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8 things homeowners should do to prepare financially for the sale of their home
Experts weigh in on the when, the how, the expected, the unexpected, and the cost.
Before helping his 85-year-old mother sell her home in Weston two years ago, Daniel Rolde consulted an accountant. Even though Rolde is an attorney, he knew the sale would have tax consequences and wanted to ensure he was planning properly.
“My mother owned the house for a very long time, so there was a huge amount of appreciation, and I wanted to determine how much the capital gains taxes would be,” said Rolde, who lives in Newburyport. “The other issue was the timing of the payment of the taxes.”
There’s plenty of financial advice available for buyers to help them plan for their home purchase: Check your credit, get preapproved for a mortgage, work with a qualified local real estate agent. But what if you’re selling? Prudent sellers, like Rolde’s mother, prepare well in advance of the sale of their homes.
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“For most, their primary residence is their largest asset, so it’s important to understand the financial and tax implications of the sale,” said Felicia Captain, a broker with Coldwell Banker Realty in Wellesley. “Early preparation may even lead to a house selling faster or for more money.”
Here are eight things owners should do to financially prepare for the sale of their home:
Wait for warm weather. According to a 2022 analysis of the best days of the year to sell a home by real estate data firm ATTOM, the months of May, June, and July offer seller premiums of 10 percent or more above market value. The firm analyzed more than 46 million single-family home and condo sales between 2011 and 2021 and found that spring and summer are when people are looking to buy — and willing to pay more.
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Decide how to sell. Do you have the necessary time and experience to sell the house on your own, or will you retain a real estate agent to represent you? According to the 2023 Profile of Home Buyers and Sellers by the National Association of Realtors, 7 percent of recent home sales were so-called FSBO (for sale by owner) sales. NAR says that FSBO homes sold at a median price of $310,000 between July 2022 and June 2023, significantly lower than the median of agent-assisted homes at $405,000. “Like it or not, real estate agents get you the most coverage through the MLS system,” Bill Banfield, executive vice president of capital markets for Rocket Mortgage, said of the Multiple Listing Service database. “And that’s likely the way most people will sell their homes.” Agent commissions vary. Remember that they are negotiable.
Get Ready to Sell
Calculate your expected net proceeds after expenses. You’ll have lots of expenses to get the house ready for sale — repairs, cosmetic updates, staging, etc. You’ll also have a variety of other closing costs, including tax stamps, paid by the seller, which come to $4.56 per $1,000, and legal fees, about $1,500 for a seller, according to Hillery Dorner, a real estate attorney with Dorner Law & Title Services PC in Concord. And, of course, if you have a mortgage on the house, that will be paid off and deducted from the amount you’ll be paid at closing. After estimating the costs of sale, you’ll arrive at your net proceeds — a number that’s important to know, especially if you plan to roll over those proceeds into another home.
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Prepare for an appraisal gap. “As home prices have gone up, some sellers might try to get aggressive when selling their homes,” said Rocket’s Banfield. “If the purchase price is higher than the appraised value, then the buyer has to either come up with the difference in cash or negotiate the price with the seller.” If the sellers agree to reduce the price, the net proceeds will be lower than anticipated, which could be bad news if they were counting on a certain bottom line to purchase another home.
Anticipate the high cost of moving. Sure, you can rent a truck and move yourself to save money, but if you’re like most people, you’ll hire a moving company. The cost of a move varies, depending on the size of your home, when you move, how much stuff you’re moving (determined by weight), the distance, and whether you will pack yourself or have the movers do it. According to United Van Lines, a 15,000-pound move (an average four-bedroom home) from Boston to Portland, Maine, would cost about $7,000 in March or about $8,000 in June, during peak season. The same move to Tampa in March would cost about $10,000; in June, it would be closer to $13,000.
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Have the right bank account. If your house is titled in the name of a trust, Dorner advises you to open up a bank account in the name of the trust if you haven’t already. “In Massachusetts, the sales proceeds have to be written to the name on the deed,” she said. “If there’s no bank account, you can’t wire into it or negotiate a check payable to the trust.”
Expect the unexpected. Issues often pop up when selling a house. For example, if there’s little interest in your home, you may want to consider offering incentives, such as buying down the interest rate of a buyer’s mortgage. Or, if you haven’t found a home by the time the closing is nearing, you may want to negotiate a lease-back of your present home. Some sellers even include a “suitable housing provision” in the sales contract, which gives the sellers the right to terminate the transaction if they haven’t found suitable housing within a certain time frame, Dorner said. You may also want to check land records, at MassLandRecords.com, to make sure your title is clean and that there aren’t any tax liens or other encumbrances that may hold up the closing.
Realize you may also be a buyer. If you’re purchasing a new home, you’ll need to prepare just like any buyer would. That means checking your credit and correcting any errors, getting preapproved for a mortgage, and ensuring you’re getting the best rate and terms. Make sure that your sale is as firm as possible, to qualified buyers, so that you can go into a new purchase with confidence.
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Robyn A. Friedman has been writing about real estate and the home market for more than two decades. Follow her @robynafriedman. Send comments to [email protected].
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