Financial Considerations When Selling Your Home

Selling your home is a major step in life.  The reasons for selling are as varied as real estate itself.  The reason(s) for selling generally outweighs the cost, but how does one evaluate all the costs?  We immediately think of the tax consequences, the Realtor fees and the price for a new home, but let’s not leave out the details.  This article will explore many other financial considerations when selling your home.  It might be a good idea to make a list of any of these items that might apply to you:

Tax Benefits/Consequences

What tax benefits?  Consider the current amount of interest, property tax and any mortgage insurance currently being paid.  These are all tax deductible items now.  If your new home carries a higher amount of any of these, that will add to your schedule A itemized deductions (new mortgage may be $100 more, but take away $x of that for the increased tax deduction).  Your new home may be currently lacking utilities and/or appliances, or in need of replacement (thinking of you, fixer uppers).  New appliances and utilities can have energy tax credits that you can deduct on your federal income taxes.  Think about tax assessments – do you live on an old street that may be coming up for replacement?  Is your association starting to talk about a new roof on the building?

Capital Gains Tax

Always be concerned with capital gains, but know when it applies.  This is where a good CPA comes in handy.  Often capital gains tax doesn’t apply when selling your personal residence, but not so fast with investment property or inherited property.  Schedule a time with your tax professional before listing your home.

Utilities

Newer homes are generally more energy efficient due to technology in construction and appliances.  In Minnesota, we think of utility costs in regards to electricity in the summer and heating fuel in the winter.  Consider the age of your appliances, your current energy bills and how a potential buyer might look at those in evaluating their home options.

Maintenance

Going from a townhome to a 1/2 acre estate?  Consider what your current maintenance expenses are compared to what they will be.  Some people sell their home to not have maintenance anymore.  Aside from the work, maintaining certain systems can be expensive.  If your home has a pool, wood siding, aging appliances, or other features that have upcoming maintenance a buyer will notice (or their inspector will).

Property Taxes

We touched on this earlier, but more than assessments or income tax implications, property taxes can vary greatly from property to property and city to city.  Look at the property tax amount on your home compared to other homes around you for sale.  How does it compare?  How do the taxes on your home compare to the taxes on new prospective homes?

Home Insurance

Premiums are based on a variety of factors, some concern your personal credit and other policies bundled in, but many factors regard the features of the property.  A new roof, proximity to fire stations, having a sump pump and generally new construction will have lower premiums.  Wood fireplaces, pools, older homes, aluminum siding, outdated electrical systems, visibility from the road, no garage,  and other factors can drive premiums higher.  Talk with your insurance agent about how your premiums might change from the old to the new.

Stress and Finances

Selling a home is stressful, of course, but did you think about how that translates into your finances?  Stress can lead to “comfort spending” – that extra mocha or dinner out, spa visits, yoga class or a getaway just to help you cope with this process should go into the transaction expense.

Moving Expenses

Add in the truck, boxes, blankets, Paul and Roger (the two moving guys), fuel, tape, set up fees, take down fees, and did we consider the piano?

Current Interest Rate Environment

The market has changed since your bought your home, or completed your last mortgage.  Consider the differences in the market compared to what terms are on our current financing.  You might have to let go of that 30 year fixed at 3.25% you have and accept the current interest rate for what it is.

Selling Expenses

This is where we discuss Realtor costs, mortgage payoff, and title costs.  We won’t get into the different commission structures or fees, but rather to just consider the expense.  Your professional Realtor can cover all of these with you by reviewing a “net sheet,” which illustrates a breakdown of how your sales price translates to your bottom line net proceeds.  The Realtor expenses (includes commission and broker admin fee), deed tax, title closing, recording fees, mortgage payoff (includes interest through payoff date), and prorated property taxes are all subtracted from the sale price.  Also subtract any seller paid closing costs for the buyer, but this isn’t actually an expense.  It should be deducted from the sale price and the net of the two considered the actual sales amount.  The buyer is essentially “financing in” their costs to obtain a loan.  As a seller, look at the net sale price after seller concessions.

Buying Expenses

When buying a home the closing costs for title, mortgage loan, appraisal, inspection, recording of the deed and mortgage, and broker admin fees all apply.

Home Search Expenses

I know your first thought – “We can find our home online, right from our living room.”  We don’t buy houses this way, or at least most of us don’t.  Unless your Realtor is driving you from point A to B, add in the fuel and wear and tear on your vehicle.  Also keep in mind your time spent and the possibility of having an inspection completed on a new potential home only to find a serious issue and having to start over.

Opportunity Cost

Ever heard the story of the poor sap who sold his farm that laid upon an oil field, only to be discovered by the next owner?  If you live in an up and coming area, consider the cost of selling your home now just before the neighborhood booms!

Did we miss something?  Send an email to sfurlong@muihomeloans.com and we’ll add (or “price”) it in.  Thanks for reading!