If you're in the process of moving out of your current house and into a new one, you may have thought a lot about the costs involved with buying a house. After all, there are many. But as you're considering your moving budget, it's important that you remember to factor in what it costs to sell a house.
According to Carlos Jaime, owner of CTC Brokers & Associates in Corona, California, these expenses can include things like paying the escrow company, title insurance, transfer taxes, home warranty plans, HOA documents, possible credits to the buyer as well as repairs that may need to be made before closing on the house (more on some of these later).
But, Jaime said, real estate commission is the biggest expense a homeowner faces when selling their home. He said these commissions often "range from 2.50% to 7% of the sales price," and because it is such a major expense, he emphasized the importance of having a good real estate agent helping you during the sale of your home.
"Do your homework and interview two to three agents, not just the local rock star," Jaime said. "Find an agent that's experienced, professional and isn't charging you an arm and leg."
"The more you pay in commission, the more you must sell for just to recoup the premium you're paying to a high-commission agent," Jaime added. "Focus on your bottom line and not just the sales price that an agent is promising you."
Getting Your House Ready
Before your house is actually sold, it's a good idea to spruce it up a bit. After all, as a potential buyer yourself, you wouldn't be interested in a home that looked, well, blah, would you? Of course not.
Keep in mind, this will be another expense in your process, but it can also be factored into your asking price, if you so choose. But where do you start?
"Have [your real estate agent] bring in a home stager for a consultation on what you can do yourself to spruce up the visual appeal of your home," Jaime said.
Things to consider include painting your home (both inside and out), getting the windows professionally cleaned, landscaping and repairing any problem areas (think scuffs in the floor, broken fixtures, etc.) in and around the home.
After you've done this, you may consider using a stager to organize, declutter, decorate and furnish your home to make it look as appealing as possible for any showings your agent lines up.
Arranging Home Inspections
Jaime suggested having an agent "arrange a pre-listing home inspection and pre-listing termite inspection to avoid surprises down the line." For example, if your inspector discovers standing water that damaged the foundation, you can take action before putting the house on the market. Jaime said that knowing these details in advance can help you decide what your best plan moving forward is, whether you fix the problem, sell the home "as is," adjust the price or something else.
Getting Title Insurance
Sometimes the homebuyer is the one who covers this cost, but it can be seen as a sign of good faith if the seller purchases the policy. This way, they are showing the buyer that they have a clear title to the home, such as not having a lien or other problem. (Note: If you have a lien on your home, you'll have to also pay that off before selling your home.) Either way, it doesn't hurt to allocate this to your home sale budget.
Paying off Your Mortgage
Just because you're packing up and heading off to a new home doesn't mean your responsibility for the mortgage on the old house will stay behind. Read over your mortgage agreement to figure out what sort of prepayment penalty fees you may be faced with (meaning you may get charged a penalty for paying more at one time than what your mortgage terms specified) as well as any interest charges. Keep this in mind as you consider what houses you will be able to afford to buy once you've sold your home. (You can also use this tool to figure out how much home you can really afford.)
Other Potential Bills
If you're living in your new house already, you may have to pay two sets of bills for a while. Sure, you can shut off some of your services at the old place, like cable and internet, but you'll likely still want to keep the power on and the home heated/cooled so it's comfortable when potential new owners come by. It might also be wise to check your homeowner's insurance policy, or speak with your agent, to find out if you need different coverage while the home is left unoccupied. Beyond that, consider the costs of getting everything out of your old home and into your new one. (Pro tip: If you're staying nearby, ask your friends or family to help you move. Paying for dinner and drinks for the group can be a lot less than paying for a team of movers or rental truck.)
Paying for These Expenses
As you think about the expenses you'll have both in buying and selling a home, it's a good idea to consider how you'll pay for them. If you have to put any of your selling expenses on a credit card, ideally you'll want to pay those statements off in full each month, as doing so won't harm your credit scores. However, if you are unable to do so, make sure you're paying off what you can each month and doing so on time (payment history makes up the largest portion of your credit scores). You can use this tool to figure out what your lifetime cost of debt could be.
And if you're still searching for the right home to buy next, it's a good idea to review your credit reports (which you can do for free once each year by visiting AnnualCreditReport.com). Knowing where your credit stands will give you a good idea of the terms and conditions you may qualify for on your mortgage. If you discover your scores aren't quite where you'd like them to be, you can take steps to repair them, like paying down debts, repairing any errors on your reports and limiting inquiries while your scores rebound. You can monitor the effects these are having on your credit by viewing two of your credit scores for free, updated each month, on Credit.com.
