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Selling Your Home: Equity vs Profit

Homes for Sale in Coralville, IABuilding equity in your home takes hard work and persistence. For many homeowners, the day your mortgage payment finally starts to pay more of the principal than the interest is a milestone. Once you’ve finally built up some equity in your home, you tend to feel like it’s “money in the bank” especially when you are thinking about selling.

Unfortunately, it’s not that simple. It costs money to sell your home. Experts report the cost of sale can be as much as 7-10% of the sale price of your home. On a $237,000 home, which was the average sale price of homes in the Iowa City area last year, that’s $16,590-$23,700 coming out of the seller’s proceeds.

Profit vs Equity

Equity refers to the difference between the home’s fair market value and the outstanding balance of any loans or liens owed on the home. When we talk about your profit, we’re talking about the bottom line dollars you’ll walk away with when the sale of your home is final, minus all the expenses associated with the cost of sale.

If your real estate agent isn’t talking to you about the “cost of sale” from the git-go, be careful. At the Johnson Team, we believe a big part of our job is to help you make good financial decisions based on realistic information. Without a realistic picture of how much profit you are likely to walk away with from the sale of your home, you are liable to make some poor business decisions about your financial future.

These are the most common expenses associated with selling your home.

Home Improvement

The cost of home improvement projects should be figured into the cost of sale. The most common improvements buyers make to improve their resale value include new interior paint, new flooring, new fixtures, landscaping and other “curb appeal” investments and possibly even a new roof. If any of these projects are needed but not completed before you put your home on the market, potential buyers may very well request funds payable at closing to complete the projects themselves.

Closing Costs

Both the buyer and the seller are responsible for closing costs at the time of sale. For the buyer, these may include title insurance, recording fees, prorated taxes, abstract fees and deed preparation, and various other closing fees. If you have an attorney involved in the sale, those fees are also paid at closing.

Commissions

The real estate commissions are generally the largest expense. They may be split between the buyer and the seller and may be negotiated.

Price it Right

Of course, all of these projections depend on pricing your house correctly for the market and selling it in a reasonable amount of time. Your real estate agent has the best grasp of the market in your area, will research “comparables” of recent home sales near you. With the right price and the true cost of sale in hand, you‘ll be able to make the best financial decisions for your future.

If you are thinking of selling a home in the Iowa City/Coralville area or surrounding communities, let the experts at The Johnson Team help. We’d love to hear from you.

The Johnson Team

The Johnson Team