5 Expenses When Selling a Home

When it is time to sell a home there are expenses that are paid out by the seller, and the buyer; however, the seller pays a higher amount than the buyer does. This post is to show what expenses a current and future seller will incur on their real estate sale.

1. Agent Fees

Real estate agent fees, or broker fees are an interchangeable term in regards to the sale of a property, and the seller’s expense. A seller typically covers the fees for the listing/seller’s agent. The agent that is hired by the seller who is selling the house will pay for that agent’s service. The seller normally pays the fees for the selling/buyer’s agent as well. This is normal for California real estate, so please check your local real estate practices.

The seller and the listing/seller’s agent agree upon these fees; which could be a six percent split between both buyer’s and seller’s agent. This percentage is a percentage of the total listed price of the property, and is agreed upon by the seller; and is delegated to their agent to inform the any prosepctive buyer’s agent of the commission they will be receiving.

2. Taxes

There are two areas of taxes that can incur while selling a property. The first one is the county that the property is within will charge a county transfer tax. This is the process of moving the taxes from one person (the seller) to the other person (the buyer). This is usually a small cost to the seller compared to the other taxes that can incur.

The second taxes that the seller can experience are income taxes from the federal and state due to the timeframe that the house was bought and sold. If the home was bought and sold within one year, or 365 days then the seller will get taxed this way; however, if the sale of the house is beyond the 365 day mark the seller will only suffer a capital gains tax. If the property was sold after two years of holding it, and if the property was designated as an owner occupied home, then the capital gains tax could be avoided with some caveats to this rule in place.

Related: Planning to Pay Taxes With Your Credit Card? Stop! And Read This! 

3. Escrow and Title fees

These fees are due to the services that the companies perform throughout the transaction. Let’s start with the escrow fees. Escrow is the natural third party that holds the earnest money deposit (EMD) for the buyer, also called the good faith deposit. Escrow also will coordinate with the tile company, termite inspector, order the Natural Hazard Report, and the Home Owner’s Warranty. The last thing escrow provides is the disbursement of all the funds in the transaction, which include paying the first loan off and any other loans on the property, they pay the property taxes if it calls for some to be paid off, all the vendors listed above to be paid, the real estate agents, the title company, and the seller to be paid their equity position. The buyer will typically pay their part of the escrow services, I just want to note that the seller does not front every single cost for themselves and the buyer. This price can range from $800-$1500.

The title company and title policy services provide the seller with transfer of title from the seller to the buyer, the title transfer for the county transfer, and the title company in the transaction will provide the buyer with the title policy for their new home. The buyer will typically pay their part of the title expenses (i.e. title policy), I want to make clear that the seller still has some expenses that come from these services from title companies. Expenses from title services can range from $1000-$1500.

4. Loan Payoff

As the seller sells their property with a current mortgage and/or multiple loans on the property, those loans will need to be paid off at day of closing. For example, a seller has a first mortgage position on the property including a Home Equity Line of Credit (HELOC) or second loan; those two loans will need to be paid off at close of escrow along with the interest and any late charges. The position of the loans as first, second, and third, and this is the order of how they will be paid out once the home is sold.

5. Additional Vendor Fees

The seller will pay for three main items that include a termite inspection, Natural Hazard Report, and Home Owner’s Warranty. These three expenses only amount to a small portion of the whole transaction. The termite inspection is around $100.00 to be performed unless there are issues with the property involving termites. A charge for the Natural Hazard Report is a little less than $100.00. Home Owner Warranties can be a little bit more expensive with the coverage that the buyer requests and what is agreed upon by the seller.

The seller is the party in the transaction that gets the brunt of the expenses; however, the seller did not pay these items when buying the home and will not be experiencing the costs when buying their next home. It is always best to confirm all the expenses with your real estate representative prior to entering into any contract.