What are the Costs Involved in Selling My Home?

It's often said that it takes money to make money, and that's certainly true when you're selling your home. If you're thinking about selling your home, you may be asking yourself, What are the costs involved in selling my home, and how can I lower them? The first step to lowering the costs involved in selling your home is being aware of what they are, so be prepared for the following costs when shopping for settlement services.

How Can I Lower Real Estate Agent Costs When Selling My Home?
The first thing to decide when selling your home is whether or not you will sell your own home or use a professional real estate broker to act as your proxy, show your home to buyers, and assist you in closing the deal. If you decide to use a real estate broker, he or she will be paid a sales commission based on a percentage of the selling price of your home. The real estate agent's sales commission is one of the largest costs when selling your home, and, in a down economy, the real estate agent's sales commission is usually paid by the seller. Therefore, one of the most important things you can do to lower the costs involved in selling your home is to negotiate with the real estate agent for a lower sales commission.

Typically, the average commission for a real estate agent is six percent of the final home sale value. This amount can vary, however, from a low of approximately four percent to as high as eight percent. When you do the calculations, you realize this can amount to a significant amount of money deducted from the gross sale amount. For instance, using the above range of 4 to 8 percent, the sales commission on a $300,000 home could be anywhere between $12,000 and $24,000. Most real estate agents like to negotiate their sales percentage by agreement before starting any selling work. The agent's payment for selling your home happens when the home sale is paid for, so be prepared for that cost at that time.

How Can I Lower the Transfer Costs Involved in Selling My Home?
The actual transaction of selling your home will require the services of several licensed experts. Escrow services, title insurance, appraisals and attorney's fees all generate costs when selling your home. When these costs are added together, these technical expenses can cost between $5,000 and $10,000 a sale, and most of them are required in order to close a sale under many states' real estate laws. One of the best ways you can lower the costs of selling your home is to be proactive by making calls, getting referrals, and negotiating fees.

In a seller's market, the buyer would pay these costs, but when economic times are hard, you should be prepared to take on some if not all of these costs involved in selling your home in order to convince a buyer to commit and close the deal.

How Can I Lower My Transfer Taxes?
Whenever large sums of value are exchanged, the government and financial services sectors find ways to attach costs. Some of the costs involved in selling your home may be taxes on the sale in the form of transfer taxes or sales taxes imposed by federal, state, or local jurisdictions. If a transfer tax applies, the recipient of the funds, the seller, frequently ends up paying the cost. Collection can happen at the time of the sale, when title documents are transferred, or it could happen after the fact with a tax bill sent to the seller. The amount due will be a percentage that is based on the total sale cost of the house. You can lower the costs involved in selling your home by taking steps to avoid capital gains tax after selling your home.

How Can I Lower My Property Taxes?
There is little you can do to lower the cost of property taxes, but usually property taxes are the responsibility of the new buyer. Sometimes sellers will assume this cost, however, to sweeten the deal for a buyer. If the sale happens in the middle of a property tax cycle, both the seller and the buyer can be charged. Most jurisdictions collect property taxes in two payments. The first payment may happen while the seller owns the house and the second may occur right after the buyer takes over. To make sure these taxes are paid, sellers or a financing bank can require the buyer to put these monies forward to ensure taxes are paid in the first year of ownership.

Other Potential Costs Involved in Selling a Home
Loan Origination Fees. These are sometimes called a "point" or "points." Loan origination fees cover the lender's administrative costs in processing the loan. The fee, which is usually expressed as a percentage of the loan, will vary among lenders. Typically, the buyer pays the loan origination fees, unless otherwise negotiated.

Appraisal Fee. This charge pays for an appraisal report made by an appraiser.

Conclusion

Many of the costs involved in selling your home can be negotiated and can either be the responsibility of the buyer or the seller. Educate yourself independently on the costs of selling your home so you know objectively what a definite seller's cost is and what is negotiable.
In addition to the information provided here, the U.S. Department of Housing and Urban Development offers articles and sample calculations to help you estimate the costs involved in selling your home.

Steps in Home Buying Process: Pre-Approval for Home Loan

Here are some reasons why being approved at the beginning of the home buying process is so important:

Pre-approval is one of the most important steps in the home buying process. You should apply for a loan and receive approval from a lender before searching for a home.

1. Pre-approval for a home loan will determine your price range. Based on your down payment and that pre-approved mortgage amount, you'll know what you can afford before you start looking. This saves you time and allows you to focus on houses that you can actually purchase.
2. Pre-approval strengthens your offer and negotiating position. Home sellers tend to accept an offer from a buyer who is pre-approved for a home loan over someone whose financial picture is still in question.
3. Pre-approval often cuts days or even weeks when you close. The lender has already analyzed your credit and approved you for a mortgage.

What is the difference between being pre-approved and pre-qualified?

There is actually a big difference between buyers who are pre-qualified and those who are pre-approved. Lenders pre-qualify buyers and determine how much they can borrow based only on information the buyer has provided. The buyer still must fill out a loan application and go through the lender's approval process. If you are pre-approved, lenders have already done a credit check and verified employment and deposit. Pre-approval is a commitment to lend you a predetermined amount. The only piece missing is the lender's appraisal of the home to confirm its value.

How long should a pre-approval for home loan take?

If you are dealing with an experienced mortgage representative who uses an automated approval system, it should only take a few minutes to get a pre-approval. However, if your lender is not using the most up-to-date automated systems, pre-approval for a home loan could take a few days. The automated system takes all of your income, debt and asset information and enters it into their computer. The pre-approval process is usually pretty fast as long as the loan officer is certified to use the DU underwriting system (automated underwriting). The final loan approval comes once you have an actual property and then the lender re-verifies all of the property, income, debt and asset information.

What happens if I change jobs after getting pre-approval for a home loan? Do I have to go through the process again?

Unfortunately, the answer is usually yes. Your pre-approval is good as long as none of the information provided to the lender changes. You will need to notify the company that pre-approved you that your employment status has changed. They will have to enter your new income data. The good news is that if you took a new job that pays more, you might be able to afford a larger house. 

What happens if I decide to work for myself after getting pre-approval for a home loan?

There will be complications when going from W-2 employee to 1099 or Schedule C income. You will probably need a two-year history of self-employment to qualify with that income. In this instance, you might want to ask your lender about undocumented home loans.