- The Washington Times - Thursday, June 8, 2006

Home sellers in the Washington area, especially those who have owned their home long enough to have built up equity as their property has increased in value, may think they can sell the house and walk away with all the profits.

They might daydream about piling up cash in the bank, taking a European vacation, investing in gold or upgrading to a luxurious new home.

Before counting all the cash, though, sellers need to be prepared to spend a little. Sometimes they need to spend a lot. Often, the small expenses add up to exasperate sellers: paying a professional to clean the carpet and the windows, repairing the railing that collapses the day before the house goes on the market or even eating more meals in restaurants so the house can be shown at dinnertime.

The most obvious expenditure when selling a home is the commission paid to a real estate agent, although some sellers opt to sell their home themselves or save money by using a flat fee service to list their home on the Metropolitan Regional Information Systems Inc. (MRIS).

Even when they choose not to hire an agent, sellers must be prepared to pay the commission fee to the agent representing the buyer.

“Most RE/MAX franchises allow their agents to negotiate their own commission rates, but not all companies allow their agents to do that,” says Bruce Majors, a Realtor with RE/MAX Allegiance in the District. “Sellers and buyers sometimes don’t understand why agents cannot openly discuss commissions, but because of an antitrust settlement, agents cannot talk to each other about what commissions they charge.”

Mr. Majors says almost everyone thinks real estate agents charge 6 percent as a sales commission, with 3 percent going to the buyer’s agent and 3 percent going to the seller’s agent. However, commissions vary more than that.

“The main thing that sellers need to understand is that no matter what the actual rate is, they will need to be prepared to pay a commission when they sell their home,” Mr. Majors says. “Even if you use a discount brokerage to place your home on the MRIS listing service, you need to know that this means your home is available to look at and that you will pay a fee to the buyer’s agent. Whether that fee is 2 percent, 2.5 percent or 3 percent doesn’t really matter, but it is wise to be prepared to pay what is customary for that neighborhood so that local agents show the home.”

Mr. Majors points out that if sellers decide to sell their home themselves, they will need to assume some expenses traditionally covered by real estate agents, such as paying for newspaper ads and printing brochures with information for potential buyers. He says classified ads typically cost $75, display ads about $150 and larger ad placements $200 to $250.

Gaye Collins, a Realtor with Weichert, Realtors in Vienna, says, “The biggest cost to selling your home, unless you have major renovations done, is the brokerage fee. But anytime you hire a professional, whether it’s a doctor, a lawyer or a real estate agent, you get what you pay for. And you don’t get what you don’t pay for.”

In addition to paying for marketing costs, sellers need to anticipate settlement costs.

The amount of settlement fees varies by jurisdiction, but sellers normally pay a fee to the settlement company, a deed-of-trust-release fee and a document-preparation fee, which can cost $400 to $750 and will be taken out of the proceeds at settlement.

Sellers also pay a recording fee and a transfer tax, which represent a percentage of the sales price of the home.

Some of these taxes are paid by buyers and some by sellers. A real estate agent representing the seller will provide an estimate of these fees when the property is listed, often with variations at different sales prices so sellers can accurately anticipate their proceeds from the sale depending on the actual sale price.

Karen Copeland, an associate broker with RE/MAX Specials in Upper Marlboro, says sellers who live in communities with a homeowners association or a condominium association need to purchase association documents as soon as their property is listed.

Buyers have a window of time after receiving the documents when they can cancel the contract if they are unhappy with any of the association’s regulations or financial information.

“Documents can cost anywhere from $75 to $325, which the seller must pay,” Mrs. Copeland says. “Sometimes agents will pay for the documents and then be reimbursed at the settlement.”

Mrs. Collins says, “The most that associations are supposed to charge for documents is $100, but then they can tack on fees for mail delivery or downloading, too. If you live in a planned community like Reston, you have to pay for both the homeowners association documents and the cluster documents.”

Mrs. Copeland recommends that sellers check another document before they put their home on the market: their own loan papers.

