Hello (again)! Thanks for reading the fourth and final installment of my real estate guide series, “Mistakes in Real Estate – Top 10 Seller Mistakes”. It was a lot of fun creating this series and my sincere hope is that you had a few takeaways to assist you as you prep for your home for sale.
Table of Contents
Not Understanding All Of The Costs Of Selling Your Home
Many times when I go on listing appointments to meet with potential sellers here in Northern Virginia, I quickly realize that they have no idea how much it costs to actually sell their home. I’m shocked by how many times I’m told that they’ve already interviewed other realtors and no one has brought up these costs beyond a cursory mention of commission. While the real estate commission is the largest part of the cost of selling a home, there are other costs that all sellers need to be aware of.
Property Taxes – In most jurisdictions in Virginia, property taxes are paid twice a year In July and December. They are paid in arrears which means that they are paid in July for the previous January through June and then in December for the previous July through December. This means that if you sell your home on April 1st, the tax bill for that property covering January 1st through March 31st will be sent to the new owner to pay in July. So part of your closing costs will be to cover your portion of that owed tax bill which will be given as a credit to the buyer at closing since he/she will be paying that tax bill. One thing that many sellers forget though is that if they have a mortgage on the home, your mortgage company has been escrowing the funds to pay that tax bill when it comes due. Usually a few weeks after you sell your home and your mortgage is paid off, your mortgage company will refund you whatever amount was built up in your escrow account to pay the expected upcoming taxes and homeowner’s insurance.
Grantor Tax – The Grantor Tax is the name for the state transfer tax that a seller pays when selling a home in Virginia. This tax is 0.1% or $1.00 per $1000.00 of the sales price. On a $600,000 sale, the seller would pay a $600 Grantor Tax.
Regional Congestion Relief Fee – Many counties in Northern Virginia also charge the seller a fee called the Regional Congestion Relief Fee. I’m not sure why people who are moving from this area are expected to pay a congestion relief fee, but that’s what this fee is called. Like the Grantor Tax, this fee is 0.1% or $1.00 per $1000.00 of the sales price.
Regional WMATA Capital Fee – Just like the Grantor Tax and Regional Congestion Relief Fee, this fee is 0.1% or $1.00 per $1000.00 of the sales price. Once again, sellers are paying a fee to improve the Washington Metropolitan Area Transit Authority as they are leaving the area!
Settlement/Attorney Fees – In Virginia, buyers have the right to choose their settlement agent to handle the transaction. A seller can either use the same company or choose a real estate attorney to represent them in a transaction. I always recommend hiring a real estate attorney to represent a seller because you want to have someone looking out for your interest in the sale. Normally there are two charges for a seller by their attorney. One charge is for the attorney fee which usually runs between $650 and $900 and the other is for the deed preparation which usually runs around $200. As a seller you will be paying these fees either to your own attorney or to the buyer’s settlement agent, so you might as well have your own attorney and representation throughout the transaction.
Homeowners or Condo Association Fees – For anyone living in an HOA or Condo Association, there are fees associated with transferring the ownership of a property from one person to another. The state of Virginia sets a maximum amount that can be charged to a seller for each of these fees and most HOAs/Condo Associations charge the maximum amount allowed by law. The max fee breakdown is below:
- $141.31 for exterior inspection
- $211.96 for preparation and delivery of the disclosure packet in paper form
- $176.64 for preparation and delivery of the disclosure packet in electronic form
- $70.66 for expediting the inspection, preparation, and delivery
- $70.66 for pre-settlement updates to the packet
- $141.31 for an additional inspection of the property if needed
And if you are not buying in an HOA or Condo Association, you won’t have any of these fees when selling your home!
