Here are the hidden costs of homeselling you should disclose to clients

Many homesellers think their selling price equals the money they’ll take away from the sale. To avoid drama and hard feelings, agents shouldn’t assume that sellers know the hidden costs of selling a home.

The seller’s net sheet is a good place to start. Although not required, net sheets do help sellers understand the implications of their list price and the effect of the offers they receive. Make sure your clients understand that net sheets are fluid. The final number depends on items that come up during the sales process, the timing of the sale and the price of post-closing services, such as moving. 

However, many potential homeselling costs don’t appear on a seller’s net sheet estimate. Listing agents should communicate these hidden costs carefully to sellers to avoid ugly surprises.

Keep in mind that most homesellers are not real estate insiders. They often fail to consider costs not listed on a net sheet unless you advise them. You don’t want an unhappy seller raging in the title office on closing day — so, let your clients know about these costs. 

Net sheet items

A typical seller’s net sheet includes the following items:

• Commissions for listing and buyer’s agents (typically 3 percent each for the listing and selling agent, but commissions are negotiable, and the sheet should reflect your arrangement with the seller). 
• Title insurance (owner’s policy where customary).
• Escrow charges (typically split between the buyer and seller per local custom).
• Home warranty (if provided, $300 to $600).
• Closing costs paid for the buyer (mortgage lenders allow up 3-9 percent of the sales price).
• Transfer taxes and recording fees (they range from $2 in Arizona to 2 percent of the sales price in Delaware).
• Mortgage payoff for all mortgages against the property. (Encourage your seller to call for an exact amount.) 

Although real estate agents are not responsible for the accuracy of this form, it behooves you to create a reasonable estimate that your sellers can rely on.

Before the sale

Most homes are not ready to show without some minor repair work. Needed work and its cost should be addressed in a marketing plan and taken care of before the property is shown. The average cost of minor presale repairs in the U.S. is $2,650.

Other presale costs can include decluttering, window washing and yard cleanup. Discuss the pros and cons of ordering a home inspection and fixing problems before marketing the property. If there’s a well or septic system on-site, sellers should prepare to pay for inspections, tests and possibly repairs. 

Most selling agents surveyed by the National Association of Realtors (NAR) believe that homestaging decreases the property marketing time and can result in higher offers. If you don’t plan to cover the cost of staging yourself, prepare your client for this potential expense.

The average cost of staging a home, according to the NAR, is $300 to $600 for an initial design consultation, plus $500 to $600 per month per staged room.

You can add value to your clients by providing advice for minimizing these costs, perhaps by prioritizing repairs in terms of impact per dollar spent and limiting staging to showcase only the most impressive rooms.

During the sale

Homesellers should be aware that their proceeds can change at any time during the selling process. A buyer might, for instance, negotiate the completion of additional repairs or renovations before closing, or an inspection might turn up unexpected items that must be fixed.

Buyers who hate the carpet or paint colors might want a credit for replacements. These are potential items for negotiation and will reduce the net proceeds on the sale.

Sellers should understand that buyers may want them to make a contribution toward closing costs. Discuss the advantages of seller concessions that can be more useful to buyers than a price cut.

For example:

• Purchase single premium mortgage insurance to reduce buyers’ mortgage payments.
• Cover closing costs and prepaid costs so buyers can increase their down payments or retain more cash reserves.
• Paying discount points to get the buyer a lower interest rate can change a mortgage denial to a closed sale.

Sellers who carry a second mortgage for the buyer will have lower proceeds at closing. They’ll receive the amount they loan plus interest over time.

After the sale

Managing seller expectations should continue after the sale so your clients aren’t blindsided and unhappy. Even if it’s not technically your responsibility, helping smoothen the process, especially with an inexperienced client, can only enhance your reputation and increase customer loyalty.

Encourage your homesellers to compare moving costs well ahead of closing so that they don’t experience cash flow problems after closing. The average cost of an in-state household move is $2,300, while an out-of-state move is $4,300.

Homesellers who plan ahead can reduce their moving costs by comparison shopping for movers, collecting moving boxes in advance and doing more of the work themselves. 

For many sellers, capital gains tax on the profits can be deferred. However, if they haven’t lived in the property for at least two of the past five years or if their gain exceeds $250,000 for singles or $500,000 for married couples, they can’t take full advantage of this provision.

Sellers of investment property should plan ahead. They may be able to set up a 1031 tax-deferred exchange to avoid taxable gains on sale. 

Another factor in estimating post-sales cash flow is the capital gains tax rate. Most sellers will have retained their property for more than one year and qualify for a long-term capital gains tax rate. That can be significantly lower than the tax rate assessed on short-term gains if their income is high.

You might want to coach sellers on the timing of a sale. For instance, extending escrow for a few weeks could mean thousands of dollars in tax savings. Here are long-term capital gain tax rates by income:

Will the pandemic change the cost of a home sale?

Buyer demand is quite high right now, and the real estate market remains a solid seller’s market, where there are more buyers than sellers. This is great news for sellers, who are likely to face a bidding war and are in a good position to negotiate.

The CARES Act, however, included mortgage relief options, where homeowners can defer mortgage payments and not face foreclosure. Once the moratorium is up, though, there may be widespread foreclosures among people who still can’t afford their current and missed mortgage payments.

This means there may be more homes on the market, and if there are enough, it could shift to a buyer’s market. A home may take longer to sell, and there is less likelihood of a bidding war. This leaves less room for the seller to negotiate their costs, and the home may sell for less.

Full service, full value

The definition of “full service” in real estate is open to interpretation. But you can’t go wrong by being especially helpful and adding obvious value.

If you can help your clients save money and prepare for the hidden costs of selling, they’re more likely to stick with you and refer you for future business.

Luke Babich is the CSO of Clever Real Estate in St. Louis. Connect with him on Facebook or Twitter.