Clients often ask for help to identify and estimate up front home selling costs that must be paid before the property goes on the market or escrow closes. Knowing this information allows them to develop a budget and schedule tasks, plus an estimate of what to expect in net cash from the sale.
The vast majority of real estate contractors require payment at time of service or soon thereafter. Some, such as roofers, may place a temporary mechanic’s lien against the property to cover their up front expenses for materials. Here are the seven most common up front home selling costs and why they are necessary.
Home Repairs and Clean Up. Getting the best possible price and terms requires the property to be in the best possible shape. Investing in repairs and clean up not only attracts higher offers, it may also determine how long it takes for sellers to submit offers.
Inspections. Inspections often reveal items that should be repaired before a home is offered for sale, so inspections should be completed early in the preparation process. Most inspection companies bill for their report when it is delivered, others accept payment at time of sale (through escrow when escrow closes). However, the obligation to pay for the report is incurred when the report is delivered. If the sale is cancelled, the seller must still pay for the report. Inspections could include general, roof, electrical, plumbing, pool, solar system, pest, water well and septic system.
Environmental Reports. Sale of California homes (please check with your local agent if you’re in another state) require disclosure of existing or potential environmental hazards, such as earthquake/fault zones, flood zones and close proximity to hazardous waste disposal sites. These reports are provided to potential buyers before they make an offer. Like inspection reports, environmental report invoices must be paid whether the home sells or not.
Homeowner Association Disclosures. If the property is governed by a homeowners association (HOA), the association or the association’s management company will charge a fee to provide current copies of Bylaws, CC&R’s, financial statements and other disclosures that must be provided to buyers before escrow closes. This fee is usually paid when the documents are delivered.
Premium Marketing. Most brokers provide comprehensive marketing programs for which they pay all costs in anticipation of completing the sale and collecting a commission. If the sale is cancelled, they absorb the loss. If a seller wants additional promotions that exceed the broker’s usual scope of services, the seller may be asked to pay the extra costs before the property sells. If the sale is cancelled, the seller is still obligated to pay all premium marketing costs.
Appraisal. Most sellers base their asking price and negotiated sale price on their personal opinion of the home’s value and the listing broker’s Comparative Market Analysis or Broker Price Opinion. Unless the transaction is a probate sale, there is usually no requirement to order a formal appraisal up front. If the seller does want a formal appraisal to confirm their value opinion, the cost of the appraisal is usually paid upon delivery.
Survey. Homes with larger lots or that have property boundaries that are difficult to identify should be surveyed prior to sale. Surveyors will prepare an updated map and mark boundaries and easements with stakes or ground paint. The primary purpose of the survey is to identify property boundaries for potential buyers, but the survey can also help sellers identify and resolve any boundary line conflicts with neighbors, such as encroachment. Survey costs are usually paid up front or when the survey report is delivered.
Here is an example of a typical listing budget and schedule (click to enlarge):
There may be other up front home selling costs that apply to your property and situation. Consult a qualified broker in your area.
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