions and state sales and/or transfer taxes. There may be other closing costs such as title insurance or escrow fees to pay, too.
Real Trends, a research and advisory company that monitors realty brokerage firms and compiles data on sales and commission rates of sales agents across the country, reported the national average was 5.26% in 2015.
Real Trends says rates are being weighed down by:
- an increasing number of agents working for companies like Re/Max that give them flexibility to set commission rates without a minimum requirement
- more competition from discount brokers like Redfin, an online brokerage service that charges sellers as low as 1%
- an overall shortage of homes for sale pressuring agents to negotiate commission rates
The firm’s president, Steve Murray, told The Washington Post he predicts agent commissions will fall below 5% in the coming years.
Luckily, some closing costs are negotiable.
To save on real estate agent commissions, you can either negotiate their fee down or find a flat-fee brokerage firm like Denver-based Trelora, which advertises a flat $2,500 fee to list a house regardless of its selling price. Larger companies like Re/Max give their agents full control over their commission rates, so you may have better luck negotiating with them.
If you have the time on your hands, you could also list the home for-sale-by-owner to save on closing costs. Selling your home on your own is a more complicated and time-intensive approach to home selling and can be more difficult for those with little or no experience.
Other costs to consider:
Utilities on the empty home
If you’re moving out prior to the sale, you should budget to keep utilities on at your old place until the property is sold.
It will help you sell your home since potential buyers won’t fumble through your cold, dark home looking around. It may also prevent your home from facing other issues like mold in the humid summertime. Be sure to have all of your utilities running on the buyer’s final walk through the home, then turn everything off on closing day and handle your bills.
Make room in your household’s budget to pay for double utilities until the home is sold.
Insurance during vacancy
Again, prepare to pay double for insurance if you are moving out before your home sells. You’ll still need homeowner’s insurance to ensure coverage of your old property until the sale is finalized. Check the terms first, as your homeowner’s insurance policy might not apply to a vacant home. If that’s the case, you can ask to pay for a rider — an add-on to your basic insurance policy — for the vacancy period.
Capital gains tax
If you could make more than $250,000 on the home’s sale (or $500,000 if you’re married and filing jointly), you’ll want to take a look at the rules on capital gains tax. If your proceeds come up to less than $250,000 after subtracting selling costs, you’ll avoid the tax. However, if you don’t qualify for any of the exceptions, the gains above those thresholds could be subject to a 25% to 28% capital gains tax.
The Key Takeaway
Selling a home will cost you some money up front, but there are many ways you can plan for and reduce the largest costs. If you’re planning to sell your home this year, do your research and keep in mind falling commission costs when you negotiate.
List all of the costs you’re expecting and calculate how they might affect the profit you’d make on the sale and your household’s overall financial picture. If you’re unsure of your costs, you can use a sale proceeds calculator from sites like Redfin or Zillow to get a ballpark estimate of your potential selling costs, or consult a real estate agent.