There are a variety of costs associated with buying and owning a home beyond the purchase price or monthly mortgage payments. Some of these expenses are considered "hidden" costs because they may not be easy to calculate in advance, and are often due upfront. Hidden costs include transaction fees, taxes and insurance, to name a few. Many similar expenses apply to the process of selling a home as well, but they don't receive as much attention. In fact, the so-called hidden costs of selling a home can be much higher than you might expect.
"Selling a home can represent a significant expense in some cases."
A recent report from Zillow and Thumbtack took a deep dive into the lesser-known costs of selling a home in most of the largest housing markets in the U.S. Based on a survey of almost 3,000 home sellers in 2017, the study estimated the average home sale incurred more than $18,300 worth of expenses associated with the transaction. The majority of these were allocated to closing costs, which vary widely between markets and may include commissions paid to agents as well as taxes. However, most home sellers also racked up sizeable bills related to preparing a home for sale. Prep work like painting, carpet cleaning, lawn and garden care and home staging added several thousands of dollars to the typical sale.
"This data shows that while it's largely a sellers' market out there thanks to very low inventory in many parts of the country, sellers aren't always living on easy street and can encounter massive pain points," according to a press release about the study from Zillow. The release went on to note that as part of the group's larger report on the U.S. real estate market in 2017, three out of four home sellers surveyed said the sales process "was stressful or challenging."
Wide range in home selling costs
Like most other financial aspects of real estate, hidden home selling costs showed considerable variation from one location to another. While Zillow found the nationwide average to be around $18,300, home sales costs were reportedly as high as $81,500 in San Jose, California. On the other hand, selling a home could cost just under $13,000 in Cleveland. However, as a percentage of the median home prices in these markets, their respective home sales costs are relatively similar at around 7 percent of the area's median home value. The median sales price of a home in San Jose exceeds $1 million, while homes sold in the most active areas surrounding Cleveland came at a median price of around $178,000.
Source of spending: Fees, taxes and maintenance
In each of the 35 local markets surveyed by Zillow, commissions made up for the vast majority of the area's hidden home selling costs. Considering the standard real estate agent's fee of 6 percent of a home's sale price, this may be unsurprising. As some consolation, though, that commission is often split between the buyer's and seller's agents.
The single hidden cost that displayed the most variation was related to transfer taxes. These are essentially transaction fees on the sale of property levied by certain states and city governments, usually due when the title or deed is transferred from buyer to seller. In some markets, transfer taxes made up a significant portion of a home seller's total costs.
The most prominent example of this in the Zillow study was in Seattle, where transfer taxes accounted for nearly 15 percent of the average hidden sales costs. Meanwhile, in the entire state of Texas, where several major markets are located, these taxes are nonexistent. Several other areas surveyed levied no transfer taxes or charged home sellers only a fraction of their total sales expenses. Notably, there is no requirement for who exactly pays the transfer tax bill in most markets, which means this line item can be used as a bargaining chip in negotiations between homebuyers and sellers.
Finally, the Zillow study tabulated the costs of prepping a home for sale as part of its analysis with data from Thumbtack, a service that connects home contractors with buyers. Based on data from Thumbtack including "tens of thousands of quotes from small business professionals around the country," simply preparing a home for listing could cost as much as $6,580 (in San Jose) or as little as $3,820 (in Orlando, Florida). The most common tasks that homeowners pay for prior to listing, according to Thumbtack, included:
- Carpet cleaning.
- Interior and exterior painting.
- Lawn care.
- Home staging.
- House cleaning.
- Local moving.
In the process of surveying homeowners, Zillow estimated that 61 percent of those who sold their homes in 2017 had never done so before. With a better idea of the costs related to selling a home in mind, homeowners can make better decisions about where their money is spent.
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