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Understanding the Hidden Fees and Costs of Selling Your Home

Your home is likely the largest and most lucrative investment you’ll ever make. But as the saying goes, it takes money to make money. Maximizing the value of your investment is going to require putting some sweat equity, as well as literal cash equity, into it before it hits the market.

On top of that, there’s an avalanche of transaction costs, surcharges, fees, and various taxes that can take home sellers by surprise. In fact, the average cost of selling a home is just over $15,000. Knowing what to expect before you actually start the home selling process can be the difference between a satisfying, stress-free selling experience, and what can feel like a frustrating, draining “death by a thousand cuts.”

Let’s go over some of the obvious and less obvious costs of selling your home.

Expected Costs of Selling a Home
Realtor Commission
The first thing that most people think of when they hear the phrase “costs of selling your home” is the real estate commission. Traditionally, a real estate commission comes to 6% of the final sale price. How much is that in practical terms? The median home value in the U.S, according to Zillow, is $229,000. If you sold a home at that price, the commission would come to $13,740, which is no small amount of money.

So where does it go, and what does the seller get for that 6% payout? Generally, the listing agent and the buyer’s agent split the commission, with each of them taking home 3%. The idea behind the commission is that, by pegging your agent’s compensation to the final sale price of the house, you’re incentivizing them to get the highest price possible. The more you make, they more they make.

Does it work? In general, yes. Agent-assisted sales consistently sell faster, and for more money, that non-agent-assisted sales. According to an analysis by NAR, the median value of agent-assisted home sales is $250,000, while the median value of FSBO (for sale by owner) listings is only $190,000. The real estate commission is one of the biggest costs of selling your home, but it also brings some of the highest value.

Closing Costs
Closing costs is a catchall term that includes many smaller costs, from the owner’s title insurance fee, to half of the escrow fee (the seller splits it with the buyer), to prorated utility costs, document preparation fees, transfer taxes, and prorated property taxes.

How much are they? It’s hard to say, since they can vary from state to state and even from city to city. But generally, sellers pay 1% to 2% of a home’s sale price in closing costs.

Moving Expenses
It can be tempting to think you’ll just pack all your stuff into boxes you’ll get for free from the grocery store, and drive it over to the new house in your car. But when you’re in the middle of actually selling your home, you’ll probably find that you simply don’t have the bandwidth to deal with moving yourself.

Your options when hiring movers range from a single truck, to a full-service interstate shipping company. Depending on what level of services you opt for, you can expect to pay between a few hundred dollars and several thousand.

Hidden Fees and Costs
Let’s be honest; few sellers are likely to be taken by surprise by a real estate commission or moving costs. But the expenses listed below are more obscure, which is all the more disturbing when you consider that some of them can potentially dwarf the expenses we’ve already covered.

Renovations and Repairs
You’ve probably spent years living in your home, and as with a favorite old t-shirt or a significant other of several years, you even see its flaws as endearing. This probably won’t be the case with strangers. The scuffed hardwood floors and quirkily painted walls in your house will end up being liabilities when your home hits the open market, and any experienced real estate professional will advise you to renovate before you have that first showing.

How much it costs will depend on whether you just need a fresh coat of paint, or a new roof and refinished floors. But nearly every house will benefit from a refresh, so you can expect to invest several hundred dollars, at least, in pre-sale renovations.

Landscaping
“Curb appeal” refers to the very first impression your home makes on a potential buyer, as they get out of their car or walk up your driveway. And the features that surround your house have as much impact on your home’s curb appeal as the home itself. Just as you wouldn’t show up to a job interview in a new suit, but with uncombed hair and dirty nails, your property should be thoroughly landscaped before it’s listed. That means trimming the lawn, hedges, pruning trees, and even planting flowers.

How much this costs is going to depend on the size of your lawn, and how much maintenance it needs. But make no mistake, a manicured lawn can help a home sale as much as a new kitchen.

Staging
Where landscaping is about the external presentation of your property, staging is all about making the inside of your home as appealing as possible. In this context, staging can include everything from decluttering your shelves to buying a new dining set.

