If you’re just starting to wonder if it’s time to sell your house, there’s probably one question constantly lurking in the back of your mind: ‘How much will I make selling my house?’
Well, let’s find out.
How to Figure Out Your Home’s Worth
HomeLight ranks Richard Batts, a veteran real estate agent in The Villages, Florida, at the top of our list for both his effectiveness and efficiency. He says the unfortunate reality is “… a home’s market value … is not necessarily as much as [the homeowners] thought.”
The difference between your estimated sale price and the market value stems from the weight of the memories you and your family have created there over the years. No buyer will pay more because your baby took her first steps in your living room, as interesting as that home advertisement would be.
On a more serious note, overpricing your home opens you up to some nasty consequences. It can lead to a months-long stay on the market, which can make potential buyers wary. The last thing you want is for them to go into a viewing searching for problems with the house. You owe it to yourself to price your house smartly, so everyone has a chance to see how great it is.
While online home value estimators are fine to get a ballpark figure (we think our home value estimator can get pretty close) the best way to accurately assess how to price your home is for a real estate agent to conduct a comparative market analysis.
How to Determine How Much Cash You’ll Walk Away With
As a responsible home-seller-to-be, you’re undoubtedly anxious about how much profit you’ll make on the sale. Perhaps you’re wondering if you’ll have enough to invest in a larger place for your growing family. Or maybe you need to free up some cash for bills, college tuition, or that trip around the world you always dreamed of.
Just think of everything you could do with that money. When calculating your own takeaway, use the following steps to avoid feeling overwhelmed.
- Find your estimated home value based on similar homes in your area
- Add: value for any amenities your home offers
- Subtract: value for any issues
- Equals: the value your home will sell for
- Subtract: the money you’ll invest for home staging, upgrades and marketing
- Subtract: the agent commissions
- Subtract: attorney fees
- Subtract: taxes
- Subtract: any other local fees (like HOAs)
- Subtract: the balance on your mortgage
- Subtract: your down payment
- Equals: your profit
Here’s how the math breaks down, step by step:
Step 1: Take a look at an online home value estimator
If you’re not quite ready to call an agent, that’s okay. In order to get an idea of how much your home is worth, you can start by using a home value estimator. HomeLight’s free online home value estimator does for home values what Kayak does for flight prices. It presents you with estimates from five leading competitors, which can give you a much better idea of your home’s worth than if you’re only looking at one.
Step 2: Compare your home to others in your area
Once you have this initial figure, it’s time to get more specific. Home value estimators give you a value based on location and square footage, but your home’s real value will depend on several factors. Look at all the things that make your home uniquely valuable: upgrades and amenities.
Your agent will use this strategy to come up with the listing price.
Step 3: Subtract any new updates, home staging and marketing
Certain home improvement projects will help add value to your sales price. However, be sure to choose your improvements wisely. According to a 2016 Cost vs Value Report, the best investment you can make to your home this year is attic insulation, which recoups 116.9% of money spent. Updates to the outside of the home and garage door replacement were second and third on the list.
Home staging is still considered an optional, but wise choice for many home sellers. A home stager is a professional who helps make homes attractive to potential buyers. They can do everything from repainting the rooms in pleasing shades, to rearranging your furniture, to bringing in rented furniture if the space is empty.
Buyers tend to flock toward neutral wall colors, simplistic furniture layout and… you guessed it… no clutter! Homes that are staged tend to sell within 11 days for 17% more than unstaged homes.
Step 4: Subtract the agent commissions, attorney fees, taxes and any other local fees (Like HOAs)
Make a list of your agent fees, attorney fees, transfer tax, property tax, HOA fee (if applicable) and find out if you’ll qualify for the capital gains tax. Remember to also look into your state’s requirements for real estate transactions so there are no surprises down the line.
Step 5: Figure out your takeaway
Once you have your list, the math is relatively simple. Subtract the outstanding debt on your mortgage and your original down payment to see how much you’ll profit on the sale.
Use this figure to determine whether it’s the right time to sell your house or hold on to it. It’s impossible to foresee what the market will do, but knowing your numbers will make the decision process a lot easier.
Now let’s figure out how much that figure will actually be by looking at a real life example.
Case Study: How Much Will I Make Selling A 2-Bedroom Condo in Boston’s South End
In Boston’s tiny South End neighborhood, the average price per square foot for a condo is $875 according to real estate research site, NeighborhoodX.
