January 15th, 2020 | Mortgage Advice
When you bought your house, the fees you paid included the closing costs for your mortgage, your down payment, and maybe some mortgage points. Now that you are ready to sell, there are a few more costs that you need to anticipate. In fact, according to Realtor.com, sellers often pay between 6% -10% of the sale price in fees and commissions.
It is customary for home sellers to pay both the seller’s and the buyer’s real estate agent commission fees out of the proceeds of the sale. The standard rate is 3% for each, totally 6% of the sales price for agent fees. Say your home sells for $250,000. You would pay $15,000 in real estate agent at the end of the sale. It is sometimes possible to negotiate your agent’s fees and there are some companies that routinely charge less than 3%, but a 6% commission is what most sellers can expect to pay. And don’t think you can outsmart the system by having your agent act as the buyer and seller agent; you would just end up paying the full 6% to that agent, instead of splitting it between two agents.
In order to attract buyers, you may need to make some home repairs and updates before listing. However, even after you have a buyer under contract, if the home inspection turns up any problems, the buyer may request that repairs be made before the mortgage closing date. Common problems include plumbing leaks, damaged roofs, or issues with the HVAC system. In some cases, instead of completing the repairs, you can credit the borrowers some cash at closing so they can pay for the repairs once they own the property. This, of course, will cut into your profits from the sale.
If the yearly property taxes are not yet due at the time of sale, sellers are often required to pay a pro-rated amount of the taxes based on how long they lived in the home that year. The good news if you have already paid your property taxes is that you may receive a refund for the months you will no longer be the owner.
While buyers are usually responsible for many of the mortgage closing costs, sellers may be asked to pay some of them, especially in a buyer’s market. These could include things like title insurance, recording fees, transfer taxes or homeowners association fees. Most of these costs can be negotiated in a seller’s market.
Sellers need to remember that when they make a profit on a home sale, they may face a capital gains tax. You can exclude up to $250,000 of profit as a single person or $500,000 as a married couple on your taxes if you have lived in that home for two of the past five years and you haven’t used the same tax break in the past two years.
Before you start the selling process, give us and your real estate agent a call to discuss all the possible fees and closing costs you will encounter. This will help prevent nasty sticker shock during the selling process and help you better estimate your final sale proceeds.