If you're selling a house, figuring out how much money you'll need to finish the sale is good. This helps you plan for your next home purchase. Understanding whether it's a buyer's or seller's market can significantly impact these expenses.

Besides paying off your mortgage, usually, people spend around 10% to 15% of the home's price on selling expenses. However, some of these costs are optional. we'll break down these expenses and discuss whether they can be avoided or not.

 

Unavoidable Expenses

When you sell your house, there are certain costs you can't avoid that'll cut into your earnings. These expenses might only come up in some sales, but when they do, you'll have to deal with them.

Real Estate Commissions

The seller usually pays 5% to 6% as a commission when the home deal is done, shared between the listing agent and the buyer's agent. Buyer's agents usually don't ask for a fee from their clients.

The commission might be your most significant expense, so when talking to listing agents, ask them about their charges. Some are open to bargaining their rates. It's crucial to get the commission terms written down and agreed upon.

Closing Costs

When you're selling a house, you usually cover certain closing costs. However, there are also costs for the buyer. Sometimes, you might be asked to help with some of their expenses, which hasn't been common during recent seller-friendly markets. However, they might become more regular as sales slow down. The average closing cost for a single-family home was $6,905 in 2021.

Typical seller costs involve HOA fees, a pre-listing inspection, recording and settlement fees, and title insurance. There could also be charges like an escrow fee, a brokerage fee, and a courier fee. Suppose you've hired a real estate attorney to negotiate the contract. In that case, their fees will also be part of the closing costs.

Utilities

Even if you leave your home before selling it, keep paying for water and electricity. A house without AC, heat, or lights can be challenging for buyers to see and might harm the home. Your current bills will help you estimate the monthly cost of keeping utilities on until a new buyer takes over. But since you won’t live there, your usage will be less. You can also cut down on utility bills while it's empty.

Mortgage Payoff

When you sell your home, the money will go towards paying off your mortgage. But the final amount you owe might be a bit more than what your mortgage statement says. This is because you might need to include some extra interest that has built up. Also, there could be a fee if your mortgage has a prepayment penalty. Look at your loan papers or ask your lender about it to know for sure.

Capital Gains Taxes

Remember to think about how selling your home can affect your taxes. When you sell your home for more than what you bought it for, that's a capital gain and needs to be mentioned in your federal tax return if it's over a certain limit.

Here's the good part: many homeowners can exclude up to $250,000 of profit ($500,000 for married couples filing together) from their taxes as long as they haven't already used this benefit for another home sale in the past two years.

This rule applies if you've lived in the home as your primary residence for at least two out of the last five years. Even if you've rented it out, there might be a chance to use the tax break—best to ask a tax expert about it.

Property Tax

Sellers should remember that they must pay property taxes each year in advance. Before closing the deal, sellers must pay their share of the property tax until that date, which goes into escrow.

But, if you've already paid the year's taxes, you might get some money back at closing. The buyer will pay the seller for the part of the taxes that were already covered but apply after the closing date.

Transfer Tax

When selling your home, you might have to handle real estate transfer taxes besides property taxes. These are fees charged by local governments when ownership changes hands. The transfer tax amount changes depending on your location, usually a small percentage of the sale price (often less than 1 percent). In some places, there are also mansion taxes, which are extra charges for high-end properties selling for seven figures or higher.

Moving Costs

If you're selling your place, you must move all your stuff. HomeAdvisor says it might cost you around $911 to $2,514 for this. But if you're moving lots of furniture or going across the country, it could be more expensive.

To cut moving costs, you could do it yourself. But think about it: can you handle all the heavy lifting? You might save money, but you might also end up needing a massage and taking days off work afterward.

 

Optional Expenses 

It's a good idea to pay for extra services to catch the attention of potential buyers, especially if your local market is competitive. They might not always be a must-have, but they could make your home more noticeable.

Home Warranty

Sellers can give a home warranty to calm concerns when buying an older house. It helps pay for fixes if something important breaks right after the sale. Usually, it costs a few hundred to $1,000 a year, but fancier plans might cost extra for better coverage.

Home Staging

Before selling your house, it's smart to tidy up and clean it. Your real estate agent might recommend getting a home stager to make it look even better.

These stagers rearrange stuff, change how things look inside, and might even rent furniture to make your place look great for buyers. On average, hiring a stager costs around $1,500, according to info from the National Association of Realtors in 2021.

 

The Bottom Line

Selling your house involves various costs you should consider. These expenses include unavoidable ones like real estate commissions, closing costs, utilities, mortgage payoff, taxes, and transfer fees. There are also optional expenses like a home warranty or home staging, making your property more appealing to potential buyers.

Are you buying a new house before selling yours? Or are you selling it first? Either way, knowing these costs beforehand helps you better prepare and manage your finances, making the selling process easier and potentially maximizing your property's appeal in the market.