When you first bought your home, you probably never dreamed how much value it would gain over a few short years. The longer you’ve owned it, chances are – the more your equity has grown. 

For example, a house you paid $500,000 for or less could one day be worth nearly $1 million. Selling your home gives you access to funds that will go a long way toward your next step in life. For some people, that could mean upgrading to a bigger, more spacious dream home. For others, it could mean moving to the other side of the globe to experience an entirely new culture and way of life. Whatever your dreams may be, it’s critical to have an idea of what you will have in the bank once your sale closes. 

Understanding Closing Costs When Selling

The amount your house sells for in the current market may make your eyes pop. However, you will need to account for the closing costs and other expenses before you can accurately calculate your profits. With most transactions, the seller is responsible for some of these costs while the buyer takes care of others. Below, you’ll find a breakdown of the closing costs you can expect when selling.

Real Estate Commissions

The seller pays for real estate commissions upon closing, which typically range from 3% – 5% of the final price. This amount is then shared between the buyer and seller agents. Some homeowners may try to sell without the help of an agent to avoid commissions. However, when you consider how much work a local expert saves you and how much more your house is likely to sell for, you almost always benefit from having an experienced agent working on your behalf. 

To learn more about the benefits of using a real estate agent, read FSBO vs Real Estate Agent Assisted Sales: What’s Better?

Legal fees

Once you accept an offer, one of your first calls should be to an experienced real estate lawyer who will review the sales agreement to ensure all clauses are sound. The seller will also have to take care of any back taxes or liens on the property before the transaction closes. 

Selling during a challenging time? The resources below will help you get results no matter what:

• Do I Really Have to Update My Home Before Selling It?
• Why Did My Neighbour’s House Sell but Mine Didn’t?
• Can You Successfully Sell a House With a Stigma?

Possible Home Repairs

The home must be in the same condition as when you accepted the buyer’s offer. You’ll be responsible for the repairs if any damage has occurred in the meantime. If the offer was conditional, a home inspection may also uncover necessary maintenance or repairs. 

Mortgage Penalties

A typical mortgage term runs from three to five years. Selling your home may mean breaking your contract early unless you time it perfectly to align with your renewal. 

Many lenders will charge a penalty since they are losing out on interest income. You should be able to find these terms outlined in your original mortgage contract.

Moving Expenses 

Although not officially a closing cost, it’s important to factor in your moving expenses when selling your home. Hiring a professional mover may seem expensive upfront, but it also saves you from lifting and transporting heavy items yourself. In addition, you may need less time away from work to settle into your new home. And keep in mind that most moving services come with insurance to cover you if any items are damaged in the transition. 

What the Buyer Pays

Selling your existing home is only one part of your transition. If your plans include purchasing another home, it also helps to know your closing costs as a buyer. Here are the main expenditures you’re likely to face during the process. 

Legal Fees

Legal representation can be even more critical as a buyer than as a seller. Your lawyer will perform a title search to ensure the home is free of encumbrances so the transfer of ownership can proceed. Legal fees will also include title insurance to protect you against identity theft and real estate fraud. 

Mortgage Application Fees 

Before purchasing a home, you will want to get pre-approved for a mortgage. This involves filling out a mortgage application, for which most lenders will charge a processing fee. This can add up to 1% to 2% of the total loan amount. 

Land Transfer Taxes

The provincial land transfer tax is one of the most significant costs you will face as a buyer. In Toronto, buyers also have a municipal land transfer tax. Luckily for the rest of us, the provincial tax maxes out at 2.5%. Unfortunately, this is one cost that you can’t add to your mortgage and must be paid upfront. First-time buyers can expect some relief with the Land Transfer Tax Rebate.

Home Inspection

You don’t have to order an inspection when buying a new home. However, the cost pales in comparison to ending up with a property with more problems than you anticipated. If the current market allows it, your real estate agent will likely recommend requesting a home inspection as a condition of your offer. 

Homeowners Insurance

By law, home insurance isn’t mandatory. However, most lenders will require it before they approve your financing. In addition, you’ll need to add mortgage insurance whenever your down payment is less than 20% of the total purchase price.

Unexpected Costs Sellers Should Know

There is no doubt about it; selling a house can be expensive. Everything we’ve discussed so far is a closing cost, but you will likely have to make a few investments before you even get that far. There are no closing costs without a transaction, which means you must first get your home worthy of showcasing to potential buyers. Here are a few costs you may encounter.

Pre-Listing Inspection

The best time to soothe a buyer’s worry about a potential problem is before it even comes up. A pre-listing inspection instills confidence while uncovering any area of improvement. Taking this step helps your listing stand out in a softer market where buyers have plenty of options. 

If you want to know even more about how to fully maximize your sale, the resources below will help:

• Our Full-Service Real Estate Team’s Guide to Marketing Your Home
• The Power of Staging When Selling Your Home
• A Back to Basics Guide to Maximizing Your Sale

Home Preparations

Preparing your home to impress before putting it on the market is critical to a successful sale. Intense cleaning and decluttering costs nothing but time and effort. Minor repairs such as fixing leaky faucets, replacing silicone around sinks and bathtubs and a fresh coat of paint can help wow potential buyers as soon as they open the door. 

Hiring professionals has a cost, but will ensure the quality of the work. All of this helps you get the highest amount possible from your sale in any market.

Promotional Costs

You don’t want to rely only on the MLS® and Realtor.ca to bring qualified buyers to your door. To get the most out of your sale, you’ll need to promote your listing extensively. A local real estate team will be able to create beautiful marketing materials that make buyers take notice. In addition, they should have a built-in marketing system that reaches buyers wherever they are searching, online or offline.

Staging to Sell

When your house sparkles and shines and all of the photos and videos are taken, you are well on your way to a successful sale. Just one piece of the puzzle remains. Should you stage your home before buyers walk through? Hiring a professional can come with a significant cost, both for the consultation and the service. However, this can be the final element that helps your house sell faster and for the highest possible amount in the current market, and is often well worth the investment. 

Did you know that Woolcott Real Estate provides complimentary staging services? Learn more about how we maximize the value of your home by contacting us right here or calling (905) 332-9223 to reach our offices today.