Real Estate Commissions – Real estate commissions are paid to the professionals who help you navigate the sales process for selling your house and are a negotiable fee. There is no “set” real estate commission, but usually a good agent will have a fee that they will agree to work for. It’s a business decision for most agents and they need to use their share of that fee to cover all of the business expenses that go along with the sale of your home and running their business. You and your agent will need to come to an agreed upon commission fee (usually a percentage of the sales price of your home) and that will be clearly spelled out in your listing agreement. The commission for most sales is then split evenly between the company that your Realtor works for and the company that the buyer’s agent works for. There has been plenty of discussion about why or even if a seller is paying both agents’ commission (or is the buyer technically paying it because it’s part of the price that they are paying for the home?), for now this is the way that the real estate market is currently structured in Virginia, so just make sure that you and your Realtor have discussed commission and have come to an agreement in writing.
Admin Fee – Many real estate companies charge an admin fee per transaction which covers all of the back end programs and forms that your Realtor is using to facilitate the transactions. These tend to range anywhere from $300 – $700 per transaction. Please understand that it’s not your Realtor that’s charging you this fee, it’s the company that he or she works for. Just make sure that your Realtor has disclosed this fee to you in writing before listing your property for you.
Miscellaneous Fees/Charges – There are other fees or charges that may come up during your sale that you should be prepared for. Often there is a termite inspection fee and sometimes required repairs if termites and damage are found. You may need to fix items that were discovered on a home inspection done by the buyers. Your buyer may ask for a credit (called seller subsidy) to help with their closing costs. A buyer may also ask a seller to pay for one year of a home warranty for them. Don’t forget that your current mortgage(s) and home equity line of credit (if you have one) will have to be paid off as part of the sale of your home. And last, if a title search discovers any judgments or liens against you or the property, these will often have to be paid off from your proceeds at settlement so that the property can change hands with a clear title.
While this is not a comprehensive list of all fees and charges that you may have to pay when selling your home, it’s a pretty good starting point. You should always ask your Realtor for an estimate of what your closing costs will look like before signing any listing paperwork so that you are sure that you understand how much it’s going to cost you to sell your home.
My mission is to guide sellers, from being potentially frustrated and confused, to confident and educated. Schedule a conversation with me today!
Considering Price Only Of An Offer On Your Home
When a seller gets an offer from a buyer for their home, the first thing that they almost always want to know is what price they are offering. While this is a very important part of an offer, you have to remember, it’s not the only factor that should be considered. I always make a point of going through all of the important parts of an offer with my clients so that they can make the best decision about whether to accept, counter, or reject an offer. Looking at all aspects of an offer is even more important if you receive multiple offers.
Price – Of course, all sellers want to get the best price that they can for their home. When looking at the price of an offer, be sure to discuss with your Realtor if the price being offered is one that your home is likely to appraise for. It doesn’t matter what someone is offering to pay if there is no way that it will appraise for that price, unless it’s a cash offer. You also want to make sure that the offer price is not too low either. Your Realtor can help you determine if an offer is a fair price for your home and give you options if you want to counter the offer.
Seller Credit – When the market is a balanced market or a buyer’s market, buyers will often ask for a seller credit (called seller subsidy) to help pay for some of their closing costs for the transaction. This is becoming a lot more common in today’s correcting market. This credit would just be deducted from a seller’s proceeds at closing.
Financing – A very important part of any offer is the type of financing the buyer is going to use. Is it a Conventional, VA, or FHA loan? How much of a down payment will they be making? Who is the lender and what type of initial screening has the lender done of the buyer? Some lenders do a lot more initial screening than others. Is the buyer’s financing contingent on an appraisal? It’s very rare that a lender will give a loan without an appraisal so if a buyer is getting a loan, but waiving the appraisal contingency that may be a red flag. Rely upon your Realtor to help you carefully review a buyer’s financing.
Earnest Money Deposit – This is sometimes called “Good Faith Money” and it’s the money that a buyer is putting forth at the beginning of a transaction to show that they are “earnest” or have “good faith” about committing to a transaction. The earnest money is often a percentage, 1% or 2% or even 3%, of the sales price which is held by the settlement company. This money is returned to a buyer if they void the contract for a protected reason like home inspection contingency, review of HOA or Condo docs, or financing contingency. If a buyer voids the contract or defaults for a reason not protected by a contingency, then this money may be kept by the seller depending on the situation.
