As homeowners prepare to sell what is typically their most valuable asset to downsize, relocate or move up to their dream home, they need to consider the costs that will come off the final selling price.
Real estate commission, legal fees and marketing are unavoidable, while others, such as staging, and cleaning are discretionary as well as highly variable.
To help home sellers anticipate their initial and final expenses, REW talked to realtors in Toronto and Vancouver about the costs sellers will incur.
- Real estate agent commission
Commissions are a given across Canada, with the seller paying 100% of the 5 to 7% commission the buying and selling agents will invariably split. Meanwhile, the buyer pays the hefty land transfer taxes (provincial and Toronto in Ontario, provincial only in B.C.).
Mark Hammer, a Vancouver-based agent with RE/MAX Crest Realty, who has bought and sold Vancouver homes for 25 years, takes a 7% commission on the first $100,000 and 3% on the balance. Notably, B.C. has always had a unique commission structure, traditionally 7% on the first $100,000 and 2.5% on the balance.
- Legal Fees
Sellers will pay an hourly or flat fee to the lawyer that handles the transaction and closes the deal. Ideally, the lawyer has real estate-specific expertise and experience, but rates will vary lawyer to lawyer and firm to firm. “If something goes wrong at closing, you want a lawyer that knows what to do,” says Lani Fumerton, a real estate agent with Toronto’s Union Realty Brokerage.
- Prepayment Mortgage Penalty
Check your mortgage documents and clarify exactly what you’ll owe your financial institution for the early payout. The prepayment penalty fee is often a percentage of the mortgage loan amount or is equal to a given number of interest payments you’d be paying monthly. The time remaining on the amortization period may also have an effect. “Sellers can’t get around the penalty and it’s never worth postponing the sale to reduce the fee,” says Hammer.
- Capital Gains Tax
Home sellers will not pay capital gains tax on their principal residence. However, if they changed how they use their principal residence, for example, renting it or running a business from it, its status with the Canada Revenue Agency may be affected. If this is a concern, home sellers should discuss their unique situation with a reputable accountant.
- Marketing & Promotion
Whether they rely on internal or outsourced professionals, agents typically pay for the photography/video, social media, print and outdoor ads, postcards, and property-specific/dedicated websites that maximize the property’s exposure.
“A successful sale comes from creating value in the eyes of buyers so that they choose my listing over the competition - the more buyers, the higher the selling price,” says Hammer. “The price is 100% marketing; it’s what the buyer sees and draws them to look at the home.”
- Basic Repairs
“Sellers must attend to whatever is broken or damaged, because if prospects see evidence of neglect, they’re sure to wonder what else the homeowner let slide,” says Fumerton. “For example, if the roof leaked but you didn’t fix the drywall or repaint the water stains, it is a red flag.”
Staging is crucial because it helps prospects see themselves in your home. Some firms, such as Toronto’s Union Realty Brokerage, have in-house design teams and own furniture and accessories, others outsource all staging. Expect to pay at least $5,000 monthly for staging, depending on the size of the home.
“Studies show a well-staged home will sell 17% over comparables – it’s a very worthwhile investment,” says Fumerton, whose firm owns a huge inventory of quality furniture, warehouse space and moving trucks and includes this service in its fees.
In Vancouver, Hammer’s team provides a person to help declutter at now extra charge, because the home has to look its best. However, in a declining market, Hammer would rather get the house on the market, than take the time required to add furniture and art as prices drop.
- Preparing the Home
Homeowners often take on these tasks, but if they lack the time, energy or inclination, they’ll pay to hire professionals. Fees will range greatly with the scope and quality of the work required.
If painted walls can’t be cleaned, colours are dark/dated, or the painted surface is overly worn, new paint will update and freshen the home.
Both Fumerton and Hammer insist their clients declutter and depersonalize their homes presale to open up the space. Professional declutterers, packers, movers, storage and rubbish removal services are available for hire. Jam-packed closets, cupboards, drawers, and basements suggest your home lacks storage more than it implies you have too much stuff.
Again, do-it-yourself or turn to the professionals but cleanliness is mandatory. “If necessary, pay an industrial cleaner to avoid giving prospects the creepy-crawlies,” says Hammer.
Naturally, more attention will be required in early spring and mid to late fall, but regardless of the season, outdoor spaces must be neat and tidy. Curb appeal can be further maximized with potted plants particularly at the front entrance and new mulch shows the homeowner paid attention and makes the best first impression.
Before you put your home on the market, it’s worth taking a moment to get real about both the mandatory and the discretionary costs, then decide whether you’ll do it yourself or outsource the painting, decluttering and repairs to the professionals.