Selling or buying real estate is no simple task and for most of us, represents the largest single investment (or asset transaction) we will ever make. Along with that comes a good deal of uncertainty and stress. The cost of selling your home is also an uncertainty since it seems like everyone has their hands out looking for a piece of the pie. To help understand what it will cost you to sell your home, we have put together the following list of expenses/cash outlays that are typically incurred in the sale of a home:
Real Estate Commission: Most sellers list their home with a real estate broker. The commission is usually 6% (up to 10% for raw land), but that can be negotiated down. However, you don't want to necessarily get it below 5%, otherwise you create a disincentive for realtors to show your home and your listing will be ignored.
Realty Transfer Fee: In New Jersey, sellers are required to pay what is called a Realty Transfer Fee (RTF) based on the sale price of the property. The amount is a bit tricky to figure out because they use an odd formula, but for instance, on a home selling for $300,000 the RTF is $1,715. Here is a link to a calculator you can use to see what the RTF will be on the sale of your home: http://www.coanj.com/RTF2/main.php. There is a discount for seniors and people with disabilities who live in the home and in some cases, the transfer can be exempt completely if it is part of an estate inheritance or a transfer between family members. Keep in mind that transactions that exceed $1,000,000 are assessed a “Mansion Tax” which is typically paid by the buyer, but the parties are free to negotiate who pays this cost.
Non-Resident – Gross Income Tax: The state of New Jersey requires you to pay the tax on any capital gain realized as a result of the sale. However, if you are a New Jersey resident at the time of the sale and intend to file a New Jersey tax return in the year of the sale, you are exempt from having to pay this tax at closing, in which case you will complete a Seller's Residency Certification/Exemption from (GIT/REP-3) at closing. Here is a link to the form: http://www.state.nj.us/treasury/taxation/pdf/other_forms/tgi-ee/gitrep3.pdf. Otherwise, a minimum of 2% of the sales price must be collected at the closing which will be held until a tax return is filed and the actual tax owed, if any, is determined.
Legal Fee: If you plan of retaining an attorney to represent you in the sale (something we highly recommend), that fee is usually in the $1,000 range, but it can be much higher depending on the attorney you retain. Be careful here because some attorneys will quote a rather low fee, but then turn around and add several hundred dollars in costs/expenses at the time of closing. All you have to do is ask up front whether the fee being quoted includes basic costs and expenses. In our practice, the fee we quote you covers all regular office related expenses like copies, faxes, postage and the like - there is nothing hidden.
Mortgage payoff: Any mortgage on the property will need to be paid in full at closing. Your lawyer or the title company will request a formal payoff letter from the mortgage company. If you have a home equity line of credit (HELOC), you will need to close that out a few weeks prior to the closing to avoid checks clearing right around the time of the closing and changing the payoff amount. So if you want or need to borrow more money from your HELOC, you should do so well in advance of the proposed closing date.
Mortgage Cancellation Fee: The mortgage or title company will add to the payoff amount the cost of discharging the mortgage. This amount is in the $75 range.
Seller's Concessions: Once the inspections are completed, there is usually a period of negotiations for needed repairs. Unless your Contract specifically precludes any requests for repairs and is strictly an “as is” sale, the buyer has the right to request that certain repairs be completed, or that they be given a credit in lieu of actual repairs. If you are budgeting your sale, it would be advisable to set aside around $2,500 for seller concessions since issues arise in almost all transactions (obviously, if you want to find something wrong with anything you can if you look hard enough!).
Adjustments at Closing: Depending on when you close and when you made the last payments for things like municipal taxes and sewer charges, or homeowner's association fees, you may need to pay your pro rata share of these costs at closing. On the other hand, if you are current on these items, you may get a credit for the time you no longer own the home. An additional credit to which you may be entitled is the value of any remaining heating oil or propane gas as of the date of closing. It's advisable to have these levels measured by the oil and gas suppliers, if possible, to avoid any conflict at closing over the exact amount that is owed to you.
Although not an exhaustive list, the above is a general guideline in terms of the costs you can expect to pay when you sell your home. Keep in mind that your attorney is the only party to the transaction that represents your interests and is under a legal duty to do so. Accordingly, you should choose an attorney who is experienced in real estate matters who you feel is on your side fighting to protect your interests.