Smart Moves

Get Your House Sale in Order: How to Save on Closing Costs

by Teresa K. Traverse June 05, 2018

What does it mean to sell a home? A home is more than just a roof and four walls, but also a place where you built memories. 

Preparing to sell is a big decision and can be a challenging process given the many financial considerations that arise along the way. Don’t worry — there are smart, simple ways to approach, manage and even minimize the expenses associated with selling your home.

“It’s important that you go into it with the understanding that this is one of the most stressful things,” says Katie Walsh of The Walsh Team relators. But “as long as your house is priced well and in good condition and you have good representation, it will be smooth.” Walsh says there’s a 70% chance the house will close.

Should you be your own realtor?


One of the early questions you’ll face is: Should I plant a “For sale by owner” (FSBO) sign on the lawn and tackle the process myself? It may increase the profit you make off your home sale: For many home sellers, the commission paid to the realtor makes up the bulk of their closing costs. But is it worth it to sell solo?

Only a small percentage of sellers opt to go this route. According to a 2017 National Association of Realtors (NAR) survey, 89% of sellers use a real estate agent. The same NAR report from 2016 found the average price of a home sold through an agent was $60,000 more than the average FSBO sale, indicating that money may be getting left on the table in owner sales.

Consider the workload and time commitment, too, before you go it alone on your home sale. Marketing your home, arranging (and attending) showings, educating yourself on how to price a home appropriately and figuring out how to prepare paperwork are a few of the responsibilities you’ll take on.

If you do end up selling your home yourself, it’s still a smart idea to consult with a realtor as you weigh the decision. For one thing, you can ask questions about the health of the local housing market.

Act according to the market


There are bigger factors in the national and regional economy that should be considered as you prepare to put your property up for sale. Being in a strong or weak market is crucial to how much you will be able to sell your home for. So, how do you know if you’re in a buyer’s market or a seller’s market? 

Markets are measured by the amount of inventory that’s currently available, or the absorption rate, says Walsh. The absorption rate is calculated by dividing the number of home sales per month by the number of available homes. If the absorption rate is above six months, it’s a buyer’s market. Anything below six months is a seller’s market. A six-months absorption rate is a balanced market. A realtor in your area can provide you with this data. Walsh says you also can keep track of how many days homes are staying on the market by observing what’s selling in your neighborhood.

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There are bigger factors in the national and regional economy that should be considered as you prepare to put your property up for sale.
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If the market is strong:

  • Put paperwork in order. If a fast offer seems even somewhat likely, be sure to have all the paperwork ready in the event the sale does through quickly.
  • Have an interim housing plan. If you sell before closing on your future home, make plans to stay with family or in a secondary home. Limit the time you have to live in hotels or rentals. It’s not only expensive but gets old fast — especially with a family.
  • Vet buyers carefully. Receiving dozens of offers is an enviable position to be in, but you’ll want to thoroughly evaluate those bidding to ensure you’re settling upon a highly qualified buyer who has his or her financing in order.

If the market is weak:

  • Turn on the charm. In a buyer’s market, home staging and professional photography (costs you may be able to forgo in a seller’s market) will be important to help your listing stand out. If you’ve added energy-saving appliances, new windows or air-conditioning units that will reduce utility bills, talk that up to potential buyers.
  • Put the word out. Tell friends and neighbors your home is on the market. You never know which friend-of-a-friend might be looking, and a buyer with a personal connection to your neighborhood might be more motivated than one coming in cold.
  • Hold open houses. Giving buyers the opportunity to tour your home and imagine the possibilities in it can be a game-changer for an on-the-fence buyer.
  • Lower the price. If the house simply won’t sell, you may want to consider strategically adjusting the list price. Even a modest drop can have an outsized psychological effect on buyers — who doesn’t love to think they’re getting a bargain?

Prioritizing home repairs


Determining which repairs and upgrades will increase the value of your home and which can be overlooked is a great debate for home sellers.

The first step before making repairs is to determine what, exactly, your options are. “I always recommend getting an inspection before you sell so you know what you’re looking at,” says Walsh. Legally, you’re required to disclose any problems to potential buyers.

Once you have that overview, it’s time to pick your battles. Start with estimates for the necessary repairs or upgrades that will catch the eye of potential buyers — roofs, AC units and electrical systems, for example.

Next, look into those upgrades which typically provide the best return on investment — kitchens, bathrooms or floors. If the carpets are dirty or the walls are in need of a paint job, it’s generally worth it to invest the money to fix those items, Walsh adds. 

Be careful in choosing which projects to undertake — if an improvement goes over budget or fails to nudge up your eventual sale price, you’ll be shelling out money for amenities you yourself will never enjoy.

Also, be aware of the role location will play in your home’s appraisal. “You never want to ‘over-improve’ your house,” says Bob Gorski, a certified residential appraiser with Arizona Premiere Appraisers. “Your value is also tied to your neighborhood sales.”

Gorski points to landscaping as the sort of tempting project that — unless the home has no prior landscaping — is usually too subjective to raise the value of a property.

Putting your home’s best foot forward during an appraisal can help ensure the home is priced fairly. Gorski suggests cleaning and staging your home, as you would during a showing. He also recommends visiting other open houses in your neighborhood to get an idea of what a fair list price would be.

