The Housing Scene

Can You Afford to Sell?

In most real estate transactions, the focus is on the purchaser and whether he or she can afford to buy the property. But there is another, equally important question: Can the seller afford to sell?

Many sellers become riveted on the gross selling price, and fail to consider how much money they need to net in order to move to their next residence. And that can be a serious mistake, especially if they haven’t built up much equity in their current homes.

The commission they are paying the listing agent is sometimes overlooked, as is the share of their buyer’s closing costs they’ll be expected to pay, what they owe on their current mortgage, and the costs of the actual move.

If the seller doesn’t take those and other costs into consideration, his or her agent should, says Margaret Rome, the broker-owner at HomeRome Realty in Baltimore. It’s part of the agent’s job.

“What the seller needs has no bearing on the price. It is the place to start the discussion,” Rome posted recently on real estate site ActiveRain. “It is a must to find out (the seller’s) expected dollar amount. If no one has explained the cost of selling, or they don’t understand the fees, even with a full-price offer, (the seller) may not be able to afford to sell.”

Her advice to colleagues: “Never price a home without knowing what is owed and what the owners need to move forward. Find out the bottom line, their in-their-pocket number.”

More than a handful of deals have fallen through because a seller didn’t do the math -- or an agent didn’t urge them to.

“It amazes me how many sellers are surprised by all the additional costs,” said Endre Barath of Berkshire Hathaway Home Services in Beverly Hills, California.

Carol Williams of Wenatchee, Washington, once inherited a listing in which she figured out that if the owners did move forward, “they would probably be left homeless.” The sellers’ credit was in bad shape and they had hardly any equity. Fortunately, at her suggestion, they spoke with a lender and discovered the harsh reality of their situation. “They took the home off the market and stayed put,” she said.

According to a recent analysis from Zillow and Thumbtack, a home improvement marketplace, the typical owner will shell out $20,851, mostly in taxes and commissions, to sell their place.

Here’s a brief rundown of some of the costs of selling:

-- Prep work. Window-washing, painting, landscaping, repairs, staging to make the house more presentable -- none of these will add much, if anything, to your home’s value, but they should help sell the place more quickly.

-- Payoff. If you have a mortgage, you’ll have to pay the balance at closing. But the equity you’ve built up in your home should ease the sting, especially if you’ve owned it for five years or more. Home equity loans and second mortgages also have to be paid off, and your lender may charge a fee to do so.

-- Commission. Typically 5% or 6% of the selling price, this amount will be split between your agent and the buyer’s. On a $300,000 selling price, a 5% commission comes out to $15,000. But commissions are totally negotiable.

-- Inspection. It’s smart to get an independent home inspection to find any major issues and get them fixed --before a potential buyer’s inspector finds them and uses them as bargaining tools. Figure on spending $500-$700.

-- Closing costs. Yes, sellers have closing costs. And depending on how strong or slow the market is, the buyers may demand that you also pay some, or all, of theirs. Under this broad heading, there are recording fees, title insurance, warranty, settlement fees, appraisal fees, lawyers’ charges and settlement agent’s fees, along with bills for property taxes, utilities and homeowner’s association dues for the months you lived in the house. Together, these could add up to as much as 10% of the selling price.

-- Repairs. There’s no way to estimate this in advance, but anything your buyer wants fixed means money out of your pocket. Big-ticket items like termite remediation or roof repairs are obviously expensive, but even minor fixes can add up.

-- Moving. You can save beaucoup bucks by “hiring” friends and family help you move (a few six-packs and a couple pizzas should do the trick). Ditto if you rent a van. If you employ professional movers, expect to pay a couple of thousand, easily -- more, if you’re moving across state lines.

-- Utilities. Many power and water companies require new customers to put up a deposit when they open accounts, especially if you are moving to another city or state. You’ll get it back when you move out. But for right now, it’s cash out of your pocket.

-- Travel. Cross this item out if you aren’t moving far. But if you are moving long-distance, figure on racking up some significant dollars for hotels and meals.

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