Most people only sell property a few times in their entire lives. Since we do this so infrequently, it’s very common for homeowners to not be aware of what the total costs are when selling the traditional way. And usually when you are selling, you’ve already made your mind up to sell (for plenty of good reasons!). So when you find out you’re going to pay between 8-12% in commissions, fees, taxes and other costs, it’s frustrating and very expensive. But what else are you going to do? Stay in the house forever just to avoid these costs? But what if there are ways to keep all of that money in your pocket, after all? Would you take a closer look?
Now do these fees matter? Let’s break down the list of expenses sellers commonly pay and then look at ways to maximize the money you put in your pocket when you sell. Customary closing costs vary significantly between cities, counties and states, so be sure to check with a local title company to learn what is typical for your area.
Repairs and Renovations
If you’ve owned a property for many years, chances are that it’s due for a little updating. This could be the cosmetic parts of the interior, such as the kitchens and bathrooms which can easily cost over $30,000 to tackle, or could be the major guts of the home such as the HVAC system, plumbing or electrical issues. All of this is paid for in some way – either in discounted value on the sale market or paid for by you before you sell it. Having an updated property certainly helps it sell faster, but it also means a longer process to get the property sold if you have to account for an extra 3-5 months of planning and work being complete (not to mention finding reliable contractors to do the work!).
Another selling cost you may not be fully considering is the costs to hold the property while it sells. You may have already moved out to a new place and are toughing out payments for two homes, or may be paying for storage for all your extra stuff that sellers don’t want to see. Any way you slice it, a typical sale takes 60-90 days from pre-marketing to closing – that’s a lot of taxes, insurance, cleaning and maintenance.
When the property is listed for sale, where are you planning to be? Often this means lots of weekends spent killing time – driving around doing errands and eating out more often than you expect. Inevitably, keeping your house in the best shape for sale will mean headaches and additional expenses that nobody tends to account for – all coming out of your wallet.
When sellers list their property in normal markets, they expect offers to come in slightly below the list price (typically 2-5%). In hot markets, this can swing in the other direction, of course, but a normal expectation is to sell for 95-97% of list price. When you hear “6 to 10% of sale price in closing costs” from Realtor.com, keep in mind that’s of sale price and any negotiated discount from list price comes off the top first. That makes selling even more expensive.
The biggest expense when selling a home the traditional way is the agent commission for selling the property. This is basically your marketing and transaction coordinator expense. A typical commission is 5-6% of the sale price which is generally split between the seller agent and the agent representing the buyer. Your contractual agreement with the agent may be an exclusive listing arrangement which entitles the agent to a commission no matter how it sells, or other arrangements where the agent only receives the commission if they procure the buyer for the seller. On a $300,000 home with a $250,000 mortgage remaining, a commission of $18,000 (6%) on the sale price is 36% of the homeowner’s equity.
Title Insurance Policy
Many sellers will be required to purchase a title insurance policy to protect the buyer in case the seller does not have legal title (or an undisclosed lien) when selling the property. The
When you sell your property, it’s typically partway into the tax year for property taxation. This means that when the bill comes due, the seller will be obligated to pay it and part of that bill will be for the time the seller lived in the property. Not exactly fair, right? Most transactions involve “pro-rating” the tax bill so the seller pays for the time they owned the property and the buyer pays for their portion.
Let’s say for example, the taxes are due in March of next year for the current calendar year. If the sale occurs on September 30th, this would mean the buyer will own the property for 3 months, or 25% of the tax/calendar year. Therefore, a $5,000 property tax bill would be pro-rated 75% to the Seller ($3,750) and 25% ($1,250) would be paid by the Buyer. The buyer is ultimately obligated to make the tax payment, so the Seller pays their share by giving a credit for $3,750 to the buyer, reducing the total cash they receive at closing. Ultimately, this means you not only have to pay your taxes but you have to pay them early compared to if you didn’t sell the property.
Depending on the location of the property, there may be transfer taxes due based on the sale price of the property. This can be at the city, county and/or state level. The City of Chicago charges $5.75 per $500 in sale price (1.115%) of the purchase price, for example.
You may not have to pay for the appraisal report but you certainly end up paying for it in the end!
Most traditional home purchases involve an appraisal. Buyers would be smart to get an appraisal on their own, but they are required by nearly all lenders. Very often there are issues with the property that the lender decides need to be fixed in order to fund the loan. This is mainly done to protect the lender in case of foreclosure. They’d prefer not to take back a property that has no functioning HVAC system, or a major roof leak that causes major costs to fix.
Even if lenders don’t have a specific requirement to fix something identified in the appraisal, buyers who have spent a lot of time watching HGTV will channel those expectations right into your wallet by requesting repair credits at closing. This can not only delay the deal, it’s one of the most common conflicts between buyers and sellers that kills the deal. Better hope you’re not relying on the buyer to close in order to buy your next home!
Mortgages and Liens
If you have a mortgage or other liens (mechanic, tax, city violations, etc) against the property, you’ll have to pay them off in order to deliver clean title to the buyer. Mortgage payoffs are typically the balance due but other types of liens involve attorneys and court fees to remove. These can range from a few hundred to thousands of dollars to clear up.
Closing and Settlement Fees
Somebody needs to be in charge of documenting who is owed what in every transaction, and this will typically be a title company in your area. Real estate attorneys can do this as well. The title company closing the transaction is often the same company issuing title insurance. You can expect to pay
Someone has to be in charge of preparing the necessary contracts and documents, such as the deed. They don’t work for free, so you can expect a few hundred dollars to pay for this service.
Similar to the document preparation fees, you will need to pay for someone to notarize certain documents to make the sale legal. This is typically fairly small but yet another fee.
In order to create a public notice that the property has been sold, the deed must be recorded at the local recorder of deeds / public records office. Most will charge $50-150 for recording documents in addition to any additional preparation fees to physically bring the document to the office for recording.
You’ll be wise to have an attorney helping with your closing, even if to review the contract and closing documents on your behalf. This usually costs several hundred dollars.
As you can see, the list of selling costs gets long pretty quickly and adds up even faster. The typical property will cost 8-12% of the list price in selling costs. All of this comes out of your equity. The lenders and lienholders get paid in full, too. So while 8-12% of the property price might be a selling cost you can tolerate, what if that turns out to be 40% of your equity? I don’t know about you, but if you ask us, that is enough money that I want to take a closer look at avoiding.
How to get full price and pay none of these closing costs
Spoiler: we offer ways to sell for full price and pay $0 in closing costs. In most cases, our offers to buy your property will include us paying 100% of the typical “seller-paid” closing costs, listed above. As an investment company, we get favorable terms to reduce them or avoid them entirely. This means instead of getting 60% of your $50,000 equity from the example earlier in this article, you would get all $50,000 of it.
What’s the catch?
The only “catch” here is we can only pay you full price and all the closing costs if we’re able to pay it out in installments over a reasonable period of time. If we have to pay full price and closing costs all up front, we’re not able to make a profit on the investment.
Double or triple your take home equity in one paragraph:
Going back to our example, if you sold your $300,000 house that has a $250,000 mortgage on it, your equity would be $50,000 before closing costs. After closing costs in a traditional sale, your take-home equity would be somewhere between $14,000 and $26,000. By selling to FullPriceOffers, you might receive that $50,000 over 4 years which is equivalent to investing the traditional sale proceeds and getting 2-3x back in 4 years (roughly 18-37% per year), all while being secured by real estate as collateral. Try getting that in your “high yield” 0.5% annual yield on your savings account or in the stock market that has a long term average of 7%.