Sellers need to consider closing costs, which are in addition to agents’ commission or listing costs on sites like Zillow and Redfin. Most sellers don’t have to find cash to cover the costs listed below if the home for sale has built up equity. However, if for some reason your home is worth less than the initial purchase price, then you won’t be able to cover the closing costs from the proceeds of the sale.
According to research by Zillow, the average home value in California is $580,473 and if you have a standard listing making use of a traditional, full-service realtor, you can expect to pay about $58, 473, or 6-8% of your home’s final sale price, depending on a number of factors that are listed below.
Keep in mind that costs are highly variable, so it’s a good idea to speak to an experienced realtor for a tailored estimate of what your costs may be and of the final sale price.
Getting your home ready to sell
This amount can vary greatly, as you may choose to do some renovations before selling. It’s always good to discuss your ideas with an experienced realtor to make sure that you don’t over-capitalize your expenditure. Your home may only require a new coat of paint, some minor fixes or landscaping to make it ready for sale. However, there is also the cost of staging your home to appeal to buyers that you should consider. “Staged homes sell faster and for more money than those that are unstaged”, according to Investopedia, based on an industry report. Not all homes need to be staged, however, if necessary, a realtor can help you to stage your home cost effectively or for no cost at all.
According to Stage To Sell, in California home staging cost “is $3,500 (for a small living room, dining room and kitchen only) to $10,000 (for a large more expensive home with several bedrooms). A typical 2-3 bedroom home costs $6,500 - $8,000 for a three month lease.”
Be sure to talk to a local realtor who may have other options to help stage your home that may be more budget friendly.
Capital gains tax
According to Zillow, “Here’s a cost to sell a house that’s often overlooked — until tax time. If you’ve lived in the home for at least two of the last five years, you’ll get a tax break on the profit you make on the sale, up to $250,000 if you’re single or married filing separately, or $500,000 if you’re married, filing jointly. If you think you’re going to be subject to capital gains taxes, either because you’ve profited more than the set amount, or because you’ve lived in the home for less than two years, ask your tax professional about subtracting the costs of preparing the home for sale from your profits.”
Listing agent commission
If you use a listing agent to sell your home, you’ll pay the agent a commission which is usually between 3%-6% of the total home sale. Services provided by a listing agent may include a free home valuation, an explanation of the current real estate market in your area, advise you how to best prepare your property for potential buyers, organizing professional photos and video and advertising your property, networking with other realtors to find buyers, setting up showing appointments, negotiating with buyers on your behalf and helping you with the complex paperwork and legal issues that accompany a home sale.
Buyer’s agent commission
Although it’s not a legal requirement, sellers are traditionally responsible for paying buyer’s agent fees. This fee is usually a 2.5 to 3% commission. The buyer’s agent works on behalf of the buyer and will search for properties, negotiate on behalf of the buyer and look out for any pitfalls in the transaction.
As a seller you could offer to cover the buyer’s closing costs to sweeten the deal, which could be any amount that the buyer’s lender allows. These amounts vary depending on the loan product, between 3 - 9%. If you are selling a property in a Homeowners Association (HOA), you could offer to cover the HOA dues for a year to incentivize a buyer. Whether you need to consider buyer incentives will depend on the current market. If it’s a seller’s market, where the demand outweighs the supply of houses in your area, you won’t necessarily need to add an incentive.
The property being sold is held during the escrow process with an escrow company while the sale is being finalized.
An escrow company acts as an impartial, neutral party. It is the escrow officer’s job to be sure certain terms of the purchase agreement have been fulfilled before authorizing the transfer of title from seller to buyer and the transfer of funds from buyer to seller. He or she collaboratively works with; seller, buyer, listing and selling agents, lender, homeowners association, title company, termite company, home warranty, fire insurance, and lien holders. Funds and documents from all of these entities are deposited with escrow, reviewed and held until closing. The escrow company will be paid a fee for the service. This ranges between $150 – $600, plus about $1.50 - $3.00 per thousand dollars of the sale price.
The title search fee can cost between $250 – $800 depending on which county your property is in and the . The fee is for a document that confirms that you have a legal right to sell your home and it also insures the buyers if you don’t.
Paying off your mortgage balance
Before you receive any proceeds from the sale of the house, at the close of escrow, anything that you still owe on the property will be paid to the lender to settle your home loan. This cost could also include a loan payoff fee.
Closing costs include expenses incurred by buyers and sellers, over and above the price of the house. These can include the costs mentioned above plus title insurance notary fees, city retrofit requirements and taxes. If you’re selling a property that has a Homeowners Association (HOA), you’ll need to pay an HOA transfer fee and possibly a move out fee, document fee and balance of any dues too. This is typically less than $1,200.
Other miscellaneous closing costs could include a termite inspection fees, which are quite common in California and cost about $100, as well as a natural hazard closure report. This report details hazards or threats like flood zones and earthquake fault lines, in your area. It costs about $100. It’s not uncommon for the seller to provide a home warranty for the buyers. Depending on the size of the house the cost is about $600-$1,200.
If you are relocating because of a work transfer, you can negotiate a relocation package with your employer to cover costs such as those of a packing service, the moving company and insurance to cover any personal items that may be damaged in the move. If the sale of property is not due to a job transfer, you’ll need to cover any moving expenses yourself.
Moving or selling a home can be stressful but there are ways to minimize your stress. Being aware of potential costs ahead of the time can help you make an informed decision about selling.
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Or, contact me so that I can give you the advice you need to make the sales process a smooth and easy one.