Fundamentally, staging is about showing your home in the best possible light, sometimes literally. You’ll want to allow as much flattering natural light as possible to penetrate into your home, which means removing heavy drapes and window coverings. Visual clutter is distracting and can even cause low levels of anxiety, so you’ll want to take all your family photos and collectible plates, and put them in storage. Worn or shabby furniture can make the rest of your home seem equally threadbare, so you may need to get rid of old furniture, and possibly buy new furniture.

Your agent can advise you on staging, and there are even professional home staging experts who you can hire to prepare your home for open houses. Sellers can expect to spend a few hundred dollars on staging their home or, if they opt for a professional home stager, a fee in the low four figures. The median amount of money spent on staging in 2018 was $400.

Professional Photography
In 2019, the reality is that before a prospective buyer even sets foot in your home, they’ve already looked at photos of it online. That means that including high quality photos with your home listing is of the highest importance. And as anyone with an Instagram account knows, taking a good, flattering photo is much harder than it seems.

The data is unambiguous; listings with high-quality photos sell faster than listings with mediocre photos, and the more photos a listing has, the better. A professional photographer isn’t cheap, but it’s a great investment.

Capital Gains Taxes
If your home sells for more than you bought it for, you may owe capital gains taxes to the federal government. This can be an extremely significant amount of money; a 20% bite out of your profits from capital gains wouldn’t raise an eyebrow in a room full of tax professionals.

But luckily, many home sellers will be able to exclude up to a quarter million dollars of profit (or a half million, for married couples filing jointly) from tax liability. The only conditions on this are that the home has to be have been your primary residence for two out of the previous five years, and you can’t have used the capital gains exemption on another home sale in the previous two years.

Saving When Selling Your Home
Surveying this list, it’s clear that some of these expenses are reducible, while others aren’t, or shouldn’t be.

Anything involving taxes is going to be hard to bring down. Property taxes, title fees, and transfer taxes are generally non-negotiable. There’s an exemption for capital gains taxes, but there are restrictions on how often it can be used. Sellers looking at a large capital gains tax bill could consider delaying their home sale, so they can take advantage of their exemption.

Some expenses, though, can be cut down. Staging, landscaping, and renovations can be done cheaply, especially if you enlist family and friends to help paint, mow, buff, and polish. Even moving can be done cheaply, if you don’t count sweat and time as expenses.

That brings us to the real estate commission. There are certainly low commission agents out there, but sellers should keep in mind that they’re usually getting less services by paying less money. If you save $13,000 by not using an agent, but your home sells for $40,000 less than it would have in an agent-assisted sale, you haven’t actually saved a penny.

However, there are a growing number of companies offering a full service selling experience for a flat fee. (Full disclosure: we’re one of them.) These companies allow sellers to partner with top agents in their markets, and get all the benefits of their expertise at a fraction of the usual price. Why, you might ask, would a top agent sell one house for a flat fee, if they could be making 6% on another house? Well, the agent’s getting high-quality leads from the referral company, which means much less time and effort spent hustling on the front end. It’s a true win-win. Considering that the 6% commission is usually the largest single cost of selling a home, flat-fee real estate companies are probably the best way for home sellers to bring their costs down.

Position Realty
Office: 480-213-5251

The 9 Best Tips on How to Find a Property for Profitable Investing

Over the years real estate has proven to be one of the most profitable investing strategies. Unfortunately, this doesn’t mean that just any investment property will bring high return and success to its owner. The secret to making money in real estate is finding profitable rental properties. If you are a new real estate investor with no experience in the business, don’t worry because you’ve come to the right place. In this article we will provide you with the best tips on how to find a property for profitable investing.

Tip #1: Buy a Property in a Top Real Estate Market
Anyone in the real estate industry will tell you that location is the first and foremost factor for a profitable investment. Where your rental property is located will determine the price you have to pay for it, the rental demand, the best rental strategy, the type of tenants you can expect, the rental rate, the occupancy rate and vacancy rate, and ultimately the return on investment. Thus, the first thing which any investor preparing to buy a property should do is to read about and research the best places for real estate investing in the US housing market. Don’t make the mistake of many beginners who focus on large cities only. Sometimes small towns and even villages offer a much higher return than major cities. For example, according to data from Mashvisor, a real estate data analytics company, the census-designated area with a population of about 7,000 people, Joshua Tree, has been one of the top locations for Airbnb rentals in the past few years.

