Selling a home is a significant financial transaction, and while you’re likely excited about the potential profit, it’s essential to understand the costs involved. Many home sellers focus on the listing price and potential proceeds but overlook the expenses that come with selling. To help you prepare, here’s a breakdown of the common costs associated with selling a home.
1. Closing Costs
Closing costs for sellers typically range from 1% to 3% of the sale price. These can include:
- Title Insurance: Protects the buyer and lender against claims on the property’s title. Sellers may be responsible for covering the buyer’s title insurance in some states.In MO, usually the buyer covers this cost, not the seller.
- Escrow Fees: The fee paid to the escrow company for handling the transaction.
- Transfer Taxes and Recording Fees: These are paid to the state, county, or city to transfer ownership of the property.
- Attorney Fees (if applicable): In some states, real estate attorneys are required to facilitate the sale. In Missouri this is not required.
2. Real Estate Agent Commissions
Agents provide invaluable services, from pricing your home accurately, to marketing, negotiating, and handling the paperwork. An experienced agent can often help you get a higher sale price, offsetting the commission cost. The commission cost for a listing agent will vary and should be discussed with the agent. What each agent does is different so their commission may be different as well.
3. Repairs and Renovations
Many sellers invest in repairs and minor renovations before listing their homes. This can range from a few hundred dollars for cosmetic fixes to several thousand for larger projects. It is recommended you talk with your agent before doing repairs or improvements. You want a good return on the money spent or they aren’t always worth doing.
- Pre-Listing Inspection: Some sellers choose to pay for a pre-listing inspection to identify issues that could come up during the buyer's inspection. This helps avoid surprises and can range from $300 to $500.
- Cosmetic Improvements: Painting, landscaping, and small updates can boost your home's appeal. Depending on the scope, these updates can range from $500 to $5,000 or more.
4. Staging Costs
Staging involves arranging furniture and decor to make your home more appealing to buyers. It’s not always necessary, but it can help your home sell faster and for more money. Professional staging services range from $500 to $3,000 or more, depending on the size of your home and the length of time it stays on the market. Discussing whether staging for your home is necessary or not with your agent is ideal. You may be able to save this money and you may not need staging.
5. Mortgage Payoff
If you still owe money on your mortgage, the outstanding balance must be paid off at closing. Your lender will provide a mortgage payoff statement detailing the exact amount owed, which could include interest up to the payoff date and any prepayment penalties.
- Example: If you owe $200,000 on your mortgage, that amount will be deducted from your sale proceeds.
6. Moving Costs
Moving expenses can vary widely depending on how far you’re moving and how much you have to transport. Local moves typically cost between $500 to $2,000, while long-distance moves can range from $2,000 to $10,000 or more.
7. Capital Gains Taxes
If you’ve lived in your home for less than two years or your profit exceeds the capital gains tax exemption limit (currently $250,000 for single homeowners and $500,000 for married couples), you may have to pay taxes on your profits.
- Capital Gains Exemption Example: If you’re single and sell your home for $600,000 after buying it for $200,000, your profit is $400,000. After deducting the $250,000 exemption, you’d owe capital gains tax on the remaining $150,000.
8. Home Warranty for Buyers (Optional)
Some sellers offer a home warranty to make their property more appealing to buyers. This typically costs between $400 and $800 for a one-year policy and covers repairs for major systems like plumbing, electrical, and HVAC during the first year after the sale.
9. Miscellaneous Fees
Other costs may arise, including prorated property taxes, homeowners’ association (HOA) fees, and utility payments through the closing date. These expenses are typically small but should be factored into your overall budget.
Selling a home can come with several expenses, but understanding these costs upfront will help you budget effectively and avoid surprises. By carefully planning and working with an experienced real estate agent, you can maximize your profit while minimizing costs, ensuring a smooth and successful transaction. A good real estate agent will go over a breakdown of what costs will look like for your home in your area. This helps you know what to plan on.
If you're considering selling your home, reach out for a free consultation to discuss your home’s market value, and how to navigate these costs strategically!
