My wife and I have been living in our current home since we built it in August of 2006. We’ve made a lot of memories in this house, from the birth of our first son in 2010, to having my wife recover from a near fatal blood clot in 2008. It’s been a wonderful place to live, but we’ve had an opportunity present itself for my in-laws, who are home builders, to build us a house for much lower than it would cost us if we built on our own. They’ve found a perfect walkout lot with lots of trees, a huge yard and on a cul-de-sac. Oh, and the price for the lot is right at about $80,000. It’s basically everything we’ve been looking for a home. While the timing might not be perfect, we’re seriously considering selling our current home and building a new one within the next few months.
As a part of that process of selling our home and building a new house we need to run the numbers for what we can afford and how much we need to sell our current house for in order to not have to bring money to the closing. While we made a 20% down payment when we bought the house 6 years ago, we bought at the height of the market, and our home has lost upwards of $60-70,000 in value. Because of that we’re going to be lucky if we can sell the home for more than we owe.
One thing we’re doing to help figure out if we can afford to do this is figuring out the total costs of selling our house.
Expenses To Remember When Buying A House
Costs Incurred Before The Sale
Not all of the costs related to selling your home are directly related to the sale itself. A lot of the costs are incurred before the sale even happens.
Marketing the home
One cost that has to be considered is the cost of marketing your home. If you’re using a realtor to sell the home, those costs may be included in your realtor’s commission. If you’re selling on your own, however, you’ll need to pay the costs to list your home. You’ll most likely want to go through a third party site in order to get your home listed in the MLS listings, and then there is the costs of time and money in order to list your home on other classifieds and home selling sites.
There is also the costs you may incur in order to put together a website of some sort in order to market the house, and any costs to have professional wide angle pictures taken of your house. Thankfully I’m able to do both of these on my own for little to no cost.
Fixing and staging the home
If you’ve got an older home, you will most likely incur some costs in order to fix things around the house. You may need to put some fresh paint in some rooms, fix leaky toilets, and freshen up the landscaping outside. Depending on how much you need to do, it could be hundreds or thousands of dollars to do fix things and get your house ready for sale.
If your home is already in good shape like ours is, you may still need to do some staging to your house in order to put it in it’s best light. That may involve putting some of your furniture and decorations in storage, putting your rooms in an different configuration, and in some cases you might consider hiring a company to stage your home. Professional stagers could cost anywhere from $500-5,000.
Fixing things for buyers
Once you’ve received an offer on your house sometimes the contract is contingent upon you as the seller fixing things around the house before the sale completes. Depending on what the buyer wants fixed, it could be a minimal cost, or much more expensive if it’s something like getting the roof replaced or having a costly pest remediation.
Fees To Expect At Closing
When you’ve finally found a buyer and are going to be closing on the house, there are quite a few fees and costs you can expect to pay as a seller at the closing. Obviously the taxes and fees are going to vary by state and county, so check with a realtor in your area for full details on everything, and make sure to get a HUD-1 settlement statement before the closing. The things mentioned below are things we’ll be expecting to pay here in Minnesota.
Real estate commission
Any sales commissions you’ve agreed to pay real estate agents. In most cases that’s going to be anywhere from 6-7% of the sale price if you have both a buyer’s and seller’s agent. In our case my in-laws are realtors, and they’re not charging us a commission, so we’ll pay 2.7% (or about $5400 if we sell for what we hope) if our buyer has an agent. Hopefully we’ll luck out and find a buyer with no agent.
Abstract or title search
The cost to update your abstract and check the title for your home in order to make sure you own the home, there aren’t any existing liens on the property, etc. Could cost around $75-$150 or so.
The cost to file proper documents with the county satisfying your mortgage and clearing up any other title problems. In Minnesota it’s around $20.
Real estate taxes & assessments
If you owe any outstanding property taxes you’ll need to pay for those. If you’ve already paid them in full for part or all of the current year your buyer may need to reimburse you for those costs. We’re currently paid up through December, so if we were to sell we’d be due several hundred in reimbursed taxes from the buyer.
State deed tax
In every county in Minnesota people currently have to pay $1.65 in taxes for every $500 of the price of their property. So we’ll add on $660 if we sell our house for what we hope.
In Minnesota it will cost somewhere in the range of $5-20 for a mortgage registration fee and a deed transfer fee. This money is used, in part, to fund Minnesota’s wildlife fund. Other states and counties may or may not have similar fees.
If your state requires it, you may need to pay to have the land surveyed, and supply a plat map to the buyer which can run anywhere from $150-600 or more.
Usually isn’t required, but is becoming more common in many places to supply a home warranty to the buyer. It can start from $400 and go up from there.
