Often times, it’s the simple math that will betray you when selling a property. In your head, you do quick calculations. You take what you think your property will sell for and then subtract what you owe on your mortgage, and the rest is your profit! Well… not so fast. There are several selling costs to take into consideration when selling a home. It’s especially important to get these costs right when you are selling one property, and using the proceeds from that sale as a down payment for another property.
So, here is a fairly comprehensive list of selling costs you may incur when selling your home.
Real estate transaction costs
Although it may seem odd that you have to pay money to sell your home, that’s the reality. Unfortunately, selling a property isn’t cheap. If you use the services of a professional REALTOR®, the total commission cost is going to be anywhere between four and six per cent of the purchase price. This is divided between the listing agent (the REALTOR® who represents you) and the buyer’s agent (the REALTOR® representing the buyer). It’s also good to note that GST is added to real estate commissions.
If you are looking for a way to get around paying real estate commissions, you might consider selling your house privately. To list your property with a FSBO company (for sale by owner), you are going spend anywhere between $400 to $1500 just for setup and a bit of marketing. From there, you may still have to negotiate a commission if potential buyers are working with a buyer’s agent.
Mortgage discharge fees
If you have a mortgage on your property, there will be selling costs to discharge it. The question is, how much?
If you are breaking your mortgage in the middle of your term, you will be responsible for paying a penalty. On a closed mortgage, that penalty will be either three months’ interest, or an Interest Rate Differential penalty, known as an IRD. Each mortgage contract is written up differently lender by lender. So, it’s impossible to simply explain the math – you’ll need to calculate your penalty on your own. In order to figure out your IRD ahead of time, you can either contact your lender directly, or you can contact me, and I can help you through the process.
The IRD penalty is the wildcard in the whole process. Depending on how the lender calculates the penalty, penalties can range from $3,000 to $30,000. It is very important to know what you are dealing with here.
If you are currently in a variable rate mortgage, your penalty will be equal to three months’ interest. If you are in an open mortgage, or have a home equity line of credit secured to your property, there might not be a penalty to discharge. There will most certainly still be some kind of lender fee, usually between $250 to $500.
In order to discharge the title of your property, and to verify that the buyer is going to receive a clear title of your property, you are going to incur legal fees to sell your property. In a straightforward discharge, expect to pay between $500 to $1000. This is obviously less than when you purchased the property, but an expense nonetheless.
Utilities and property tax
Although this might not come as a surprise, when you are selling your property, you are responsible for paying all the property taxes and utilities up to the day you no longer have possession. If you close in the middle of the month, you will be responsible for half the month’s taxes and utilities. If you are on equalized payments, and you have run a deficit with the utility company, expect to bring that bill current before your lawyer can discharge the mortgage!
Capital gains tax
If you’re selling your primary residence, you are in the clear. In Canada, we don’t pay tax on the appreciation of our primary residences. However, if you are selling an income property, you will be responsible to pay taxes on half the gains at your marginal income tax rate.
If you are looking to sell your house quickly, you will want to make sure that it is in tip top shape. Don’t underestimate the growing costs of fixing your property up before trying to sell it. Many say that sellers should consider spending up to 0.5 per cent to one per cent of the asking price on getting the property ready, looking after the small things that will give people the feeling the property was cared for. Low-cost, minor improvements include things like:
- Patch drywall and nail holes, and repaint
- Fix or replace damaged flooring
- Repair plumbing leaks
- Replace burnt out light bulbs
- Replace outdated light fixtures
- Clean out and reseal gutters
- Keep up with the yard and garden
Don’t forget that once you do sell your house, it’s going to cost you money (and time) to move. Depending on how much stuff you have, you are looking at some gas money and pizza for friends, or a few hundred to a few thousand for movers.
There you have it! By understanding these costs, hopefully you will have a better idea of how much money you will actually have in your jeans after selling your house! And if you need a mortgage to buy a new home, contact me anytime!