Just as with buying a home, there are closing costs associated with selling a home. I have previously discussed the closing costs that first-time home buyers should prepare for here.
Let’s talk about the costs associated with selling your house.
1. Realtor’s Commissions
The seller is usually responsible for paying the commissions to realtor’s or real estate agents used by them and the buyer. Commissions can set you back between 3-7% of the selling price of the house. Average Canadian commissions are around 5% (2.5% goes to the seller’s realtor and the remainder 2.5% goes to the buyer’s realtor). On a home sold for $450,000 for example, total commissions are $22,500 (using a 5% rate). You can save on commissions by selling the house yourself and avoiding the services of an agent. However, this comes with its own challenges.
2. Legal Fees
Your real estate lawyer will work with the buyer’s lawyer and other relevant parties (bank, etc.). They review all legal documentation, prepare a statement of adjustments for taxes or utilities owed or prepaid, review and discharge the title for the property and mortgage, deliver closing package and keys to buyer’s lawyer, and much more. Legal fees can range anywhere from $500 to $1,500.
3. Closing Adjustments
Your lawyer will prepare a statement of adjustments. Depending on how you pay your property taxes and utility bills (i.e. prepaid or accrued), you may have to pay what is owed up until closing day or be due for a refund if you have paid these expenses in advance.
4. Bank Fees
If you have a mortgage and plan to pay it off with the proceeds of your sale before the term ends, you may be subject to prepayment penalties. Additionally, banks will charge a mortgage discharge fee for discharging the mortgage – anywhere from $250 to $500. If you are porting your mortgage to a new property, you can avoid some of these fees.
5. Costs of Repairs or Replacements
A potential buyer may request that you pay for some repairs (or replacements) in their offer to purchase, counter-offer, or following conduction of a home inspection. Some popular repair requests include:
- Roof repair
- Heating and cooling systems repair (furnace, air conditioners, fans, etc.)
- Basement leaks
- Unstable decks
- Mould removal
- Upgrading electrical panels, etc.
Of course, you as the seller always has the option to decline paying for repairs or replacements.
6. Home Staging Cost
If you plan to stage your home to make it more appealing to prospective buyers, you will incur additional costs.
7. Moving Costs
Moving your possessions from one house to another will cost you! Obviously, costs would vary depending on how much possessions you have to move, if you’re doing the move yourself or using a moving company, how far your new location is, and so on. Costs can range from a few bucks to a couple thousand dollars.
8. Capital Gains Tax
When you sell your principal residence, you’re not required to pay taxes on profits (i.e. capital gains) realized. However, when this is not the case, capital gains tax is required and 50% of the profit is taxable.
It’s a good idea to be prepared for closing costs irrespective of the position you’re taking in a real estate transaction (Buyer or Seller). This will help you avoid unpleasant surprises!