Tip #2: Don’t Spend More Than What You Can Afford
As a beginner investor, you should always start with a small, cheap, easy-to-manage property. After all, the best investment property is the one which you can afford and which you can manage. To find such a property, you should prepare a budget. On the one hand, factor in your savings, the income from your full-time job and other sources, and the money you expect to make from your rental property. On the other hand, make a list of all the one-time and recurrent costs associated with buying, owning, and managing an investment property such as the property price, appraisal cost, home inspection fee, closing fees, fixes and repairs, monthly mortgage payments, property tax, insurance, property management, maintenance, and others. In this way you will be able to figure out exactly how much you can afford to spend on a property without risking a foreclosure.

Tip #3: Find the Best Financing Method
One of the great things about real estate investing is that you have many financing options to choose from. You can go for a conventional mortgage, a hard money loan, a private money loan, a syndication, or a partnership, to mention a few possible choices. You should study each option carefully and decide on the best one for your particular case, based on their pros and cons and your specific situation.

Most probably, as a first-time investor, you will end up taking a mortgage loan. In this case, it is advisable to make the down payment as big as possible, without overspending on it of course. The higher your down payment is, the faster you will be able to repay your loan and the less money you will end up spending on repayment. Figuring out the best financing method is crucially important for profitable real estate investing.

Tip #4: Use Different Sources for Your Property Search
To find a property for profitable investing, you should put efforts into searching for properties for sale far and wide. Now that you know where you want to buy an investment property and how much you can afford to spend on it, start checking out local newspapers and real estate websites with both MLS listings and off market properties, talk to your friends and acquaintances, network with other investors in the area who might be selling a property, and connect with a local real estate agent. Each one of these sources will have access to a different kind of properties, and you should check them all out before deciding on the best type of investment property for you and narrowing down your choice.

Tip #5: Consider Investing in a Foreclosure
The most lucrative investments in real estate are those properties which you can buy below market value. Thus, you should consider investing in a foreclosed property. Forget the popular myth that foreclosures are always houses in a dire situation which makes them bad real estate investments. To the contrary, it is feasible to find a foreclosed property in a good shape which will bring you high return on investment. The reason is that you will most likely pay only a fraction of the fair market value of the property as the bank or other financial institution is trying to get rid of it quickly, while you can still charge full market value rental rate.

To find foreclosed properties to invest in, talk to the banks in the area, search for specialized real estate websites with foreclosed property listings (including government agencies’ websites), and look for agents who work with foreclosures.

Tip #6: Hire a Real Estate Agent
Avoid the mistake of many first-time real estate investors who think they can manage the whole process of finding and buying a property on their own. It is recommended to look for an agent who works mostly with property investors and hire him/her to help you along. Your agent will be able to help you find lucrative properties for sale, connect you with lenders, prepare the offer, negotiate the best price, and close the deal quickly and smoothly. Moreover, you don’t have to worry about inflating your budget as agent fees are usually covered by the property seller and not the property buyer.

Tip #7: Conduct Thorough Property Analysis
An indispensable step in the process of making the most profitable real estate investments is performing an investment property analysis. Once you have narrowed down your choice to a few top properties, you should study them in detail to calculate exactly how much return on investment you can expect from them, based on your preferred rental strategy. Find out the cash flow, the cash on cash return, and the capitalization rate which you can expect. To beat the competition in the local real estate market and find the best property for profitable investing, make sure to use real estate investment tools such as a rental property calculator. This will save you a lot of time in analyzing properties and allow you to make an offer before the other investors in the area.

Tip #8: Choose the Best Rental Strategy
You can rent out your investment property on short-term basis as an Airbnb rental or long-term basis as a traditional rental. The optimal strategy in each case depends on the location, the demand, the rental rates, and other factors. So, in your investment property analysis you should see which rental strategy will bring you a higher return on investment. If you decide to go for a short-term rental, don’t forget to study the local regulations carefully as many places have adopted major restrictions on this type of rentals in recent years. Ideally, you should look for a location where both owner-occupied and non-owner occupied properties can be rented out on short-term basis in all residential neighborhoods. For example, the Dallas real estate market is one of the major cities with the least Airbnb legal issues in the US at the moment.

