Theoretically, it should be easy figuring out how much profit you stand to make from selling your property. Just subtract what you paid for it from the amount you’re going to sell it for and, voila, there’s your profit. Right?
Sadly, things are never quite so simple in the real world as they are in theory…
Closing Costs Can Add Up Quickly
First things first, selling a house is not a purely profitable transaction. Believe it or not, it actually costs you money to sell someone else your property.
One of the biggest closing costs you’ll probably have to deal with when selling your home is your real estate agent’s commission fee, which is typically about 6% of your final sales price. While selling a house with the help of an agent is certainly possible, it can end up costing you even more, due to the cost of getting your property listed and advertised, not to mention the amount of time it will likely sit on the market.
Other costs associated with selling a house include inspection fees (as well as any necessary repairs), property taxes, deed transfer taxes, attorney fees, and more. All told, it is estimated that the average cost of selling a house is around 15% of the sales price, though you may wish to consult a seller closing costs calculator to get a more accurate valuation.
Don’t Forget Your Loan Interest
Unless you’re independently wealthy, or have independently wealthy friends or family, chances are when you bought your home you had to apply for a mortgage loan. A mortgage is when a bank or other lender agrees to cover the remaining purchase price of a property after you’ve made your down payment, with an agreement that you will pay back this amount over time.
The catch? You also have to pay interest. This can make figuring out exactly how much money your home costs you, and therefore how much profit you stand to gain from its sale, tricky.
There are two main types of mortgage loans, fixed-rate and variable-rate. In a fixed-rate loan, the amount of interest you have to pay remains the same for the entire life of the loan. This makes it relatively easy to find out how much your house ended up costing you. Variable-rate loans are harder because the interest changes over time, meaning some payments will be higher and some will be lower.
The Ups & Downs of Real Estate
It’s worth noting that the amount of profit you make from the sale of your home depends on a number of different factors. Your sales price can increase or decrease in relation to such things as the property’s age, its condition, and any amenities it might have. Of course, this means you have some control over your home’s value, as you can make repairs or build additions over time. With the right sales price, such expenses can end up paying for themselves.
That said, there are other factors affecting the value of your home that are out of your control.
The real estate market is notorious for the unpredictability of its ups and downs. The difference between a seller’s market and a buyer’s market can be vast, with everything from global politics to the national economy to local crime playing a role. If maximizing profit is important to you, keep in mind the state of the market before putting your house up for sale.