Guess what!? Rates are trending down as we look into 2025! And that’s good news for everyone - including sellers. Lower rates mean more buyers will be looking (and able) to purchase your home. With rising home values in the last few years, many homeowners (probably you) are excited to cash in.

So, get prepping! Wash those windows, break out the spackle, call your agent, and - when the time is right (timing is key) - get listed. And while you’re doing all of that, don’t forget (as if it’s not a constant thought in the minds of all sellers) to strategize how you’ll leverage the earnings on your home’s sale.

Which is what exactly?

“Easy,” they’ll say. “It’s just the sales price of your home after ‘all the closing costs’ are covered.”

But what are the closing costs for a seller?

What “All The Closing Costs” Means for Sellers

In this blog, we’re going to attempt to cover the bulk of what your Real Estate Agent/Parents/Best Friend/the Internet means when they talk about the costs of selling your home. Because, on the surface, it almost feels counterintuitive – selling means making money, not spending it, right?

Well, sometimes you’ve got to spend money to make money. And that is the case when it comes to selling your house. To put it simply, the home transaction is tremendously complex, and the only way to ensure you’re getting the most out of your home is to hire someone who knows the process inside and out (in steps the trusted Real Estate Agent).

DISCLAIMER: Closing fees vary by state, region, and more. It’s always best to talk to your trusted real estate agent, who can walk you through every detail of what is to come. They are the experts in the area and can answer (or help you find answers to) every question you have regarding your property sale. Don’t be afraid to ask questions.

Cost #1: The Real Estate Agent

Cost #1 = (Your Agent’s Commission $/% + Any Offered Commission $/% to the buyer’s agent) * The Selling Price of Your Home

Don’t misconstrue the heading – your Real Estate Agent is so much more than a line item. To most, a Real Estate Agent is a friend, guidance counselor, therapist, advisor, and more (if you don’t feel this way about your agent, maybe consider getting a new one). But for the sake of this blog, it’s important to recognize that they’re professionals who earn their living helping you maximize your home transaction.

So, how does that compensation work?

Real Estate Agents get compensated through commission (usually a % of your home’s sale value). Traditionally, a seller would set aside 6%± of their home’s sale price from their earnings to pay their and the buyer’s agents (3%± to each).

You may be thinking, why would I pay the buyer’s fees? Good question!

The idea of covering the buyer’s Real Estate Agent fees was not (and is not) a requirement. You could have (and still can) offered 0% commission to a buyer’s agent. The fear, however, is that by doing so, you’re decreasing the pool of buyers who can afford your home and adding barriers for those who can. So, the tradition became an unsung standard.

Traditional Compensation Payment Structure

Home Sale Price * (Seller’s Agent Commission % +Buyer’s Agent Commission %) = Cost Paid By Seller For Commission
$400k * (3% + 3%) = $24,000 in paid commission

It is due to this unsung standard (seen by some as pressure) that, as of August 2024, things are looking a little different for the buyer’s agent’s commission. In its simplest terms, a buyer and their agent will agree upon a commission the buyer is responsible for before they even step into a showing.

On the flip side, when listing their home, the seller can choose to offer [blank]% or $[blank] commission that they’re willing to pay the buyer’s agent on behalf of the buyer (which they would do for the same reasons mentioned earlier). If a seller offers no or little commission help, the buyer is then responsible (based on their agreement with their agent) for covering all the remaining agent’s fees.

Additionally, the commission %/$ offered by a seller cannot be showcased via MLS (a platform used by real estate professionals/home buyers that compiles available listings in certain areas for review). This means buyer agents must contact seller agents to determine if/how much a seller is offering to cover.

Here is a rundown for those of you who prefer the visuals!

That said, the strategy used in the past (offering buyer’s agent’s commission to attract more buyers/bids) is still very much the dominant strategy. As home prices continue to go up, it is unlikely that this will change.

Just think back to when you purchased the home you’re now selling. Do you remember how much you had to cover to nail down your loan, closing, repairs, etc.? I would assume you, too, were counting every penny. And when you’re looking to sell, attracting buyers is the name of the game.

Deciding the amount of commission to offer to your buyer’s agent is strategic and shouldn’t be written off one way or the other. Your goal is to maximize your list of potential buyers while maximizing your profit. It’s your agent’s job to know what's happening in your market and ensure you stay in line between competition and profit!

Cost #2: Title Insurance

Cost #2 = Owner’s Policy Premium % * Your Home’s Value

A common (if not required) one-time cost of selling your home is title insurance. The actual fee is dependent on your region and is negotiable between buyer and seller. Title insurance is typically split into two policies: the Owner's Policy and the Lender's Policy. The premium you’ll likely be responsible for—often partially or fully paid by the seller—will cover the Owner’s Policy, which protects the buyer’s financial interests in the property.

This insurance policy safeguards the property owner (both seller and buyer) against any unforeseen issues related to the title that may arise during the transaction process. These issues could include anything from unpaid property taxes, liens, or discrepancies in the property’s history of ownership that could threaten the buyer’s legal right to the property. The cost of this insurance is based on the home's selling price and generally ranges from 0.5% to 1% of the home’s value, though this percentage can fluctuate based on location and the specifics of the transaction.

It’s worth noting that title insurance policies can also include additional coverage beyond the basic protection against title disputes. For example, you may want coverage for potential future legal challenges, such as boundary disputes or claims of easements. To ensure you’re getting the right protection for your transaction’s unique situation, it’s essential to consult with your real estate agent or attorney. They can help you understand the terms of the policy and determine whether any extra coverage would be beneficial in your specific case.