Tip #9: Select the Best Property Management Strategy
Profitable investing in real estate doesn’t end with finding and buying a property with a high potential for return. Afterwards, you have to manage your rental property in the best possible way. If you invest in your local housing market, have some free time, and exhibit the right personality (welcoming and kind but also assertive), you can become a landlord and deal with a rental property and tenants on your own. However, before you decide to manage your property by yourself, you should know that this can take a lot of time and efforts and can turn into a real headache.

If, on the other hand, you invest out of state, have a busy job and a family to take care of, and/or are simply not fit to be a landlord, you can hire a property management company to deal with your investment property. You should be prepared to pay them a monthly rate, but it will be worth it as they will be able to maximize your profit while you can enjoy the positive cash flow in your free time.

How to find a profitable investment property is the first thing you have to learn as a real estate investor in order to make money. The good news is that it is absolutely feasible and doable if you follow our 9 tips above.

Position Realty
Office: 480-213-5251

Can’t Afford to Buy a Home? Have You Looked Into Down Payment Assistance?

What’s the No. 1 reason renters fear taking the leap to homeownership or don’t even think the leap is possible? That pesky down payment. Even with an FHA loan that requires a minimum of only 3.5% down, the idea of setting aside several thousand dollars is daunting at the least (and, in many cases, darn near impossible).

A survey from Apartment List shows that most millennial homebuyers can’t come up with the funds for a down payment. “Seventy-two percent of millennial renters who plan to purchase a home cite affordability as a reason that they are delaying homeownership, with 62 percent pinpointing a lack of down payment savings specifically,” they said. “Forty-eight percent of millennial renters have zero down payment savings, while just 11 percent have saved $10,000 or more.”

Down payment assistance programs can fill in the gap, but many buyers don’t even know they exist. “Down payment assistance can come from many different sources— including federal, state, county, city and nonprofit agencies—and aren’t always well-publicized,” said U.S News & World Report. Anyone who is interested in down payment assistance is encouraged to check with their real estate agent or lender, but doing your own research is key.

In Texas this week, Wells Fargo & Co., NeighborWorks America, and the Business & Community Lenders of Texas rolled out the NeighborhoodLIFT program, a new down payment assistance program promoting sustainable home ownership in the northern part of the state. This program is so new that some industry professionals might not even know it exists.

NeighborhoodLIFT offers up to $15,000 in down payment assistance plus homebuyer education to eligible families in Dallas as well as Tarrant County. Eligibility is based on income. In addition, “Military service members and veterans, teachers, law enforcement officers, firefighters and emergency medical technicians may reserve down payment assistance grants of $17,500 and earn up to 100% of the area median income,” said NBCDFW.

How to find down payment assistance:

1. Do a national search.
You’ll be surprised how many programs you can find. “Do you even know that down payment assistance (DPA) programs exist? You’re in good company if you don’t,” said The Mortgage Reports. “These programs help homebuyers with loans or grants that reduce the amount they need to save for a down payment. And there are more than 2,000 of them nationwide.”

2. Check out statewide programs.
From the HUD site, you can search by every state plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands to see which programs are available for you.

3. Now take it local.
Don’t forget to check for programs in your city. The City of Los Angeles Housing + Community Investment Department (HCIDLA) offers up to $90,000 in financial assistance for first-time, low income homebuyers. In Memphis, there is a zero-interest deferred loan that provides funding for first-time homebuyers’ down payment and closing costs for eligible homebuyers through its Division of Housing and Community Development (HCD). In Miami, you may be able to get a forgivable zero-interest deferred MDEAT Homeownership Assistance Program (HAP) loan; the program was designed “to increase the number of first-time home purchases for low-to-moderate income residents living in Miami-Dade County.”

4. Search by your profession.
If you’re a current or former member of the military, you likely already know about VA loans. Did you know they require no down payment?

The Neighbor Next Door Program is another good one. This program for law enforcement officers, firefighters, emergency medical technicians, and teachers requires only a $100 down payment for eligible homebuyers. Because the program is tied to the idea of revitalization, homes in these communities are offered to eligible buyers at a 50% discount. Buyers must commit to living in-home for at least three years.

Position Realty
Office: 480-213-5251

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