If you’re like most families, your home is your biggest financial asset. So, if you decide to sell, your priority is getting the most return on that major investment.
Recently, the National Association of Realtors (NAR) reported the median home price in May 2022 was $407,600. Properties typically remained on the market for 16 days, and nearly 90% of homes sold were on the market for less than 30 days.
First-time buyers were responsible for 27% of those sales, down from 31% in May 2021. All-cash sales accounted for 25% of May transactions, up from the 23% recorded a year ago.
Higher prices and mortgage rates conspired to slightly slow sales, which were down 2.6% from the prior month and 8.6% from one year ago.
Even though interest rates are rising, inventory is low in many markets. So, the seller’s market is holding, but cooling.
Still, estimating your potential profit is rarely a simple equation of subtracting what you paid for the home from your asking price.
Understanding the likely cost of a sale can help you to avoid being blindsided by unexpected expenses, set your asking price, and make informed decisions in the negotiating process.
Fortunately, by using the free tools available at Homelight, you can easily estimate your costs and even explore a variety of sale options.
Start with a home value estimate
Home values across the United States recently increased an average of 19% in a single year.
With values and markets changing so dramatically, now is a good time to check up on your home value. You may be pleasantly surprised to see what your house might be worth.
To get an initial idea, you can receive a quick online value estimate using HomeLight’s Home Value Estimator. This free automated valuation model (AVM) tool crunches data from recent sales transactions, local market trends, and your home’s latest selling price to provide a preliminary range of value for your property. Just enter your address to receive an estimate in less than two minutes.
When agents begin by setting proper expectations for how long the home is going to be on the market, what the costs are, what that process looks like, it’s beneficial for clients.
How much does it cost to sell a house?
With a degree in finance from Penn State, Delaware agent Michael Kennedy is quick to provide his clients with an Excel spreadsheet that includes net projections.
“When agents begin by setting proper expectations for how long the home is going to be on the market, what the costs are, what that process looks like,” he explains, “it’s beneficial for clients.”
As a top-notch Realtor® who works with 82% more single-family homes than the average Delaware Beach agent, Kennedy advises his clients they can expect to spend:
- 5% of sales price on agent commissions
- 2% for their portion of the state’s transfer tax
- $1,000 on closing costs (such as deed preparation, mortgage satisfaction fees, attorney fees, wiring fees, any local municipality fees, etc.,) and
- no more than $2,500 on repairs and staging.
Those estimates apply for a property in good condition. If the home requires major maintenance or updating, the costs could rise substantially.
In other parts of the country, expenses vary drastically because of agents’ commissions, state fees, contractors’ fees, or lenders’ requirements for financing.
Nationwide, sellers should plan to invest around 10% of the home price in selling costs in addition to the funds needed for their mortgage payoff.
If you sell your home for $407,600 — the median home value in the U.S. — your costs might run around $40,760.
However, your actual, total, out-of-pocket costs depend on your situation and a host of variable factors and decisions.
Here’s a look at some of the factors that might affect your net profit.
What are common expenses for home sellers?
An overview of expenses sellers typically encounter includes:
- home repairs, staging, and other prep work
- concessions to the buyer made in the course of negotiations
- closing costs
- capital gains tax
- moving costs.
Repairs and renovations
Research shows sellers usually recoup about 50% to 70% spent on major renovations. Before undertaking any large renovation projects or repairs, consult with your Realtor®.
Below are the costs of some repairs and low-cost, small upgrades that typically pay bigger dividends nationwide:
- Home repairs: Varies depending on the extent of the work
- Flooring update: $1,800
- Staging the home: $1,600
- Professional cleaning services: $400
- Paint for interior spaces: $1,900
- Landscaping work: $3,500
- Pre-listing inspection, if desired or needed: $279-$400
Beyond your mortgage payoff and any major renovations or repairs that significantly increase value, the greatest expense is what you pay for agent commissions.
Typically commission fees are paid in full by the seller in the transaction.