Cost #3: Monthly Fees & Taxes

Cost #3 = ((Day of Closing/Days in the Closing Month) * Monthly Cost #1) +…+ ((Day of Closing/Days in the Closing Month) * Monthly Cost #n)

It is common practice for the seller to pay any outstanding monthly fees and taxes accumulated during the time they owned the home, up until the day of closing. These costs are typically prorated, meaning they are calculated proportionally based on the specific date the sale is finalized. Common prorated expenses include…

• Homeowners Association (HOA) fees
• Property taxes
• Utility bills

…all of which must be settled by the seller for the portion of the month they still owned the property. This ensures that the buyer only pays for the costs associated with their ownership of the home after closing.

However, if you’re planning ahead, estimating these closing costs can be tricky since it’s difficult to predict the exact date (or even the month) your home will close. Real estate transactions often experience delays due to inspections, appraisals, or financing issues, which can shift the timeline unexpectedly.

To avoid underestimating your potential expenses, it's wise to plan conservatively. When calculating your estimated costs early in the selling process, it’s a good idea to factor in a full month’s worth of fees and taxes, even if you expect to close mid-month. This approach will help you prepare for a “worst-case scenario,” ensuring enough funds to cover any prorated expenses regardless of the final closing date.

Planning for a full month’s worth of costs gives you peace of mind and helps avoid any last-minute financial surprises. Be sure to work closely with your real estate agent, who can help provide more accurate estimates as your closing date approaches.

Cost #4: Seller Concessions

Cost #4 = %of Home Sales Price You’re Open To Using As Concessions * Home’s Sale Price

Seller Concessions probably pose the largest question mark in our proposed seller’s cost formula. This is because Seller Concessions is a hodgepodge category of tactics that can be used to help close a deal. These tactics can range from price reductions to inspection fees and don’t always involve an additional cost on behalf of the seller. Sometimes, it’s just a matter of maneuvering funds in the best interest of both parties. This is where negotiation and transaction-specific nuances shine brightest.

The National Association of Realtors defines Seller Concessions as “a strategic arrangement in a real estate transaction where the seller covers certain costs or fees associated with purchasing a home.” Typically, the goal is to reduce the upfront cash the buyer needs, making the property more obtainable and attractive.

Here is a (incomplete) list of possible Seller Concessions:

• Closing Cost Contribution: You may agree to cover a portion or all of the buyer’s closing costs, including loan fees, title insurance, appraisals, and other services.
• Home Warranty: You may agree to provide a home warranty that covers the repair or replacement of major home systems and appliances for a certain period after the sale, usually one year.
• Repair Credits: Instead of making repairs yourself, you can offer credits at closing to cover the cost of necessary repairs identified during the home inspection.
• Paying for Inspection Fees: You could offer to pay for the buyer’s home inspection, termite inspection, or radon inspection fees.
• Prepaying Property Taxes or HOA Fees: You could cover a portion of the property taxes or homeowners association (HOA) fees for a specified period after the sale.
• Furniture or Appliance Inclusion: Maybe the buyer wants to include certain furniture, appliances, or fixtures in the home sale, which may not have initially been part of the offer. Sure!
• Covering Title Insurance Premiums: You could offer to pay for the buyer’s portion of title insurance, which protects the buyer against title-related issues.
• Flexible Closing Date: The seller agrees to accommodate the buyer’s desired closing timeline, which can help reduce stress or moving costs for the buyer if they need extra time to close.

Regardless of your choice, seller concessions have their limits – literally. The maximum amount that a seller can concede to a buyer is usually 3% to 6% of the home’s sale price. The actual amount depends on the buyer's loan type, lender guidelines, the type of property, and more.

But how do I account for something so situation-based in my closing cost calculation? It’s impossible!

While it is true that it would take a very good crystal ball to nail down the specifics of your final closing agreement, you can take this time to come to terms with how much (monetarily) you’d be willing/able to concede. If you suspect that your buyers will have a lot of “things” to do to make your house their home (and we’re not just talking paint – think a new roof, a new water heater, etc.), factor in what those costs could reasonably be.

Remember that these concessions are cards in your hand to play if/when they’re needed. Have open and honest discussions about what these are with your agent before (and during) the transaction process. This will ensure they (your agent) can be your best negotiation advocate!

Cost #5: Your Current Mortgage

Cost #5 = Your Current Mortgage Balance

This article has had one fat elephant up to this point – your current mortgage! Unless you own your home outright, you need to close your current mortgage balance with your bank. The logistics of this are typically handled at closing by the closing company, but when calculating the proceeds from your sale, DO NOT FORGET about your good friend Money Bags.

Conclusion: Understanding Your Bottom Line For A Seller

Selling your home may feel like a ton of preparation and anticipation, but understanding the costs involved will make the process much easier (thank you realistic expectations ). While the process may seem complex, having a knowledgeable real estate agent by your side will ensure you confidently navigate these costs.

By accounting for these five primary seller expenses—real estate agent fees, title insurance, prorated taxes and fees, seller concessions, and your current mortgage balance—you can better strategize how to maximize your profit. Each expense plays a vital role in selling your home quickly, attracting the right buyers, and closing smoothly.

Total Seller Expenses = Cost #1 + Cost #2 + Cost #3 + Cost #4 + Cost #5
Total Profit = Your Home’s Selling Price – Total Seller Expenses

Remember, preparation and planning are key. Understand your costs, calculate your potential profits, and be ready to negotiate. With the right approach and expert guidance, you’ll be set up for a successful sale and a clear picture of how much you’ll walk away with in the end.

Ready to sell? Start by reaching out to your real estate agent and begin the journey toward a profitable sale!