Breaking down the numbers will help you decide a price that you are comfortable with when selling your home. You don’t want to go ahead with what the realtor says and suggests and then later find out that you are “in the hole” because you didn’t factor in the real estate commissions that are due. The last thing you want is a feeling of anti-climactic non-excitement when realizing that the money you were hoping to make off your real estate sale wasn’t really all that much to begin with.
Here are some expenses to consider when selling your home:
Real Estate Commissions
Unless you are planning to sell your home yourself or planning to choose a cheaper real estate company that uses smaller commissions, you will likely have to pay the typical real estate commission rate, which is:
7% on the first $100,000 and 3.5% on the remaining balance. This fee is split between the buying and selling real estate agent and the person selling the house has to pay this fee. It probably doesn’t seem like much, but on a $350,000 home that is equivalent to:
$7000 + $8750= $15,750
If you made money on your home that commission probably won’t phase you very much, but if you can barely get what you paid for the home, you might want to think twice about selling in the current buyer’s market.
Even if you sell your home and the property transfer tax is due before you hand over the home, you still have to pay it. You will get a portion of it back (pro-rated) when the notary finishes the documents, but you still have to pay it first.
Depending on the municipality you are in, this can be anywhere from $800 to $1000 on a smaller $350,000 home (e.g. condo) when you pay the property taxes bi-annually.
Capital Gains Tax
If this is your primary residence, meaning you live in it and are not renting it out for income, you won’t have to pay a capital gains tax (if you make money off selling the home, that is), but if this is a rental property or income property, you will have to pay a capital gains tax on the sale of the home if you are making a profit from selling.
Legal fees to close the deal and sign documents will cost at least $500 to $1000 for a real estate lawyer or a notary public to legalize the documents. This needs to be done before you get that closing day cheque in your hand.
Banks charge a mortgage discharge fee for getting rid of the mortgage. Although it’s not much, it’s still something. Here is a list of the charges from the banks for the mortgage discharge fee. It is anywhere from $200 to $270.
Another fee that banks charge is the interest penalty. If you are in a closed term, you will be charged on several months of interest. For a mortgage that is in the $570,000 range, the interest charged will be around $3000. If you are buying another property, you may be able to port your mortgage to the new property but if you are paying off a portion of the mortgage, the interest pre-payment penalty will still be pro-rated.
My word of non-solicited advice is to calculate carefully how much it is going to cost you before you decide on selling the home and choosing a realtor. Once the ball starts rolling it is difficult to stop. Buying or selling a home is no easy decision and it’s best to think with your mind before you jump in with your heart. We all know that most people buy based on emotion and non rational decision making. So although you want people to buy your place with their emotions, you need to make sure you are selling rationally in the first place!
Readers, can you think of other costs that are involved when selling your home?