In the U.S., Realtor® fees average 5.8%. At first glance, that percentage might seem high. But, partnering with a proven professional can make a huge difference in your final net proceeds.
“A good Realtor®,” Kennedy says,” is going to instruct you on the things that are going to add value to the house and or decrease skepticism by the buyer.”
In fact, HomeLight’s data show the top 5% of agents across the U.S. sell homes for as much as 10% more than the average real estate agent.
Many times, 2.5% to 3% goes to the listing agent, and the other 2.5% to 3% goes to the buyer’s agent.
For example, based on the median home value of $407,600, you might expect to pay $23,640 in real estate agent commissions.
- Listing agent fee: $11,820
- Buyer’s agent fee: $11,820
That fee is typically split evenly between the agents. In turn, they compensate their affiliated brokerage houses, which might be a 70/30 split. With this example, that means each agent is likely to retain $8,274.
Part of the listing agent’s commission is deployed toward marketing your property with professional photography, open houses, offline marketing, etc.
If you’re curious about how much you might pay in commissions, visit HomeLight’s Agent Commissions Calculator to receive a fast, free online estimate.
From there, HomeLight’s free Agent Match platform can quickly connect you with a top real estate agent in your area.
Home sales tend to involve several rounds of negotiation between the buyer and seller.
Sellers sometimes provide the buyer with concessions or incentives to move forward with the deal and close the sale. The cost of these concessions depends on your market and selling situation.
For example, if a home inspection uncovers plumbing problems or electrical hazards, the sellers might offer the buyers a credit rather than spend the money to fix the problem before closing.
Since Kennedy worked in new construction for 13 years before going into brokerage, he usually does a walkthrough to generate a list of easy-to-fix, low-cost items that should be fixed prior to listing (such as a leaky faucet).
He also assesses HVAC (heating, ventilation, and air conditioning), roof, crawl spaces, basements, and other big-ticket items for significant damage to prevent undetected deficiencies from taking a big bite out of profits in the form of closing credits or other concessions.
Occasionally, sellers consider concessions to close a deal with first-time homebuyers. At lower price points, these buyers often get VA, USDA, or FHA financing with little to no money down.
“Many first-time homebuyers just don’t have the capital to cover the closing costs,” he explains. “So, they’ll come in at or above price, then ask the seller for concessions back.”
However, Kennedy cautions that sellers need to be careful about agreeing to concessions under those circumstances because they can raise a red flag for appraisers, who evaluate the property and provide an independent opinion of value. Typically, the home’s value needs to be at least worth the amount the lender is financing.
Because of their potential to endanger the sale and the strength of the current sellers’ market, Kennedy says, “A lot of sellers aren’t willing to absorb those costs.”
Some common seller concessions or buyer incentives include:
- Home inspection fees: $279-$400
- Buyer’s home warranty: $600-$700
- Covering certain closing costs: Varies
- Repair credit commonly for items such as plumbing, sewage, and septic problems, electrical or fire hazards, pest or wildlife infestation, roof damage, broken appliances (which reduces your net proceeds): Varies
- Non-realty items (such as furniture, draperies, custom fixtures or drapes, lawn furniture): Varies
Closing costs and additional fees
According to Business Insider, ClosingCorp data indicate the average closing costs in 2021 (including underwriting, title search, loan fees, and transfer taxes and excluding down payment) totaled $6,905. However, those costs varied by state.
Nationwide, these are among the costs frequently paid by sellers:
- Escrow fee: (1%)
- Title insurance premiums: Varies
- Title search fees: (.05%-1%)
- Tax liens or other judgments against the seller, if applicable: Varies
- Homeowner’s association dues: Varies
- Mortgage loan payoff: Varies
- Reconveyance fees: Varies
- Reconveyance recording fees: Varies by state
- Pro-rated property taxes: Varies
- Attorneys’ fees: $243 an hour
Although it may seem like the lion’s share of closing costs fall to the seller, “The cherry on top is proration,” says Kennedy. “Any taxes you’ve already prepaid such as annual taxes, quarterly HOA, utility, or other fees, you’ll get that money back at closing.”
