Congratulations! You've made the decision to sell your home – now what will it cost to get the job done?
Like selling anything of value, there are some costs involved. With the sale of a home, these costs can be significant. In the Calgary area, the costs shouldn't amount to any more than about 5% of the sale price.
There are many costs that could be included in this calculation, but for convenience I'm not including the costs of painting your home, deep-cleaning the carpets, recalking the bathrooms, cleaning the windows, putting excess furniture and belongings into short-term storage, extra garbage pickups, any added insurance premiums, or any repairs necessary to bring the home up to "show home condition." These are amounts that are required for every home but can vary greatly.
The costs that I am going to include are hard transaction costs.
Usually the highest expense of the transaction is paying off the current mortgage loan. Sometimes the loan can be transferred to another newly purchased home, but for all intents and purposes, I consider it being paid off for this transaction and another loan being created for the purchase transaction.
The second expense is the marketing fees. You could decide to do this yourself or you could hire a licensed real estate agent to take these on for you. If you decide to take them on yourself, consider how you're going to get the word out? TV, radio or billboard are usually out of the question because of cost. Flyers, newspaper ads, post cards or Internet websites are all affordable, but rarely provide any kind of results in actually getting your home sold. A for sale sign is an absolute must – not only to identify your property for sale to the public but also to local real estate agents who regularly work with buyers. The cost of a professional looking sign is less than $100.
Hiring a real estate agent (who is also a REALTOR®) to market your home is the wisest decision since they have access to a highly-effective system that is meant to bring home buyers and home sellers together. This is called the MLS® System and is partly a member-shared database and partly a way of doing business. Recent surveys indicate that about 85% of all home sales go through the MLS® System, with new home builders, selling privately, accounting for the vast majority of the rest of the home sales.
The real estate marketing fees are really divided into two parts. The first part is the marketing to attract potential buyers and their agents. The actual to the agent to enter your property listing into this System is about $50, PLUS the cost to attracted other (co-operative) agents with potential buyers. The local, market-normal rate for attracting buyers in the Calgary area is 1½% of the sale price plus $2,000 for the agent that brings (or just works with) the successful buyer. Often, this is quoted as 3½% of the first $100,000, plus 1½% of the balance of the selling price, but because most sales in the Calgary area are above $100,000, the result is the same. This amount is negotiable, but if you decide to offer less, then expect that the buyer to require you pay the full amount of their agent's fees as a term in the purchase contract. After all, it has always been customary that the buyers' money is used to pay for their (the buyer's) agent through the purchase price of purchase contract. It is also a condition of the mortgage should they need their available cash for the down payment. Offering any less than the market-normal amount may stigmatize your property if the potential buyers have instructed their agents not to show any homes that they may end up being liable for their own agents' fees. Many of my buyer clients instruct me not to even show them homes with this type of compensation shortfall. Other clients wish them included them simply because the lower than normal fees indicate to them potential opportunities to take advantage of "unaware" sellers. The fee paid to the agent working for (or with) the buyer is paid only when a sale actually occurs.
The marketing plan of the selling real estate agent varies greatly. The cost that you're expected to pay can range from as little as about $2,000 to an amount equal to what is offered to the buyers' agents or 1½% of the sale price plus $2,000. Again, this is quite normal for the area. Local agents are usually pretty fixed on this fee, but it is quite negotiable and the busier agents are more likely to negotiate if you offer to pay them for their expenses and time should your home not sell.
When I'm interviewed to quote on selling a home, I always suggest to potential seller clients to determine what is being included in those fees if the agent is asking that you pay top-dollar. Here are some of the items that the top-tier agents are including for top-end listings: the "free" CMA (an in-depth analysis of the strengths, weaknesses, threats and opportunities in selling your home), professional photography (i.e. hiring a photographer – not taking the photos themselves), professional measurement (i.e. hiring an insured measurement firm – not taking the measurement themselves), preparing and providing floor plans to your home to help buyers to visual the layout, hiring a copy-writer to write your MLS copy, hiring a certified home stager to re-arrange or supplement your furniture and belongings, hiring an appointment booking service to arrange showings between you and the buyer agents, creating video virtual tours and websites with additional information to promote your home listing, providing a digital lockbox that allows showing agents easy access for their appointments, providing a brand-standard "for sale" sign so potential buyers and their agents can easily find your home and, lastly, totally no reimbursable expenses. If the agent is willing to work on the fee paid only upon a 100% contingent upon sale basis, then expect them to charge for that risk since, in Calgary, even in seller dominated markets only 1 out of every 2 homes ever sell when listed for sale. [Pro tip: If you've hired the right real estate marketing expert to start with, the success of your sale is based upon the condition of the home and the asking price. Both of those are in your control and not the agent's.]
Some agents will also offer to provide flyers or postcards for the neighbourhood, newspaper advertisements, open houses and the like. While these items are not free to them, they are meant to bring business to the agent and not at all to help get your home sold. So feel free to cross them off of list of "costs of marketing your home" if they put them into the list. They are an agent marketing expense and not a direct home marketing expense.
For the agents that charge the lowest fees, ask them what of the above details are they leaving out of the marketing (if anything). In exchange for reducing the agents' risks of incurring expenses, you could expect to be offered a reduced fee. Of course, included in the fees are professional negotiation, clear and regular communication, project management and oversight, and handling deposit money and conveyancing the document to the real estate lawyers. Novice agents would likely charge the least and teams of agents - with their higher overhead costs and duplicity of effort - should be expected to charge the most.
That brings us to the next highest expense. The real estate lawyer. This cost is negotiable and you can find the fees range from $500 to $1,200. Don't be surprised to see that the costs could inflate should the lawyer run into some difficulties with the transaction (this is where hiring the right real estate agent could save you legal fees or help prevent potential law suits). Finding a suitable real estate lawyer should be done very early in the transaction – probably at the same time as hiring a real estate agent.
If you are selling this home and buying another home, you should include a formal visit to a mortgage broker or lender to confirm your ability to buy another home if and when you sell your current one. Mortgage brokers or lenders are usually paid by the lender when a mortgage is placed and when it is renewed. These amounts are not insignificant, but they are usually included in other fees.
The required documents is the next fee. In the case of a single-family home, or a home that is a bare-land condominium, there is a requirement to provide a current Real Property Report with compliance. These range from $600 and up depending upon the size or complexity of the property. The municipal compliance stamp is determined by the municipality – currently Calgary charges $147. Should there be a compliance issue identified, the costs quickly add up for rectification and can take weeks -- this is why it is critical to verify your Real Property Report is current prior to listing your home for sale. Your real estate lawyer is the most knowledgable person to talk to about the RPR, but most real estate agents can quickly scan the document to see if they see any immediate "red flags" that need immediate involvement of your real estate lawyer.
If you don't need a Real Property Report, then you're gong to need condominium documents (or sometimes both). Depending upon the condominium board, the costs for the required documents could range from $100 to $700. Many agents are now including these in their marketing costs since they need many of them in order to enter your home listing into the database of the local MLS® System. Expect that if you decide not to sell your home, that you will be reimbursing the agent for this cost.
Thinking of selling today, or in the near future, call me right away and we can get the process started.
If you have any questions or comments, feel free to contact me directly.