Getting ready to sell your house? You may be itching to pocket all those dollars you think are headed your way, but don't get too excited just yet. More factors go into selling a home than you might realize. Unfortunately, hidden expenses are one of those factors. Brush up on these eight surprising costs ahead of time to lessen the blow.
It's a good idea to keep the utilities running until the very last day before closing on the sale. Not only will it help your real estate broker to demonstrate that the home is fully operational, but it can also help you prevent other issues.
For example, keeping some lights and A/C on during the summer or highly humid days can help your home stay mold-free. Molds thrive when the humidity levels exceed 70 percent. A running A/C cools the home, removes moisture from the air, and keeps the air inside circulated and filtered. Keeping mold in check will help you pass the home inspection and prevent additional fees. Another example would be turning off the water and ending up with an unappealing (and dead!) lawn, which sends potential buyers the wrong message about your property.
You also want to make sure that utilities are still on for your buyer's final walk through. Consult with your broker for the right time (generally closing day or the day after) to turn off the utilities and settle those bills.
A fresh coat of paint, a thorough carpet steam clean, or a new toilet in the master bathroom can go a long way in increasing the appeal of your home. Budget for the cost of hiring a contractor or doing these necessary repairs yourself before putting your home on the market. Addressing repairs early can save you money in the long run and increase your chances of passing a home inspection on the first try. (See also: How Much Are Pricey Home Upgrades Really Worth?)
In the event that you are against dealing with repairs or renovations, you could extend to a buyer a seller credit to make up for the costs of fixing up the property. However, lenders cap the credit amount that a seller can extend to a buyer at 3 percent to 6 percent of the total mortgage.
Since the majority of buyers will ask for one, most real estate agents recommend that you budget for a range that you would be comfortable with in extending as a seller credit. This is in case your property stays on the market for far too many days. Cash-strapped buyers may request seller credits to cover additional expenses, such as closing costs, or escrow fees. In 2016, the National Association of Realtors (NAR) estimated that 37 percent of sellers offered incentives, such as seller credits, toward remodeling or repairs to attract buyers.
To maximize the exposure of your property to potential buyers, you need not only to stage your home, but make great photos and descriptions available online.
Keep in mind that your agent may outsource digital staging services to a third party, which may or may not be the same one staging your home. According to Kiplinger, home sellers spend on average $1,800 to stage a home, but costs can range from a couple of hundred dollars to $5,000 or more. The more bells and whistles that you request (say a 360-degree picture or video walk-through), the more that you pay.
Real estate agents are paid on commission — typically 5 to 6 percent of the home's agreed upon selling price. The commission is generally split between the seller's agent and the buyer's agent. On a $300,000 home, a 6 percent commission works out to $18,000, all of which comes out of the seller's side of the deal. Agent commissions are negotiable, although a seller who pushes too hard on this point may make their home unattractive to buyer's agents, ultimately reducing traffic and potential buyers.
While owning real estate can give you plenty of surprising ways to cut down your tax bill, you may still have to pay Uncle Sam a share from your home sale under certain circumstances.
As long as you've owned the home for at least 24 months and used it as your primary residence during the last five years leading up to the date of closing, you may receive an exemption up to $250,000 ($500,00 if married filing jointly) of the gain from your home sale. If you were in the lucky position that your capital gains exceeds those limits due to a "hot market," then you would need to pay applicable taxes
This type of insurance protects real estate owners and lenders against loss or damage that can occur due to defects in the title on a property.
While typically included in the closing costs covered by the buyer, some states may require the seller to pay for title insurance or allow for negotiation of this cost between buyer and seller. The cost of title insurance can range from a few hundred dollars to more than $2,000. (See also: Yes, You Need Home Title Insurance — Here's Why)
Now, you wouldn't expect all of your belongings to move themselves, would you? Whether it's with time or cash, you'll need to pony up moving expenses, which can run well into the thousands depending on the size of your property and the distance of your move.
If you're moving at least 50 miles due to a new job location, you can deduct reasonable expenses for moving your belongings and traveling to your new home. Hiring a professional moving company would help you provide proof to the IRS that your moving expenses are valued at a fair market price. (See also: 6 Reasons You Should Always Hire a Moving Company)
It's easy to fall for the trap of thinking that you're making more money on your home sale than you really are.
Let's run some numbers. If you were to close at a price of $300,000 for your home and still owe $160,000 on your mortgage, you'd think that you made $140,000 in profit. Assuming that you paid 8 percent of your sales price in total costs for your home sale, you would have coughed up $24,000 and brought down your net profit to $116,000 (a 17.14 percent drop!).
The smaller the gap between your sale price and remaining mortgage, the more critical that unexpected costs of selling a home become.
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