Capital gains taxes
Capital gains are profits earned from selling a financial asset, such as a house or land. The government taxes this income, though it’s calculated differently from the way other income is taxed.
To claim a capital gains tax exclusion, a home seller must meet the IRS ownership and use requirements. This means that during the five-year period ending on the date of the sale, the homeowner must have owned the home for at least two years and lived in the home as their main home for at least two years.
On the sale of a primary residence, a couple filing taxes jointly can realize up to $500,000 profit on the sale of a house without paying additional taxes.
A single individual selling a primary residence can realize up to $250,000 without an additional tax burden.
Capital gains beyond those thresholds are generally taxed at 20%. However, some home improvements can be deducted from the total amount of profit.
Since the regulations can be complicated to interpret, it’s best to consult your tax professional to determine if specific repairs or renovations are eligible.
While many homeowners don’t necessarily count this as a direct cost of selling their home, it is an expense to consider.
At-a-glance home selling cost example
To investigate how these common costs can affect the bottom line, assume a couple who file taxes jointly is selling their home in Any Town, USA with the median value of $407,600.
They owe $75,000 on their mortgage and haven’t found a new home yet. They’re just eager to capitalize on the seller’s market. While they consider their options — maybe even to move overseas while they’re young — they rent.
Here are some of the expenses they’re likely to incur:
|Selling expense||Example cost||% of home sale price|
|Prepping your home for sale||$8,152 (at 2%)||1-4%|
|Realtor® fees (commissions)||$23,640 (at 5.8%)||5-6%|
|Seller concessions||$12,228 (at 3%)||0-6%|
|Closing costs, taxes, fees||$6,114 (at 1.5%)||1-3%|
|Overlap||$0 (for this example)||0-2%|
|Capital Gains Tax||$0 (for this example)||Varies|
|State Taxes on Gains||$0 (for this example)||Varies|
|Total selling cost example||$129,210||31.7%|
In this scenario, with a selling price of $407,600, the couple might see a net proceed of $278,390.
Can I reduce my seller costs?
While there are some costs that are finite in selling a home, there are ways to reduce some expenses including:
How much will I make selling my home?
According to the real estate data website ATTOM, the median-priced home sale in 2021 represented a 45.3% return on investment compared to the original purchase price, up from 33.6% in 2020 and from 30.6% in 2019. The latest profit margin represented the largest gain since at least 2008.
As the market shifts in 2022, it’s hard to predict whether you will realize the same profit on your home. Among the variables that influence net proceeds are the:
- Method of selling (agent, for sale by owner, cash buyer, or iBuyer)
- Cost of repairs and improvements
- Total concessions or buyer incentives
- Closing costs, including state and local taxes
- Mortgage balance pay-off amount
- Liens, judgments or other debts
The mortgage payoff amount is typically the largest determining factor for calculating your net proceeds.
Using data from the U.S. Census Bureau, the Department of Housing and Urban Development, Freddie Mac, and NAR, Business Insider’s calculations show the average mortgage payment is $2,064 on a 30-year fixed mortgage, and $3,059 on a 15-year fixed mortgage.
In addition, Experian calculates the average mortgage debt in 2021 was $229,242, up from $215,655 the prior year.
If you’ve paid off your mortgage before selling your home, your proceeds can be generally calculated by taking the sale price minus selling costs.
And, as you look ahead to your next home purchase, investigate these other free HomeLight tools for buyers:
Know what to expect, plan, and partner with a top agent
The true value of any family home goes far beyond its financial worth. It’s literally your shelter from the storm, the backdrop for birthday parties and barbeques, and a place where family memories are made.
However, when the moment is right to sell and move on, maximizing what is likely to be your largest asset requires as much research, market timing, planning, and precision execution as the sale of any other investment.
Header Image Source: (Mathew Addington / Death to the Stock Photo)