So how much does it cost to sell a house? Well, that's what we're going to talk about today. We will touch on 9 different costs that a seller has to take into account when selling a home.
Number one, and the cost that everybody always brings up, there is the commissions to sales agents. This is going to be x percent of the total price of the house. One of the things to know about this is that your listing agent is actually in charge of paying the buyer's agent, so that x percentage usually gets split in half or split in some way, and gets paid to the buyer's agent. Another thing to know is that they don't actually get to put all of that in their bank account. Between paying brokers, self-employed taxes, all the advertising fees, staff that go into helping market the house and keep things going and then any preparation things that they're involved in that money gets split up a good number of ways. It's most likely that your listing agent will pay for a lot of services to help prepare your house for sale.
The second thing you'll be paying for is property taxes. Typically, you pay your property taxes at the beginning of the year for the previous year, at least that's how they do them here in Texas. Typically, your lender is going to collect as part of your payment money that gets put aside in escrow to cover your taxes and that escrow account will get paid back to you when your note is paid off. At closing you're going to pay the prorated amount of tax for the portion of the time that you've lived in the house so, if you sold the house on June 1 then you're going to pay taxes from January through May. In fact, if taxes change between what was expected and what's actually due the next year, technically the buyer can come back to you and ask you to pay a little bit more to cover the difference for your section of the year. I’ve never actually heard of somebody calling them on it but, you do sign a document at closing saying that you know they technically could come back and ask for that.
The third cost that's really common is money that you agree to give the buyers to help them with their closing costs. This can frequently be just something they ask for upfront in the contract or it can be negotiated as a way to help them pay for repairs that you agree upon during the option period. If it's a crazy seller's market and you have a lot of power then you probably aren't going to be giving them a heck of a lot of closing Costs. On the other hand, if it's a great buyer's market then you may be giving them more closing costs because they're in a more powerful position. Obviously, if huge things come up like foundation issues, termites, structural issues, or internal water damage, usually it's good form to give them something to help with that (but again it's really dictated by the market and the situation).
The fourth cost is money set aside to pay for a home warranty. What this does is cover any sort of breakages in the home for one year. It’s usually about $400 or $500 and the main benefit to the seller is that you don't want the buyer calling you if their stove breaks. The warranty just takes care of any of those incidental breakages or faults in anything inside the house for that first year. Frequently the home warranty covers a lot of things that homeowner’s insurance does not. Say the dishwasher breaks down and floods the kitchen. You want them calling the home warranty company and the homeowners insurance company, instead of calling you and trying to sue you for water damage in their kitchen.
Number five is title insurance and escrow fees. Title insurance is the insurance that a buyer gets in order to make sure no one's going to show up and say you didn't have a right to sell the home. Title insurance basically covers if somebody does show up and claims that, or claims a lien against the house from when you owned it. Then there's the escrow fee. That's what they charge for actually handling all the paper work, actually handling the buyer's earnest money, and helping you with the transaction. In a transaction, the buyer’s earnest money is the larger check that the buyer pays right up front when they go under contract, usually one to three percent of the house. The overwhelming majority of the time it's one percent and this goes to the title company. The title holds and protects it. If the buyer walks away for a legitimate reason in the contract, they get it back. If they walk away for an illegitimate reason in the contract at the last second, leaving you in the lurch, then this is kind of your apology money that you get to help make up for that. There are strict regulations around escrow accounts and they charge you a fee for being the account that holds onto that money and protects it from the buyer and the seller to be a neutral part. An interesting thing about Texas is that escrow and title are the same, in several other states those two are different.
Number six is legal and recording fees. These are generally relatively small fees but these go to the attorneys for reviewing the docs and making sure they're correct and that they didn't leave anything out and that makes sure that the loans are conforming and that title is happy that the docs are all organized and nothing got missed. A recording fee is generally around $30 to $40, and it records your documents at the county. It basically tells the world that you own that property.
Next up number seven is HOA transfer fees and HOA fees. If you are in a homeowners Association, there is going to be a portion that you owe of your homeowner’s association dues. If that needs to be prorated and paid to the buyer if they're going to be covering a section of time that you lived in the house.
Also, transfer fees and document fees to the HOA. HOAs will frequently have a reserve that will require $100-$200 for a transfer fee, $100-$300 for the documents, etc. There are a variety of HOA fees and each HOA honestly is a slight bit different on which fees and such they charge. It is normal for all of those fees that we just talked about to add up to about seven percent. Sometimes more, sometimes less, depending on a variety of factors (repairs, commissions, etc).
Some people might consider selling their home on their own or selling it by the owner. The main reason for doing this of course is to avoid the commission fee, which is the largest expense in all the fees of selling your home. You have to be willing to know what you're getting into. The worst part, in my opinion about selling by owner, is that people who come to buy homes that are for sale by owner are looking for a deal. They're typically investors and they're going to undercut you on price and your home isn't exposed to the full market like it is with real estate agents. When a real estate agent comes with a buyer, real estate agents come with pre-qualified buyers. They've already vetted them; they know that they're working with a lender. They actually have the ability to buy a home. You're going to get as many people looking at your home as possible and hopefully even competing for your home. Whereas if you've got someone coming to buy your home and it's not on the open market, they're looking for a little bit of a discount. Whatever discount they might expect to get, you have to ask yourself if the discount is more or less than what you may save on the commissions. On top of that, if you want to hold open houses, you're sitting in the house trying to figure out how to get it onto a variety of websites, you're trying to figure out how to market it, how to get the best pictures, what it needs to look like, where it's actually going to sell, what vectors. Here's the kicker, Sales by owners are actually fraught with lawsuits. They have a much higher rate of lawsuits than transactions done with an agent. Altogether you're looking at getting less money because those buyers think that they're going to get a discount and expect to get a discount because they don't have an agent representing them. Meanwhile, you're spending a lot of extra time and money doing the marketing that an agent would usually cover for you. You're getting sleepless nights because you're worried about a lawsuit. All of these things tend to be covered by having a really good agent and the key is a really good agent on your side.
So now you know what it costs to sell your home but do you actually know what your home is worth. You might talk to your neighbors who've sold their home and they'll tell you that they sold their house for $400,000, when in reality they probably sold for $385,000 or $390,000, which is close enough to $400,000 but that extra $15,000 can make a big difference. What's really important to know about that is, what things actually sold for and recorded as selling for. Appraisers and other agents are going to use the prices homes in the area actually sold for in order to price your home and tell their buyers what to offer. If you would like to know what your house is worth we're happy to help, we genuinely love helping people and we can get you over a quick no cost no-obligation price estimate. A lot of people are wondering if now is the right time to sell or if they should wait a year or two. We're happy to get you a quick idea of what market stats are looking like, how fast things are selling, and just generally what the market is doing relative to other years.