Let’s look at two properties that were sold within months of each other earlier this year on the same charming, tree-lined South End Street. They’re both on the first floor of beautiful brick townhomes. They’re both 2 beds, 1.5 baths, around 1,000 square feet. Both had updated kitchens, hardwood floors and fireplaces. However, one sold for $1,087/square foot, while the other sold for $859. What was the difference?
Two Things: Amenities and Timing
- The higher priced unit came with a dedicated parking spot and a large outdoor space — two very rare and very coveted amenities in Boston proper.
- The higher priced unit was sold in June 2016 — at the height of Boston’s real estate season which lasts from May to September. The lower priced condo was sold in the off-season, February 2016.
Now let’s use the more expensive home to work backwards to figure out how much the sellers actually made off the deal. For the sake of convenience, let’s call these home sellers D.J and Danny Tanner.
Consider the price for marketing and staging: According to HomeAdvisor, the average cost of staging is $725. Professional photos of the space and MLS listing may or may not have been taken care of by the agent. If not, it would have cost a couple hundred dollars, all in. Let’s also assume the Tanners invested in a small kitchen remodel to modernize a bit. HomeAdvisor quotes small kitchen remodels in Boston around $10,000.
As for the closing: Sellers are responsible for both their agent’s commission as well as the buyer’s. On average, both agents make about 2.5% of the total sale, or 5% total. (In some cases, it’s as much as 6% but usually no higher.) Most of the closing costs (like title insurance and other things dependent on your state) are paid by the buyer, but sellers are responsible for their own attorney fees. On average, attorney fees for a closing in Boston are about $1,000.
Taxes and fees: If the Tanners had any property taxes or homeowner’s association (HOA) fees due upon closing, they would have to pay those out from their proceeds as well. On that idyllic street in Boston, their property taxes are around $8,000/year. Their HOA fees are just under $500/mo. They would also have to pay a transfer tax, which differs by state. In Massachusetts, it’s about .456%. Additionally, since the Tanners are married, a capital gains tax would apply if they made more than $500,000 on the sale. (This figure drops to $250,000 for single people.)
Please also remember that they’d have to pay down their existing mortgage, as well.
Calculators ready? Let’s go.
At 1,000 square feet and $1,087/sq ft, the Tanners sold their condo for $1,087,000.
The couple bought the home for $700,000 four years prior to selling.
The Cost the Tanners Incurred From the Home Sale:
- $1,000 for marketing and staging fees
- $10,000 for remodeling
- $1,156.67 for property taxes and HOA fees
- $65,220 for agent commissions
- $1,000 in attorney fees
- $4,956.72 for the transfer tax.
- ($1,087,000 – $700,000 = $387,000, which means that they don’t qualify for the capital gains tax.)
The cost of selling the house totals: $83,333.39
Now, let’s figure out how much the Tanners owe on the house. The Tanners had:
- A 30-year mortgage
- A 3.5% interest rate
- 20% down payment and got a conventional mortgage loan
Their monthly payment, according to the NerdWallet mortgage calculator tool, would have been $3,628.
That means that their principle, or the mortgage loan they took out from the bank, was $560,000. We put this information into a simple online mortgage balance calculator and figured out that:
The Tanners have already paid: $102,609.82
The Tanners owe: $457,390.18
Now, we’ll add what the Tanners owe the bank to the cost to sell the home. That equation looks like:
(Amount Owed to the Bank) + (Cost to Sell the Home)
$457,390.18 + $83,333.39 = $540,723.57
We also have to add the 20% payment the Tanners put down when they purchased the home.
(Amount Owed & Cost to Sell) + (Down Payment on the Home) = Total Cost of the House
$540,723.57 + $140,000 = $680,723.57
The next step to find out how much the Tanners made on their home sale is to subtract what they paid from the sale price:
(Home Sale Price) – (Total Cost of the House) = Total Money Made On Your Home Sale (Excluding Sunk Cost)
$1,087,000 – $680,723.57 = $406,276.43
Lastly, subtract what they originally paid into the mortgage: -$102,609.82
(Total Money Made on Your Home Sale) – (What You Previously Paid on the Mortgage) = Total Home Sale Proceeds
$406,276.43 – $102,609.82 = $303,666.61
When all was said and done, the Tanners made a total of $303,666.61 on their home sale.
Not too shabby for the Tanners.