I recently had to buy a new vehicle (okay, I didn’t HAVE to, but it was time). Not brand new, mind you—just new to me and my family. We ended up buying this vehicle out of state and driving it back home. Now, if you’ve ever purchased a car, it’s hard to really calculate the total out of pocket expense. Because at the dealership, you’re focused and negotiating on the sticker price. But then there’s TTT (tax, tag and title) – and also an ambiguous “processing fee.” So the number you had in mind to spend is suddenly inflated, and you’re not sure how it all added up to this new total.
For this reason, I like to prepare seller clients right up front with the expenses they’ll be responsible for paying when their home sells—no surprises. I’ll often say something along the lines of “when we get an offer, we’ll be able to tell, using these figures, exactly how much you’ll walk away with.” Grammatically incorrect—yes—but helpful nonetheless. So here’s the rundown on what to expect when selling your home.
Fixed expenses
First off, there are fixed expenses. These numbers have nothing to do with the purchase price and are simply the seller’s obligations (per most standard contracts):
1. Deed Preparation: The seller chooses the attorney they want to draw up the deed conveying the property from them to the new owners. Most attorneys will do this for around $75.
2. Well/Septic/Termite tests: If you have a well, you’re responsible for testing it. If you have a septic tank, same thing. And all sellers are required to provide a pest inspection. The cost for these vary depending on the service provider you choose. The company I often use charges $55 for the pest inspection and $65 for a septic test. A well test is usually around $65-$75.
Variable expenses
Next are variable expenses, which will be tied to the sales price of the home:
1. Commissions: This is typically the largest expense, and while I can’t discuss the practice of other firms or agents, I can say that commissions are always negotiable, therefore it is for you and your agent to determine. Either way, in the majority of cases, this expense will be a percentage of the sales price.
2. Grantor’s Tax: This is a tax paid by the seller to the state, in the amount of .01% of the sales price. For example, a home that sells for $300,000 will pay a grantor’s tax of $300. One thing to note: the grantor’s tax is paid on the sales price or the assessment, whichever is higher. So if a home is assessed for $150,000 but sells for less, the grantor’s tax is $150 regardless.
Miscellaneous expenses
Finally, there are miscellaneous expenses. These costs are dependent on the terms and conditions of the contract the seller accepts:
1. Closing costs: Many buyers will request that the seller help with their closing costs. This is a negotiable figure, so once the seller accounts for the numbers above, they can determine how much they can afford to give back to the buyer.
2. Property Taxes: If the seller currently has a mortgage, that mortgage company maintains an escrow account for the purposes of paying taxes and insurance. In many localities, the taxes are paid by the mortgage company in arrears. This means taxes are paid going back in time. For example, taxes paid on June 30 will cover the time of ownership through that date. So if you close on the sale of your home on July 15th, at closing you will owe taxes from June 30th through July 15th. The bottom line is that there will be expenses at closing for taxes that will cover your ownership of the property through the closing date. So that date has an impact on how much that expense will be.
3. Miscellaneous: This category can encompass a wide variety of items the buyer might request in their offer. Some of the most common requests are: funds to purchase a new appliance, an allowance for new carpet, payment to have the property painted or the purchase of a one-year home warranty.
While there are a number of factors involved in determining the final number, once an offer is presented, these categories and figures can be filled in and a final outcome determined fairly quickly. This approach allows a seller to get a clear picture of where they stand financially, and where they may have flexibility to successfully negotiate an offer to a ratified contract.
Hopefully this information provides some clarity; as always, I recommend you discuss this in greater detail with your real estate professional. Your specific scenario may involve a tweak or adjustment to the figures I’ve presented here. The bottom line is that, as a seller, you don’t want any surprises at the closing table!
On a personal note, I just want to say thanks for reading and sharing your thoughts on this column over the past year – I greatly appreciate it. Happy New Year! – D.V.