Settlement date – There are many factors that determine when settlement should be. Sometimes sellers need to settle before or after a certain date depending on their situation. Other times buyers will have factors determining when they will settle, particularly if they need to close on a home that they are selling before buying the next one. The lender will also have a say in when settlement can occur. Most lenders can close a loan in about 30 days, but sometimes they will need a bit longer and will usually let buyers know that up front so that they can make their offer for the amount of time that their lender will need to close their loan. So when you receive an offer, make sure that you and your agent discuss if the proposed settlement date will work for you and if not, try to work it out with the buyer and their agent.
Settlement company – In the state of Virginia, a buyer always has the right to choose their settlement company. While a seller can hire an attorney to represent their interest in a real estate transaction, the buyer’s settlement company will be the driving force of the transaction. The buyer’s settlement company will handle all money in the transaction including the paying off of the seller’s mortgage. While you have no control over who the buyer chooses for a settlement company, you do have the choice of hiring a real estate attorney to represent you
Contingencies – When you receive an offer on your home it’s always important to review with your Realtor what contingencies are in that contract. These are the “hoops” that the contract has to go through to get all of the way to settlement. Some of the common contingencies include financing, appraisal, home inspection, radon testing, well inspection, water testing, and septic inspection. Each of these contingencies contain things that have to be met or accomplished to get all of the way to settlement. Some of these, such as home inspection, radon testing, well inspection, water testing, and septic inspection, may require active participation from you as a seller. Other contingencies, like financing and appraisal, are mainly handled by the buyer and the lender. Be sure to review all contingencies in an offer with your agent and know when the deadlines are for these contingencies so that nothing gets missed.
Home Sale Contingency – A home sale contingency is a special type of contingency that comes along with some contracts which needs to be explained a bit more in depth. If a buyer needs to sell their home in order to purchase your home, an offer will come with a Home Sale Contingency. There are actually two types of home sale contingencies. The first one is when a buyer has a home to sell that is either not on the market yet or on the market but not under contract. This is a home sale contingency with a “kick-out”. This means that if another buyer comes along and submits an offer on your home that is acceptable to you, you can then “kick-out” the first buyer who has that home sale contingency. You will give that first buyer notice that you have received another offer that you will accept unless they can remove their home sale contingency within a previously agreed upon time (usually 2 or 3 days). If they can remove that contingency, you will proceed to settlement with the first buyer. If they cannot, you can kick them out and proceed to settlement with the second buyer. The first buyer would have their earnest money deposit returned to them by the settlement company in this situation. The second type of Home Sale Contingency is when the buyer’s home is already under contract which would make your transaction contingent upon the settlement of their home, not the sale of it. This type of contingency does not have a “kick-out” in it so there would be no opportunity to take a second offer on your home. If you receive an offer with a Home Sale Contingency, be sure that your Realtor reviews it in depth with you and you discuss all of the pros and cons of accepting an offer with this type of contingency.
Termite Inspection – Many offers come through with a termite inspection required. In most cases either the buyer or seller can pay for the termite inspection, but the seller has to agree to exterminate any found termites (or other wood destroying insects) as well as repair any damage caused by them.
Home Warranty – One other thing to consider with an offer on your home is if a buyer is asking for you to pay for a home warranty. These can run anywhere from $500 to $1000 depending upon the level of coverage. Sometimes, a buyer will just purchase one for themselves as part of the transaction, but they will often ask a seller to provide one for them. There are two good things to consider if a buyer asks you to provide them with a home warranty. One is that many warranties will end up covering repairs needed while a seller still owns the home for a very small fee. The other is that if you’ve agreed to purchase a home warranty for a buyer, you have a little more leverage when negotiating home inspection repairs since a buyer will have the benefit of that warranty for the first year that they own the home. As with everything else in an offer, this is something that can be negotiated with a buyer before you ratify a contract.
While these are not all things that should be considered when you receive an offer on your home, they are a good overview of most of the major ones. As with anything else during the sale process, rely upon your Realtor to find out as much as you can about the terms of the offer that you have received. And make sure that you ask any questions that you may have so you can make the most informed decision possible.