Understanding the Hidden Fees and Costs of Selling Your Home
Your home is likely the largest and most lucrative investment you’ll ever make. But as the saying goes, it takes money to make money. Maximizing the value of your investment is going to require putting some sweat equity, as well as literal cash equity, into it before it hits the market. On top of that, there’s an avalanche of transaction costs, surcharges, fees, and various taxes that can take home sellers by surprise. In fact, the average cost of selling a home is just over $15,000. Knowing what to expect before you actually start the home selling process can be the difference between a satisfying, stress-free selling experience, and what can feel like a frustrating, draining “death by a thousand cuts.”
Let’s go over some of the obvious and less obvious costs of selling your home.
Expected Costs of Selling a Home
The first thing that most people think of when they hear the phrase “costs of selling your home” is the real estate commission. Traditionally, a real estate commission comes to 6% of the final sale price. How much is that in practical terms? The median home value in the U.S, according to Zillow, is $229,000. If you sold a home at that price, the commission would come to $13,740, which is no small amount of money.
So where does it go, and what does the seller get for that 6% payout? Generally, the listing agent and the buyer’s agent split the commission, with each of them taking home 3%. The idea behind the commission is that, by pegging your agent’s compensation to the final sale price of the house, you’re incentivizing them to get the highest price possible. The more you make, they more they make.
Does it work? In general, yes. Agent-assisted sales consistently sell faster, and for more money, that non-agent-assisted sales. According to an analysis by NAR, the median value of agent-assisted home sales is $250,000, while the median value of FSBO (for sale by owner) listings is only $190,000. The real estate commission is one of the biggest costs of selling your home, but it also brings some of the highest value.
Closing costs is a catchall term that includes many smaller costs, from the owner’s title insurance fee, to half of the escrow fee (the seller splits it with the buyer), to prorated utility costs, document preparation fees, transfer taxes, and prorated property taxes.
How much are they? It’s hard to say, since they can vary from state to state and even from city to city. But generally, sellers pay 1% to 2% of a home’s sale price in closing costs.
It can be tempting to think you’ll just pack all your stuff into boxes you’ll get for free from the grocery store, and drive it over to the new house in your car. But when you’re in the middle of actually selling your home, you’ll probably find that you simply don’t have the bandwidth to deal with moving yourself.
Your options when hiring movers range from a single truck, to a full-service interstate shipping company. Depending on what level of services you opt for, you can expect to pay between a few hundred dollars and several thousand.
Hidden Fees and Costs
Let’s be honest; few sellers are likely to be taken by surprise by a real estate commission or moving costs. But the expenses listed below are more obscure, which is all the more disturbing when you consider that some of them can potentially dwarf the expenses we’ve already covered.
Renovations and Repairs
You’ve probably spent years living in your home, and as with a favorite old t-shirt or a significant other of several years, you even see its flaws as endearing. This probably won’t be the case with strangers. The scuffed hardwood floors and quirkily painted walls in your house will end up being liabilities when your home hits the open market, and any experienced real estate professional will advise you to renovate before you have that first showing.
How much it costs will depend on whether you just need a fresh coat of paint, or a new roof and refinished floors. But nearly every house will benefit from a refresh, so you can expect to invest several hundred dollars, at least, in pre-sale renovations.
“Curb appeal” refers to the very first impression your home makes on a potential buyer, as they get out of their car or walk up your driveway. And the features that surround your house have as much impact on your home’s curb appeal as the home itself. Just as you wouldn’t show up to a job interview in a new suit, but with uncombed hair and dirty nails, your property should be thoroughly landscaped before it’s listed. That means trimming the lawn, hedges, pruning trees, and even planting flowers.
How much this costs is going to depend on the size of your lawn, and how much maintenance it needs. But make no mistake, a manicured lawn can help a home sale as much as a new kitchen.
Where landscaping is about the external presentation of your property, staging is all about making the inside of your home as appealing as possible. In this context, staging can include everything from decluttering your shelves to buying a new dining set.
Fundamentally, staging is about showing your home in the best possible light, sometimes literally. You’ll want to allow as much flattering natural light as possible to penetrate into your home, which means removing heavy drapes and window coverings. Visual clutter is distracting and can even cause low levels of anxiety, so you’ll want to take all your family photos and collectible plates, and put them in storage. Worn or shabby furniture can make the rest of your home seem equally threadbare, so you may need to get rid of old furniture, and possibly buy new furniture.
Your agent can advise you on staging, and there are even professional home staging experts who you can hire to prepare your home for open houses. Sellers can expect to spend a few hundred dollars on staging their home or, if they opt for a professional home stager, a fee in the low four figures. The median amount of money spent on staging in 2018 was $400.
The reality is that before a prospective buyer even sets foot in your home, they’ve already looked at photos of it online. That means that including high quality photos with your home listing is of the highest importance. And as anyone with an Instagram account knows, taking a good, flattering photo is much harder than it seems.
The data is unambiguous; listings with high-quality photos sell faster than listings with mediocre photos, and the more photos a listing has, the better. A professional photographer isn’t cheap, but it’s a great investment.
Capital Gains Taxes
If your home sells for more than you bought it for, you may owe capital gains taxes to the federal government. This can be an extremely significant amount of money; a 20% bite out of your profits from capital gains wouldn’t raise an eyebrow in a room full of tax professionals.
But luckily, many home sellers will be able to exclude up to a quarter million dollars of profit (or a half million, for married couples filing jointly) from tax liability. The only conditions on this are that the home has to be have been your primary residence for two out of the previous five years, and you can’t have used the capital gains exemption on another home sale in the previous two years.
Saving When Selling Your Home
Surveying this list, it’s clear that some of these expenses are reducible, while others aren’t, or shouldn’t be.
Anything involving taxes is going to be hard to bring down. Property taxes, title fees, and transfer taxes are generally non-negotiable. There’s an exemption for capital gains taxes, but there are restrictions on how often it can be used. Sellers looking at a large capital gains tax bill could consider delaying their home sale, so they can take advantage of their exemption.
Some expenses, though, can be cut down. Staging, landscaping, and renovations can be done cheaply, especially if you enlist family and friends to help paint, mow, buff, and polish. Even moving can be done cheaply, if you don’t count sweat and time as expenses.
That brings us to the real estate commission. There are certainly low commission agents out there, but sellers should keep in mind that they’re usually getting less services by paying less money. If you save $13,000 by not using an agent, but your home sells for $40,000 less than it would have in an agent-assisted sale, you haven’t actually saved a penny.
However, there are a growing number of companies offering a full service selling experience for a flat fee. (Full disclosure: we’re one of them.) These companies allow sellers to partner with top agents in their markets, and get all the benefits of their expertise at a fraction of the usual price. Why, you might ask, would a top agent sell one house for a flat fee, if they could be making 6% on another house? Well, the agent’s getting high-quality leads from the referral company, which means much less time and effort spent hustling on the front end. It’s a true win-win. Considering that the 6% commission is usually the largest single cost of selling a home, flat-fee real estate companies are probably the best way for home sellers to bring their costs down.