“Some sellers don’t realize that they may have a prepayment penalty on their loan, which means that a penalty would be taken out of their proceeds and given to the lender at the settlement,” Mrs. Copeland says. “Prepayment penalties are not legal in Maryland, but in many other states they are allowed, and people often have lenders from other parts of the country.”

Another potential cost at settlement occurs when sellers must live temporarily in their sold home and rent it from their purchaser. Typically a rent-back fee is based on the buyer’s mortgage payment divided by 30 to come up with a daily rent. Sellers often also are asked to pay a security deposit to the purchaser to cover any possible damage to the home during the rental period.

Seller costs go beyond settlement costs and document fees, though, particularly for a home that may need some sprucing up to attract buyers.

Though it seems that decluttering a home — the first step toward preparing it for sale — should cost only the owners’ time, it can cost money to store items while a home is on the market.

Some sellers have so much to discard that they may need a special trash pickup. Some call a contractor to haul away their unneeded personal belongings.

After the clutter is gone, sellers need to take a hard look at their home to determine what minor repairs may need to be done and whether they need to hire a professional cleaner.

“People will live with all kinds of conditions in their home, but then they will need to spend money in order to sell the house. I always go through the house with the eye of a home inspector,” Mrs. Collins says.

“I bring to the attention of the sellers things that buyers are likely to notice and want fixed,” she says. “Buyers are no longer going to buy a home in just any condition, and sellers who don’t understand this find themselves with their home lingering on the market.”

Fresh paint, new carpet and other repairs vary widely in cost from home to home, but sometimes sellers need to spend thousands in order to make their home attractive to buyers.

“Sellers may need to spend $4,000 to get a bathroom back into service that they have just ignored,” Mrs. Collins says, “but if that can bring them an extra $40,000 in the sales price, it is worth it.”

Mrs. Copeland says the market has changed considerably since last year, when home inspections led only to buyers requesting that major structural, plumbing or electrical problems be fixed.

“Now buyers are asking for cosmetic changes to be made to the home before they will buy it, such as replacing a door that doesn’t line up perfectly or asking for rooms to be painted,” Mrs. Copeland says. “Buyers right now can just about ask for anything and sellers have to do as they ask.”

Expenses associated with problems found in a home inspection cannot always be anticipated, but sellers can anticipate some other expenses: paying for professional cleaners, a termite inspection and a home warranty program.

Professional cleaning is not always required, but because in many families both spouses are working and no one has time to clean, sellers often choose to spend an extra $250 to $400 to have the home deep-cleaned by professionals.

Mr. Majors recommends that sellers also prepare to spend extra time — or extra money if they need to hire help — on landscaping, keeping the grass cut and the bushes trimmed.

Termite inspections are a part of every sales transaction, sometimes paid by the buyer, sometimes by the seller. Though the inspections normally average about $50, Mr. Majors says sellers need to pay for treatment if termites are found. He says a termite treatment for a large home could cost $600.

Mr. Majors says that as the market shifts to a buyer’s market, sellers are beginning to pay for warranty programs to attract buyers.

“Home warranty programs cover the appliances and home systems and give the buyer peace of mind that these items are covered if something goes wrong with them,” Mrs. Copeland says. “They usually cost between $350 and $450 and cover repairs and sometimes even the replacement of an appliance if it’s not repairable.”

A more variable expense depends on whether the sellers are using an agent or attempting to sell the home on their own. In either case, the home must be accessible to potential buyers as much as possible.

“If you are selling it yourself, you need to be home as much as possible, which can cut into your work hours,” Mr. Majors says. “But if you are using an agent, sometimes it is best to go out of town on the weekend so that buyers can see the place at all hours.”

Mr. Majors points out that incidental expenses such as going out to dinner so that the house is available to buyers at dinnertime can add up fast. Sellers often find themselves picking up carryout meals while their home is on the market so that the kitchen is always clean and there are no cooking odors that might put off a potential buyer.

Though sellers certainly can expect to keep most of the equity in their home, they need to anticipate the cost of preparing their home for sale, marketing it and then transferring it to new owners.

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