The housing market has undergone a seismic shift the past few years, reeling from the COVID pandemic, consumer influxes into new markets (hello Bozeman!) and increases in interest rates. What was once a red-hot market has cooled considerably, but opportunity still exists to sell your home for a sizable return on investment. 

If you’ve lived in your home long enough and paid your mortgage regularly, you have likely built up a fair amount of equity. Real estate is an effective way to build wealth and is typically the most valuable asset in a household. Most homes in the United States are worth hundreds-of-thousands of dollars. Many costs are a percentage of the price of your home, so these can be significant.

A real estate agent will estimate your home’s value by assessing recent sales of similar properties around yours. Consider these assessments when evaluating the timeline of your mortgage payoff, as a profit from your home’s sale will be the difference between these two amounts.

Prepare for the Big Spend

On the journey to selling your home, it’s best to know what awaits you in regards to costs and anticipate as much as you can. The below are the top expenditures.

• Agent commission: Agent commissions are negotiable and the average commission in the US is 5.66% in total, split between the buyer and seller agent.
• Pre-sale repairs: A home will likely need touch-ups to be ready for sale - from a few hundred dollars for paint, to tens-of-thousands of dollars for major repairs. This property preparation is crucial to maximize the sales price of your home, so consider this an investment.
• Buying a new home: The largest spend is the cost of your new home. It’s critical to estimate the cost of the type of home you want and the monthly mortgage. If you move to an area with lower prices, this factor may not have as big of an effect.
• Moving costs: Moving is expensive, especially if you are moving to another city or state, in which you could anticipate several thousand dollars. 

Anticipate Unexpected Costs 

• Seller Paid Closing Costs: Buyers will often negotiate that sellers pay for a portion of closing costs. When this happens, you must factor this credit request into the overall offer the buyer has presented. These costs can range from a few hundred dollars to 3 percent.
• Buyer Repair Requests: During the inspection period, buyers will usually negotiate a dollar amount as a credit for repairs or a list of repairs you need to make prior to closing. This will depend on the specific buyer, situation and the condition of your home.
• “Vacant” Mortgage Payments: Sometimes life and work will require you to move before your home is sold or closed. When this happens, you have to make payments on a property that you aren’t occupying, which is a significant expense. It’s important to anticipate this scenario.

Assess Property Tax Differences

Wherever you land in your new home, property taxes are an ongoing cost. If yours are high, the tax savings can offset the immediate costs of moving to a low property tax area. However, if you do not consider tax rates before purchasing your new home, you could be caught off guard by higher tax rates.

Selling a home and pursuing a new dwelling are one of the most important financial endeavors that consumers undergo - often several times in their lifetime. Anticipating costs to sell in advance will lay the groundwork for a more lucrative result and help plan for your home’s likely return on investment.