The housing market in the Twin Cities where we both live is as hot as it’s been in over a decade. Recent data indicates that the number of new listings is at its lowest level since 2003, and houses are selling in just 21 days with an average price tag of $250k.
With that in mind, it stands to reason that you or someone you know may be thinking about selling a home. Before you list your home, here are some costs that are often overlooked.
Renovations and Repairs
Whether it’s a leaky drain, cracks in the wall or replacing a roof, you’ll likely want to complete those repairs before you start showing your home. Similarly, this may be the time when you try to complete renovations to your home, such as adding a new deck or upgrading outdated appliances in your kitchen. Increasing your asking price to account for the costs of these renovations and repairs can help you recoup some of these expenses.
Real Estate Agent’s Commission
This isn’t so much an overlooked cost as much as it is an underestimated cost. Assuming you work with a real estate agent when selling your home, a portion of the proceeds are generally split between your agent and the buyer’s agent. These commissions are typically 5-6% of the home’s selling price, which equates to $12,500-$15,000 on a $250,000 home. This isn’t an insignificant sum, and it’s good to keep this in mind since once your home sells, the amount you’ll net is going to be notably lower than the closing price.
If you’re moving across town and you have friends and family who are willing to pitch in, your costs of moving into your new home may be limited, although you may still face costs of renting a van or a truck to help transport your belongings. For longer moves, the costs of hiring movers can rapidly escalate, not to mention airfare, gas and hotel stays.
You (Probably) Don’t Need to Worry about Taxes
One question that we get a lot from our clients is concern about possible capital gains taxes on the sale of their home. For most people, they won’t have to worry about taxes because gains up to $250k are exempt from capital gains taxes. This $250k exemption is per person, meaning a married couple could have up to $500k in gains on their primary residence, all without any tax implications.
You should note that the home you sell needs to have been your principle residence for at least two years for the proceeds of the sale to qualify for capital gains exclusion. This means that if you’re selling an investment property such as a rental home, there’s a good chance you’ll have to pay tax on the gain. Everyone’s situation is different and you should consult a tax professional about your situation.
The common theme that we see among home sellers isn’t that they ignore these costs—it’s that they underestimate the price tag all of these costs will add up to. Being able to more accurately predict how much you’ll spend will help you weigh the pros and cons of selling your home.
Series 7, 53 & 63 Securities Registrations,1 Series 65 Advisory Registration,† Insurance License Peg was attracted to the financial services industry early in her career. She feels fortunate to be able to use her 30 years of in-depth knowledge working alongside Preston, the Roundtable™ and their staff to prepare clients for retirement. A lifelong learner, she enjoys collaborating with her team to stay on top of the best practices regarding comprehensive planning....Read More