Title company closing fees
What you pay a closing agent, if you hire one. $150-350
Homeowner’s association transfer fee and special assessments
If you have a homeowner’s association you may need to pay to transfer the association documents to the new owner. In our case it would cost somewhere in the range of $50. Could be more depending on your association. Also, if the association has any special assessments, often they can become due in full at closing, so be aware of those. Thankfully we don’t have any.
If there is something wrong with the house, or improvements are needed, often the seller will give the buyer a credit to get it fixed later on.
Buyer’s closing costs
Sometimes, especially in a buyer’s market, the seller will agree to pay a portion or all of the buyer’s closing costs. If that is happening in your case, make sure you’re aware of it, and that you’re not actually getting what the buyer offered, but less based off of what the closing costs you’re paying are. So if the house is selling for $100,000 and you’re paying $5000 of the buyer’s closing costs, you’re actually only getting $95,000 for the house.
Selling A House Is Expensive
Back in the days when homes were selling for way over what people paid for them years before, it wasn’t hard to sell a house and walk away from the closing with thousands of dollars in profit in your bank account. With dropping home values these days that isn’t always the case anymore.
Selling a house in a down market can be tough, especially when your home’s value has dropped as much as ours has, up to 25-30%. Trying to sell our house without having to bring money to the closing is going to be tough now because selling a home isn’t free.
When you add it all up, selling a home can cost anywhere from 7-10% of the sale price in many cases. If we’re lucky that number will be closer to 3-4% since we’ve got family who are helping us out, and not all fees apply here in Minnesota. Still, it’s an added 6500-7000 that will need to come from somewhere. Something we’ll take into account if and when we sell.
Have you tried selling a house only to discover a mountain of fees and commissions at the end of the process? Tell us your experience in the comments!
William @ Drop Dead Money says
Trading houses is generally not cost effective, because, as you’re noting, you’re paying a commission of 7-10% just to get your own money back. The fewer trades you do in your life, the more money you end up with. Buy and hold still works with real estate. :)
You’ve discovered what millions have learned – the house market is cyclical: prices go up and down. And buying at the top of the market is murder.
When you trade up, the best time to do it is at the bottom of the market. If you are going to trade down, the best time is at the top. If you take a look at zillow.com’s blog site (not their main website) you will see a few articles they posted recently about the relative strength of your market.
As a general rule, the “best” opportunities present themselves to you when it is worst for you: easy money, “everyone’s buying” etc. The best times to buy are when it feels worst, i.e. in the pits of a recession. The key is to have the self discipline to wait for what really is the best time. And what feels best rarely is best.
We walk by knowledge, not by feelings, to twist a well known verse :)
Peter Anderson says
Yeah, i already knew that housing can be cyclical, and you can’t always know what’s going to happen. I mentioned how we’ve lost quite a bit of money on our current house, but I didn’t mention that we also sold our old townhouse at the height of the bubble, netting us a profit of $60,000 in only a few years. So I guess it works both ways. :)
William @ Drop Dead Money says
Oh that is good – and it makes a difference, of course. After you buy your first house, it doesn’t matter a lot what prices are when you buy/sell to get into a new house. If the one you sell is low, odds are the one you’re buying is also low. Same with high.
Good move selling at the top of the bubble! :)
DC @ Young Adult Money says
As a first time home buyer who is getting to know the process, the advantage is definitely to the buyer. The seller is paying the max they can of our closing costs, and they are also putting on a new roof (they didn’t really have a choice, no loan would be approved without the roof being fixed). Those two things alone end up being a sizable percentage of the sale price.
I have been paying close attention to resale value mainly because of the seemingly endless costs that we will have to incur when we sell. If your house hasn’t risen in value enough we could easily simply break even (sad to say that’s in a win today).
Best of luck selling your house, sorry to hear about the lost value. Is there any way you can rent out that house and still build the new house? Not sure what restrictions you’d have on getting another mortgage…
Peter Anderson says
Renting out our house is one option that we’ve considered, and it’s still out there as a possibility. One difficulty we may come up against with that, however, is that we live in an association run neighborhood, and there are restrictions on how many homes can be rentals. Since our neighbors next door moved and are now renting out their house, we may have a problem doing that.
DC @ Young Adult Money says
Ah I see. I have a friend who is looking for a job but is restricted because of their house being worth less than they paid. They would totally rent it but the association changed the rules so you can only rent to relatives. Crappy setup for them.
Zach @ Milk and Honey Money says
I was thinking the same thing as DC. If you can get through your association and save up for another down payment for the new house, I would encourage you to take a hard look at renting.
This obviously depends on the rental market where you live. If you’re going to be losing money or breaking even while renting, it’s probably not a good idea.
Peter Anderson says
Our next door neighbors built their dream home and are now renting out their home next door to us. It’s netting them positive cash flow every month, so it’s something we have considered. We’ll see where things are when we finally move ahead with the new house.
Very good, informative site. I am selling my house and this answered most of the questions i was wondering about.