If you’re considering selling your house, there are several factors to consider. Keep reading to learn all about the hidden costs of selling a home.
A home is a major investment, and for many homeowners, the sale of the home will be the single largest transaction they’ll ever experience. Even at its all-time high, the national average home equity share of $185,0001 means that many will still owe on their home loan following a sale — resulting in the lion’s share of sale proceeds being diverted to loan repayment. On a $300,000 home, after real estate agent commission, loan repayment costs, and relatively minor administrative fees, sellers can expect a meager $142,000 of their listing price once the ink has dried.2
This may be an optimistic figure, however, as it fails to consider the numerous hidden costs of selling a home. Understanding these costs is essential, especially if you’re navigating life scenarios, such as how much is needed to retire or how to use home equity to build wealth. From staging fees to closing costs, here are seven hidden costs to be mindful of before selling your home.
If you’ve been asking yourself, should I rent or sell my home, you should consider the costs associated with selling a house. While a realtor fee is not exactly a hidden cost of selling a home, many homeowners are surprised to see how much of their home’s sale price ends up in their realtor’s hands. Although some realtors operate based on a flat fee, most work for a commission fee — receiving between 5 and 6% of a home’s selling price as compensation3. On selling a $400,000 home, a real estate commission of 5.5% translates to a $22,000 split between your listing agent and the buyer’s agent. This might seem like a hefty payday, but considering the work that can go into selling a home without a qualified agent, many homeowners will find it worth it.
Selling with the help of a realtor can also have a significant impact on a home’s final selling price. According to a 2021 report4, homes sold with the help of a licensed real estate agent sold for an average of $318,000. Homes without professional assistance, on the other hand, sold for nearly $60,000 less. This is partly owed to the personal investment that commission-based realtors have in a home’s sale. When homeowners make money, realtors make money — so it’s in the best interest of a realtor to pull out all the stops and get a home sold for top dollar.
If the potential for a mid-five-figure commission payout eating into your post-sale payday seems excessive, you might find solace in knowing there are other options. As mentioned earlier, you can opt for a flat fee real estate agent wherein you trade a percentage for a nominal fee. While this will almost always result in a smaller payout, it can also mean a lower sale price. Additionally, flat-rate real estate agents tend to offer less support than a real estate agent working on real estate commission5 — as the latter has an active interest in getting homeowners the best sale price possible.
Alternatively, you can decide to list your home as “for sale, by owner.” This means that you’ll handle things like photographing your home, scheduling showings, and open houses, advertising your home online, and the other countless responsibilities which would otherwise be assumed by an agent. This can impact a home’s selling price, but it can take a great personal toll on homeowners. After all, there’s a reason selling homes is a full-time job!
Real estate agent fees might be some of the highest costs ofselling a home, but they’re far from the only costs.
The most common hidden costs of selling a home are those affiliated with closing on a home. Closing costs accumulate throughout the sales process and can refer to loan processing fees, prorated property taxes, and even attorney fees. While seller closing costs will vary from home to home and state to state, these hidden costs can be hefty — with average closing costs in Washington, California, and Hawaii exceeding $5,0006. These costs are typically split between a potential buyer and home seller, but even a $2,500 fee can shock homeowners if they aren’t expecting it.
In some cases, the decision to assume full responsibility for closing costs can be a powerful negotiation tactic (for both home buyers and sellers,) meaning those looking for tips on selling a home quickly may willingly end up with 100% of the closing cost on their plate.
As far as the hidden costs on this list are concerned, appraisal costs are relatively minor. Still, it’s important for homeowners to know what to expect prior to listing their homes for sale. Generally, the burden of appraisal costs will fall on buyers who need to verify that their purchase is a sound one for loan providers. However, to sellers looking to price their homes for a fast (and fair) sale, an independent appraisal can be a valuable tool.
Appraisal costs vary depending on the location, complexity, and size of the property but homeowners can generally expect to spend around $450 for a standard independent home appraisal. That said, if the property in question is more of a palatial estate than a small family home, this figure can inflate to over $2,000. Again, anticipating an expense of this size can make it easier to shoulder this hidden cost.
If you’ve looked at photos of homes on real estate websites — especially those that have flown off the market before you could even think about putting an offer in — there’s a good chance these almost-too-good-to-be-true photos were the result of a professional staging service. Nearly 20% of the homes sold in 2021 were staged7 (an estimated 1.3 million out of 6.9 million), with the return on investment of this expense ranging from 102% to 909%.
With that in mind, the initial investment can be substantial. Professional home staging can cost up to $600 per room sometimes, which is an upfront expense that can eat into a sale’s proceeds before a deal has even been made. But consider that professionally staged homes tend to sell far quicker than unstaged ones, and this expense might more than pay for itself.
Whereas a home appraisal aims to assign an accurate value to a property, a home inspection will see a professional inspector look for glaring issues which may cause harm to you, potential home buyers, or both parties. The home inspection process, like a home appraisal, will cost around $450 on average, which may be a small price to pay for peace of mind.
In particular, home inspectors will be looking for water damage, termite infestation, faulty wiring, hazards like mold and lead paint, and other threats to life and a potential deal. Though a home inspection is commonly conducted after a purchase price arrangement has been made, having a professional inspector walk through your home before listing the property can prevent any unpleasant surprises down the road.
