This was originally published on Monday, March 23, 2015, in the Pacific Daily News. Click here to subscribe to the PDN.
When you sell your home the money from the sale will help pay certain costs and fees. This should be factored in, especially if you plan on using the money to purchase another home.
• Commission: Real-estate professionals work on commission. It is the seller’s responsibility to pay the commission on the sale of the home. A typical commission is usually 4 to 6 percent.
• Mortgage: Unless your home is paid off and is free and clear of any liens, you are responsible for paying off all debts on your home. You cannot sell your home unless the property has a clear title. The money from the sale will pay off your original loan first. If you have a second mortgage, any money left will be used to pay it off. If the sale of your home is not enough to cover the complete amount of the second mortgage, you have several options.
The first option is a short sale. A short sale happens when both lending agencies agree to accept less than what is owed. Another option is converting the balance of your second mortgage into a line of credit or an unsecured loan.
Because you paid your loan off early you may have to pay a prepayment penalty. Your lending agency may also charge you a loan payoff fee for all the administrative work associated with the sale
• Recording fees: After your debts have been cleared and you have sold the property you will record this with a government agency. This agency may charge a fee to record and document these changes.
• Escrow fees: Escrow is when a third party is used to complete a monetary exchange between two parties. The buyer and seller sign a purchase agreement and the escrow starts. The escrow ensures all terms are met. The fees usually are paid based on a percentage of the sale price.
• Title search fees/insurance: To ensure that the title is free and clear of any past liens or debts, a title company will research the property’s history through public records. A clear title gives you the legal right to sell the home. The title company offers insurance that their work is free of errors. If a lender is used to help buy a home, the buyer pays for a lender’s title insurance policy. A buyer or property owner may also purchase an owner’s title insurance policy. If an error occurs, the title company is responsible for compensation. Title fees and insurance costs are a onetime payment. A small payment now can save you big in the long run.
• Taxes: Because the selling of your home is an exchange of money for goods there may be taxes that you pay when transferring ownership of the home. If your property tax is not up to date you will have to pay the delinquent taxes and maybe late fees before you can sell the home.
• Notary fees: During the sale of your home you will be inundated with paperwork. Most are official documents and may need to be notarized. If you want official copies of all the paperwork have the documents notarized.
• Other expenses: As a seller you want to make your buyer happy. Sometimes it may mean going the extra mile. Buyers may ask for termite treatment and certification to empty a septic tank or new appliances. These requests must be met before the exchange of money happens so it will be out of pocket. Most of our homes may require painting or minor repairs even before you start the selling process. A little money spent sprucing up the home can translate into more money in your pocket later.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at firstname.lastname@example.org and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.