Most people are concerned about how much money they can make by selling a house, especially in the current situation of housing shortage and high prices. However, there are financial disadvantages to selling a house.
When your house is listed, you may not realize that both the buyer and seller have to spend money, and there are hidden costs at every stage of the sale. What are these costs and is there a way to avoid them?
If you want to sell your primary residence, there are some costs you must factor into the final selling price, even though you may profit from the sale, not all the money goes to you. You could potentially earn more without these explicit and implicit costs.
Real estate agent commissions are the biggest expense, typically ranging from 2.5% to 3% of the selling price of the property. This 2% includes commissions for both your and the buyer’s agents, which you have to pay to both parties’ agents.
For example, if you are selling a $500,000 house at a 3% commission rate, you would be paying $15,000. However, if you are savvy and have a higher selling price property, you might end up paying a lower commission.
But commissions and their payment structures can vary. In April 2024, the National Association of Realtors (NAR) settled some lawsuits by agreeing to pay a $418 million settlement to home sellers to resolve 12 antitrust lawsuits. NAR was accused of setting rules to inflate broker commissions, although the association does not admit to any wrongdoing.
After the dust settled from the lawsuits, sellers will pay reduced commissions, allowing them to keep more from the sale. It is now the buyer, not the seller, who determines how much the real estate agent gets paid.
There’s uncertainty about how the real estate market will adjust to this new change.
When selling a property, you need to pay taxes proportionally. If you have already paid taxes, they might be low, but if you owe any, this cost can amount to thousands of dollars.
Your state may impose a real estate transfer tax, levied when property ownership changes hands, with the amount based on the location and value of the property.
Both the seller and buyer may be liable for this tax, sometimes splitting the cost.
If a single person makes a profit of over $250,000 from a property sale, or a married couple makes over $500,000, they may owe capital gains tax.
While not a tax, costs associated with the Homeowners Association (HOA) are prorated before you move, with potential HOA transfer fees.
Although many transfer fees are covered by the buyer, sellers may also have to pay these expenses.
For example, title insurance protects the buyer in case of issues with the property’s ownership history when applying for a mortgage. Sellers may cover the cost of title insurance for buyers, averaging around $1,000.
Title companies conduct a title search during the sales process. If they find liens on the seller’s property, these issues must be resolved before the sale.
Legal fees are due at the transfer, and sometimes, sellers may pay the buyer’s legal fees, though not required, it is a common negotiation point.
Sellers often have to cover escrow and wire transfer fees.
Overall, seller closing costs typically range between 1% to 3%.
Before transferring ownership, the remaining balance on the property must be paid off. Interest may be applied to the total balance, and there could be prepayment penalties. Contact the lender before transferring to avoid surprises.
Selling a house also comes with other possible costs, which may impact your budget, but are sometimes necessary.
Buyers often conduct a home inspection to assess the condition of the property. If any part of your house fails inspection or is not satisfactory, buyers may request repairs. Inspect your home to avoid delays due to failed inspections.
Moving costs depend on the amount of furniture and items you have and where you are moving. For local moves, the average cost of moving a two to three-bedroom home is $1,250, while long-distance moves can reach $4,890.
Before moving, organize your belongings to ensure you are not transporting unnecessary items.
The biggest expense in selling a house is the real estate agent’s commission. Fortunately, the lawsuits against the National Association of Realtors have somewhat alleviated sellers’ burden. Other miscellaneous fees like transfer fees, title insurance, and taxes could also add to your selling budget.