3 Important Concepts to Consider Before Selling Your Home
There's a variety of ways to sell you home, from listing with an agent to FSBO to auctioning. When analyzing your options, here are three important concepts to consider before making your choice.
1. It's not what you gross... it's what you net!
Distinguishing what you'll gross from the sale won't actually determine what you'll net. The price you sell the home for or the "Sales Price" (SP) is what’s known as the gross. This is the price before all expenses and closing costs. It’s the cost the buyer pays and real estate agents earn their commission on. The net is the final number after all closing costs, repair costs, commissions, and taxes are paid. The net is what ultimately ends up in your pocket. Buyers and agents care most about the gross while the seller should care most about the net. Here are three different scenarios to help illustrate the point:
Seller A, Seller B, seller C sell the same model home in the same neighborhood. Each one of the homes is paid off and are in the same condition, needing about $8,000 worth of repairs to get to market value. Seller A goes with a realtor and pays for repairs, Seller B goes with For Sale By Owner without repairs, and Seller C goes FSBO and does repairs. Here's how it would play out:
As you can see in this example Seller C ultimately made the most in net profit even though they grossed less than Seller A. Seller B paid the least amount in total costs but at the end of the day, Sellers A and C netted more.
While the real estate process can throw you for unexpected loops, it's fairly simple to make some estimates on how each process can pan out financially. Before you go with an agent or list on your own, make sure to stay focused on the net, not the gross!
2. Consider time and expertise.
Selling a home takes time, energy and effort and while you will have to put some time in regardless if you use a listing agent or not, you will spend less time if you let a professional handle it. Knowing how much money your time is worth can really help determine whether it is worth putting the time in to save on the commission or are you losing because of the opportunity cost? The opportunity cost is a concept that takes into account the cost of missing out on the alternatives. It’s a bit of an abstract concept but it’s really just what do you give up when you make a decision. It’s a factor not many people consider to sell your house yourself or with a real estate agent. Opportunity cost also takes into account the intangibles--things like kids' baseball games, time spent with family, vacations, etc. Make sure you take the time to consider what you’re giving up and factor it into your decision.
To determine the best way to sell your home, pick the method that best fits your goals and add up the pros and cons, take some time to crunch the numbers and then whatever method best fits your needs and yields the best results. Simple as that.
3. Don't forget the capital gains tax!
Many people don’t think about the implications of selling their home until they receive a significant tax bill the next year. Don’t forget about the capital gains tax when you calculate your net proceeds. Sellers are sometimes faced with capital gains tax bills that range from 20-50% depending upon your income, the state the property is in, and the gain. It can completely obliterate a significant chunk of your gain if you aren’t careful. Many real estate agents don’t really mention the capital gains tax or potential solutions because:
They aren't CPAs or tax attorneys so they don’t know the tax laws.
They are focused on closing the sale, not the tax.
Thankfully there are some solutions that sellers can take advantage of if they plan accordingly and prepare ahead of time. If you want to learn more about the tax and methods to defer it, visit our page on the deferred sales trust and join our next webinar!
Also, if you decide you want the help of an agent, consider us at Kingdom Luxury Realty! We'd love to help make your dream home a reality. Connect with us!