So how much does it cost to sell a house? Well that's what we're going to talk about today. We will touch on 9 different costs that a seller has to take into account when selling a home.
Number one, and the cost that everybody always brings up, there is the commissions to sales agents. This is going to be x percent of the total price of the house. One of the things to know about this is that your listing agent is actually in charge of paying the buyer's agent, so that x percentage usually gets split in half or split in some way, and gets paid to the buyer's agent. Another thing to know is that they don't actually get to put all of that in their bank account. Between paying brokers, self-employed taxes, all the advertising fees, staff that go into helping market the house and keep things going and then any preparation things that they're involved in that money gets split up a good number of ways. It's most likely that your listing agent will pay for a lot of services to help prepare your house for sale.
The second thing you'll be paying for is property taxes. Typically, you pay your property taxes at the beginning of the year for the previous year, at least that's how they do them here in Texas. Typically, your lender is going to collect as part of your payment money that gets put aside in escrow to cover your taxes and that escrow account will get paid back to you when your note is paid off. At closing you're going to pay the prorated amount of tax for the portion of the time that you've lived in the house so, if you sold the house June 1 then you're going to pay taxes from January through May. In fact, if taxes change between what was expected and what's actually due the next year, technically the buyer can come back to you and ask you to pay a little bit more to cover the difference for your section of the year. I’ve never actually heard of somebody calling them on it but, you do sign a document at closing saying that you know they technically could come back and ask for that.
The third cost that's really common is money that you agree to give the buyers to help them with their closing costs. This can frequently be just something they ask for upfront in the contract or it can be negotiated as a way to help them pay for repairs that you agree upon during option period. If it's a crazy seller's market and you have a lot of power then you probably aren't going to be giving them a heck of a lot of closing
Costs. On the other hand, if it's a great buyer's market then you may be giving
them more closing costs because they're in a more powerful position. Obviously if huge things come up like the foundation issues, termites’, structural issues, internal water damage, usually it's good form to give them something to help with that (but again it's really dictated by the market and the situation).
The fourth cost is money set aside to pay for a home warranty. What this does is cover any sort of breakages in the home for one year. It’s usually about $400 or $500 and the main benefit to the seller is that you don't want the buyer calling you if their stove breaks. The warranty just takes care of any of those incidental breakages or faults in anything inside the house for that first year. Frequently the home warranty covers a lot of things that homeowner’s insurance does not. Say the dishwasher breaks down and floods the kitchen. You want them calling the home warranty company and the homeowners insurance company, instead of calling you and trying to sue you for water damage in their kitchen.
Number five is title insurance and escrow fees. Title insurance is the insurance that a buyer gets in order to make sure no one's going to show up and say you didn't have a right to sell the home. Title insurance basically covers if somebody does show up and claims that, or claims a lien against the house from when you owned it. Then there's the escrow fee. That's what they charge for actually handling all the paper work, actually handling the buyer's earnest money, and helping you with the transaction. In a transaction the buyer’s earnest money is the larger check that the buyer pays right up front when they go under contract, usually one to three percent of the house. The overwhelming majority of the time it's one percent and this goes to the title company. The title holds and protects it. If the buyer walks away for a legitimate reason in the contract, they get it back. If they walk away for an illegitimate reason in the contract at the last second, leaving you in the lurch, then this is kind of your apology money that you get to help make up for that. There are strict regulations around escrow accounts and they charge you a fee for being the account that holds on to that money and protects it from the buyer and the seller to be a neutral part. An interesting thing about Texas is that escrow and title are the same, in several other states those two are different.
Number six is legal and recording fees. These are generally relatively small fees but these go to the attorneys for reviewing the docs and making sure they're correct and that they didn't leave anything out and that makes sure that the loans are conforming and that title is happy that the docs are all organized and nothing got missed. A recording fee is generally around $30 to $40, and