For many homeowners, unforeseen repairs can be one of the worst hidden costs of all. Following a home inspection, you might be assured that your home is in tip-top shape and ready to pass into different hands. You might also be made aware of water damage or faults in the home’s foundation, which will necessitate urgent (and costly) repairs. Leaky faucets will be an easy fix, but standing water that has had the chance to spawn mold or do foundational damage can carry a daunting price tag.
The average cost of lengthy repairs can be one of the biggest surprises homeowners face when selling their homes, proving that regular proactive maintenance can seriously pay off when it comes time to sell. Further, it’s better to find out about extensive damage before you list your home than it is to find out once you’re steps from the finish line — making the price of a professional pre-inspection more than worth it.
No, it’s not just something you’d hear in a movie set on Wall Street, there is actually a cost to doing business. In the case of selling your home, this cost may come in the form of negotiations with the buyer. These negotiations can range from sellers agreeing to shoulder the cost of home appraisals and inspections instead of the buyer to sellers taking on 100% of the closing costs — to sellers throwing in furniture, covering the cost of a new roof, and any number of other major expenses.
While these concessions should only be made if the final sale price makes sense to the seller, homeowners should be prepared for potentially costly negotiations with buyers. And if you’re at the point where you’d do just about anything to get your home off the market, be prepared for the average cost of doing business.
Like many places in life, taxes are a guarantee when selling a home. So, where does the hidden cost come into play, then? In this case, the hidden cost of selling a home will come down to how much you end up paying in taxes. If your tax owed is of the capital gains variety, this could end up being a very tidy sum.
If you’re filing single for tax purposes, you’re able to avoid paying capital gains taxes on up to $250,000 on the sale price of your home. This number doubles for those filing jointly, and you can expect to be taxed at the capital gains rate (up to 37%) for any increase in your homes value experienced between the time you purchased it and the time it sold8. Unless, of course, you bought your home and sold it in less than two years. In this case, you’re no longer exempt — and you may find yourself diverting a good portion of your home sale proceeds directly to the IRS. We’re not accountants, nor are we giving you financial advice, but we do suggest that you understand how you may be impacted by these taxes to avoid an unpleasant surprise down the road.
As it turns out, selling a home can be far more costly thanit seems. That said, expecting these costs before they’re at your door can go along way toward easing your anxiety, and taking the necessary steps ahead oftime can limit the dent these costs make in your sale proceeds.
If you’re selling your home, you might already be actively saving to anticipate the costs of your next home. To prevent these funds from being swallowed up by the costs associated with the sale of your current home, you can create a dedicated account and gradually add to it while you hunt for your dream home. In the current market, it can take as little as a few months to sell your existing home and close on a new one, so give yourself plenty of time to pad your hidden home costs piggy bank.
Finding your dream home can often feel so serendipitous that you’re ready to pack up your things, put down your down payment, and move in the next day. While this is an impossibility, making impulsive decisions at this scale can only do damage — and it will take some strategic thinking to ensure that selling your home is the right move.
This becomes especially important if you find yourself selling your home after only a year or if your home has been vacant for the last two or more years. These circumstances can expose you to capital gains tax liability, and waiting to sell can end up being the only thing standing between you and a five-figure tax bill.
Another way you can be prepared for costly expenses is by distributing them over a longer period of time. Rather than shrinking your ideal home sale timeline and cramming your to-dos into a 30-day window, take the time to conduct inspections, gather appraisals, and gradually take on repairs. Operating on an extended schedule will make the costs less daunting and may even save you money if you aren’t paying rush fees to contractors and other professionals.
While selling your home can be an opportunity for a significant payday, this process is not without its fair share of expenses. Fortunately, selling your home isn’t the only way to cash out and access home equity.
With a sell and stay transaction, homeowners are able to reap the benefits of selling their homes without the stress, uncertainty, and countless hidden costs. With Truehold, you can sell, cash out your equity, and continue to live in a home filled with precious memories and shared history as a renter. Whether you use your lump sum to travel, indulge in new hobbies, or spend time with those you love is completely up to you.
To learn more about Truehold’s sell and stay transaction and see why thousands of homeowners have turned to us for help with accessing home equity, get in touch today!
Sources:
1. Investopedia. What Is the Average Equity in U.S. Homes? https://www.investopedia.com/average-equity-in-u-s-homes-5270147
2. Homelight. How Much Will I Make Selling My Home? https://www.homelight.com/net-proceeds-calculator
3. Clever. Current Average Real Estate Commission. https://listwithclever.com/average-real-estate-commission-rate/
4. National Association of Realtors. Highlights From the Profile of Home Buyers and Sellers. https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
5. Upnest. What Is a Flat Fee Realtor and Should You Hire One? https://www.upnest.com/1/post/flat-fee-realtor/
6. Rocket Mortgage. Closing Costs: What Are They, and How Much Will You Pay? https://www.rocketmortgage.com/learn/closing-costs
7. RubyHome. Home Staging Statistics (2022). https://www.rubyhome.com/blog/home-staging-stats/#:~:text=Of%20the%206.9%20million%20homes,Home%20Staging%20Professionals%20(IAHSP).
8. Bankrate. Capital Gains Tax on Real Estate and Selling Your Home. https://www.bankrate.com/taxes/capital-gains-tax-on-real-estate/#home-sale
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