Right? Not quite.
When you sell your house there are actually some other very significant costs you will have to account for. Here we’ll tell you what to expect and we’ll help you to estimate your net proceeds (the amount you will walk away with after settlement.)
This article will focus on real estate transactions within the Lehigh Valley area of Pennsylvania as that is where we are based.
It’s always best to consult with a professional in your area in order to get an accurate idea of your own potential costs.
MORTGAGE
Balance Due/Payoff Amount
Your monthly statement will give you a pretty good idea of what this is going to be, but you can always contact your mortgage company for an accurate, time sensitive amount.
You might be interested in doing this if you owe an amount close to what you think you will net from the sale of the property.
No seller wants to bring money to settlement, but it does, unfortunately, happen.
If your lender pays your property taxes and your home owner’s insurance, they’ll be holding money in an escrow account for such disbursements and when you pay off the loan, you’ll get back any extra that is left in that account.
This may seem obvious, but if you have a second mortgage, a home equity loan or line of credit, or any other liens against your home, these will need to be paid off too. If you are not sure, check with your mortgage company or the title company.
Escrow refund
Each lender will handle your escrow account differently.
Some will allow you to use it towards the balance due, which means anything left over in your account will be a line item on the settlement sheet that lessens the total amount that you owe.
On the other hand, many lenders will not close your escrow account until they have certified that the loan is closed and paid off in full. In this case, you should receive a check for the amount left in your escrow account within 20-30 days of closing.
Second mortgage / other liens
This may seem obvious, but if you have a second mortgage, a home equity loan or line of credit, or any other liens against your home, these will need to be paid off too.
If you are not sure, you can contact your local county recorder’s office to find out.
In some locations, only mortgages are recorded at the Recorder of Deeds, mechanics liens and other judgements may be recorded in the Civil Division.
If you think you may have outstanding liens other than your mortgage and you are not sure, you can always ask your agent to help you find out. Click here to learn about the different types of liens.
Real estate commissions
Often the second largest amount a seller will pay is the real estate commissions.
When engaging a real estate agent, it’s essential to understand that, much like other professionals, such as tax accountants or attorneys, real estate agents typically charge fees based on the services they provide. However, the rates they charge are not fixed by state or any other regulatory body, and thus are negotiable to a certain extent.
In real estate, the commission is commonly set as a percentage of the home’s selling price, with the typical rate ranging from 5% to 6% of the sale price if you are offering compensation to the buyer’s agent. This custom may be changing in the future, ask your agent for more information. If you do pay the buyer’s agent to bring in a buyer, this commission is then usually split between the listing agent and the buyer’s agent.
However, this does not mean that these rates are inflexible. Sellers are free to discuss commission rates with agents, and there is room for negotiation, depending on factors like the market conditions, the expected level of service, and the credentials of the agent. It’s important to remember that while you can always negotiate, not every agent will choose to adjust their standard rates.
This scenario is comparable to hiring any other professional service provider. For example, when you seek legal or accounting services, the fees can sometimes be discussed upfront, especially if a variety of services or different service packages are offered. However, once you agree upon the services and the fees, those charges typically remain as agreed unless renegotiated for additional services or changes.
Ultimately, choosing a real estate agent involves balancing cost considerations with the quality and range of services provided. Just as with other professional services, it’s beneficial to shop around to find the agent whose experience, reputation, and fee structure best meet your needs.
Closing costs
In addition to your lien payoffs and real estate commissions, here are a few things you can expect to pay (or be credited) at settlement from the proceeds of the sale.
Tax proration
This is separate from the refund of your escrow account. That account is a slush fund of sorts that your lender holds until payments are due. Leftover escrow is generally deducted from the loan payoff amount.
This tax proration is a credit is for taxes already paid.
Let’s say you paid your school tax for the year at the end of June.
Your taxes are then paid up until the following June.
If you settle in September, you’ve only “used” 3 months worth of taxes. You will be reimbursed for the 9 months you did not use.
Transfer tax
Here in the Lehigh Valley it is customary and understood that the buyer and seller will split the transfer tax evenly, each paying 1% of the 2% total amount due.
This is the contract default in Pennsylvania, but be aware that other areas of the state have different customs.
Transfer tax is based on the sale price and is a straightforward calculation.
If the sale price of the house is $200,000, then the total sales tax is $200,000 x 0.02 = $4000.
The buyer and the seller split the bill, so the seller is responsible for $2000 transfer tax in this instance.
Miscellaneous fees
calculating net proceeds
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Title / Deed Preparation
This should be roughly $125-$150. It is paid to the title company to prepare the new title and deed.
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Home Warranty
You may or may not have decided to purchase a home warranty when you listed your home. If you did, that premium will likely be payable at settlement. Most home warranties range in price from about $375 - $500 but this will vary based on the plan and coverage.
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Final Utilities
Unlike taxes, utilities are not pre-paid, they are paid in arrears or after the fact. Therefore, you are responsible for paying for water, sewer, electric, and garbage for the period during which you occupied the house through the day of settlement. This will always be some portion less than the amount of your total bill.
Simply start with the sale price and add or subtract the totals for each section listed above.
Here we’ll run through an example where we define an amount for each of the above expenses and then we’ll calculate the final net proceeds.
Plug in amounts specific to your individual circumstances to find your personalized answer.
- Sales Price = $250,000
- First Mortgage Payoff Amount (minus escrow) = -$185,000
- Home Equity Line of Credit Payoff = -$10,000
- Real Estate Commission = ($250,000 x 6%) = -$15,000
- Tax Proration = +$1500 (Click here to learn how to prorate your taxes)
- Transfer Tax = ($250,000 x 1%) = -$2500
- Miscellaneous Fees = -$645
*Remember to add the tax proration, this is money you are getting back.
other potential expenses
You may want to do repairs or updates before you list or you might need to hire some contractors or professional cleaners.
During the inspection and negotiation phase of the contract, the buyer may ask you to repair some items noted during the home inspection.
While none of these costs are mandatory, they are something you should be prepared for, nevertheless.