You also can have print outs of at least three neighborhood comps — similar size, same year built, comparable subdivision — that have sold within the past 12 months or so to give the appraiser that will buttress the research he or she has (hopefully) already done. It’s also a good idea to have receipts or proof of any recent home upgrades or renovations available as well. “You want to present the best possible picture to the appraiser,” says Gorski.

And don’t be afraid to seek out professional advice. “Definitely bring in a realtor before you spend any money,” Walsh says.

Know the lingo of unexpected home-selling fees


A whole glossary’s worth of terms and fees — many of which you’re not likely to expect — add to the unfamiliarity and complexity of the home-selling process. You’ll feel better prepared if you are aware of from the outset of unexpected fees and what they really mean.

Fees You’ll Probably Have to Pay

  • Transfer Tax: These taxes — only applicable in certain states — are imposed on the transfer of property titles.
  • Property taxes: Depending on the closing date, you may have to pay off property taxes. Sellers are only responsible for paying property taxes when they owned the home.
  • Mortgage balance: Before the sale goes though, you’ll have to pay off the remainder of the mortgage. This all happens simultaneously during what’s called a pay-off. The title company will order a payoff from the mortgage company.
  • Title and escrow fees: The fee paid to the title company, escrow company or attorney for orchestrating the closing. An escrow is a third party that holds money until the transaction is complete.

 

Fees You May Have to Pay

  • Courier fees: You may need a courier to send a loan payoff to a lender.
  • Broker’s fee: If your realtor works with a broker, you may have to pay a broker’s fee too.
  • Estoppel letter: This is a legal document issued by a homeowner’s association (HOA) detailing any outstanding balances the homeowner has on the property. You can try asking the HOA to waive this fee.
  • Recording fees: A recording fee is a fee a government agency charges to register a real estate sale and make it a matter of public record.
  • Mobile notary: After the lender has delivered the full and complete paperwork, a mobile notary may have to verify that all the documents have been signed by the appropriate parties. This usually costs $100 to $200 according to Walsh.
  • Title insurance: Title insurance verifies that the home is yours to sell. In some states, buyers pay title insurance costs. In others, sellers pay it. If you purchased a home within the last three to five years, there’s a chance you’ll receive a break on the cost of title insurance if you request a “reissue rate” — which is essentially a discount. Consult with an attorney to help determine your eligibility.
  • Lawyer consultation fee: Some states — like New York — require an attorney during home selling.

 

How much are closing costs?


Closing costs for buyers vary considerably by state, but typically land within 2% and 5% of the total value of the home. On a $250,000 home, for example, this translates to roughly between $5,000 and $12,500. However, closing costs for sellers may end up being as high as 10% in total.

A large portion of this fee will no doubt be the sales commission you pay your real estate agent — which, it’s important to note, is not set in stone. You can try to negotiate a lower rate at your listing appointment, which ultimately could save you thousands of dollars. The best way to see if a realtor will lower his or her commission fee? Simply ask, suggests Realtor.com. If cost is an issue, interview a few realtors to see what percentage they quote you so you can get a good idea of what’s a fair and reasonable commission.

Before you ask, however, keep in mind your realtor will likely be splitting his or her commission with the buyer’s agent as well as a brokerage house. They also may be paying out of pocket for costs associated with marketing — professional pictures, advertisements, flyers or open house refreshments.

The dance, for you as the seller, is about achieving a balance that both secures the best possible rate for yourself while still holding out the promise of a commission large enough to entice an experienced, savvy realtor.

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A whole glossary’s worth of terms and fees add to the unfamiliarity and complexity of the home-selling process.
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One final fee — what is capital gains tax


In negotiating the close, be aware of capital gains tax which is what you have to pay to the government if the value of your home increases. For example, if you purchased a home for $100,000 and sold it for $150,000, you’d have to pay the taxes on the $50,000 increase or “capital gains.” According to the 2018 tax code, the percentage of capital gains taxes you pay depends on how much you make.

Don’t panic — there are a few important caveats to those daunting numbers, namely:

  • If you’ve lived in the house two out of the last five years, you’re exempt up to $250,000 in capital gains taxes. If you’re married, that exemption doubles to $500,000.
  • If your home was an investment property you can request “investor rates,” discounts Walsh says many fail to take advantage of.
  • You may be able to avoid paying capital gains taxes by purchasing another investment property of equal or greater value than the sale price.

Many buyers end up not having to pay capital gains tax. So rest assured that you might not to have to deal with this issue.

Remember, a key aspect overall of saving money while selling a house is simply to be engaged in the process and not take anything purely at face value. “Just make sure you ask, ‘Are any of these fees negotiable?’ Because sometimes they are,” Walsh advises.

And now that you have the inside track on fees and terms, you’re ready for a successful sale.

Teresa K. Traverse loves looking at home photos, and has written enough about buying and selling homes to prepare her for future ownership. Her work has appeared in Refinery29, Racked, USA Today and Fast Company.

 

The content reflects the view of the author of the article and does not necessarily reflect the views of Citi or its employees, and we do not guarantee the accuracy or completeness of the information presented in the article.