How much does it cost to sell a property?

Wednesday 29 Apr 2020

The first question a homeowner asks when they decide it is time to sell is, how much will it cost to sell my home? I bet you have had trouble getting a straight answer to this question. I am going to give you the answer in detail. It is a simple question, but the answer is not as simple, there are many variables so I will deal with them all.

Why is it so hard to get a straight answer? Why do real estate agents pitch in so many ways? Can I believe marketing like “no sale no fees”? The answer is simple, real estate agencies are no different than any other business selling a service, they make a pitch to attract your attention. And yes, you can believe the pitch, but the better question would be, what do I get in this deal and is there fine print? In many instances the answer is not much, or that the end cost is a lot more than other more traditional approaches, or worse still you hire a salesperson who is so used to selling discounted price for their own service they are incapable of negotiating successfully on your behalf.

When considering how much you want to spend on selling your home be it a large residential house or a studio apartment you need to evaluate what you need. First is a good real estate agent capable of negotiating on your behalf, one that knows the way to market and advertise your home, one that understands the strategic balance of a campaign and one that can communicate with you. For more about the subject of how to choose a real estate agent CLICK HERE.

So, let’s start getting serious about cost. The cost of a sale will have several components, and most are variable. Before we examine each component let me give you some advice, evaluate the cost as a whole. In other words, do not for example accept very low advertising but pay a high price for commission or visa versa for that matter. A balanced approach would be a lot smarter. Let us break them down so that you can add it all up.

How much commission should I pay to sell my home?

I have been in real estate for over 30 years and I have seen this cost expressed in many ways and I expect that there are more ways to come. It is usually a percentage of the eventual selling price. The biggest variable in this is the likely sale price of the property. Most agents will charge a lower percentage on a multi-million-dollar mansion than they would on a three-bedroom home.

 At the end of the day the commission will be between 2 and 3 percent plus GST of the sale price. Some agencies and homeowners prefer a fixed fee, but the fixed fee will generally be somewhere within the range I have just given you. I have also seen some commissions expressed using an incentive. Say 2% of the sale price up to a fixed point and then 5% thereafter. This can work but most I have seen the incentive does not kick in until a ridiculously high figure is achieved so it does not really work as it should.

The percentages I have given you are the norm however there are some agencies and agents that work using discount rates. I am not saying not to use them, I am saying if they cannot negotiate their own pay when pitching for your business how well will they negotiate the sale price of a home that is not even theirs. I mostly find in life you get what you pay for. 

 

How much should I spend on Marketing & Advertising

This is the part that really gets difficult. There are so many options and products available, but it is essential to invest in a well-structured and strategic advertising and marketing campaign. The aim is to be found in amongst all the other properties for sale. So, you need to cast a large net and draw as many parties to the negotiating table as possible. There is an old industry saying, the more buyers, the more competition and the better the sale price. It is also important to be strategic do not just throw money at advertising that does not match the likely demographic of the property you are selling. A good example albeit exaggerated for demonstration purposes would be not to spend many thousand dollars to advertise a three-bedroom residential investment in the Financial Review.

The issue of how much should I spend on advertising has been discussed before and it is generally accepted that you should set a budget and that this should be based around the value of the property for sale. Some suggest the spend should be a percentage of the property value and the range has been .5%-1%. This makes sense but the percentage in lower priced properties may have to be a little higher to cover the actual costs.

Property price bracket

Expected budget for advertising and marketing

$300,000

$1,500 - $3,000

$500,000

$2,500 - $5,000

$750,000

$3,750 - $7,500

$1,000,000

$5,000 - $10,000

$1,500,000+

$7,500 - $12,500

Now let us look at where you can invest in marketing and advertising. This should be done following a good discussion with your agent. It’s important you understand what you are paying for and why. I examine the question of where to spend you advertising and marketing dollar in another blog titled How to create a good advertising and marketing campaign. Below are some indicative costs.

Expense

Estimated cost

Real estate photography and video

$175 - $345

Real Estate Videos

$260 - $500

Property floor plan

$150 - $300

Drone photography

$150 - $300

‘For Sale’ signboard

$99 - $400

Professionally produced brochures

$150 - $200

Auctioneer

Free - $1,000

Online property listing

$1249 - $1900

Agent website listing

Complimentary

Print property listing

$1000+

Local area digital remarketing

$275 +

Social marketing

$100

Staging

From $2700

Virtual Furniture (Photography)

From $40 per photo

Data base marketing

Complimentary

 

What will be my legal costs?

You will normally incur legal costs after a sale has been negotiated by your agent. Your legal representative transfers the ownership of the property to the buyer.

Legal costs are also varied and will depend on whether you need a lawyer or a conveyancer and the amount of work you want your representative to do. Mostly your agent will construct the contract of sale but sometimes a special condition will be needed so this would be an extra cost. In some more complex sales, a lawyer will draw up a special contract. This will also attract a higher cost. A standard conveyance would cost between $750 - $900

In the sale of a strata property there would be an added cost of a disclosure document we are currently having them produced for $150

Your agent will need to do at least one and technically two title searches, these cost $ 22.95 each

 

What will be my lenders fees?

I am not qualified to give advice in this field, but Nick Barr our Finance Broker had this advice.

One fee to allow for if you have a fixed rate loan is a fixed rate break fee. This is the only fee banks are allowed to charge when closing a home loan, apart from the discharge fee (which is typically around $350).

The fixed rate break cost fee is different for every loan and lender. It depends primarily on three factors.

  1. How far into the loan you are?
  2. What interest rates are doing in comparison to the rate you have, and
  3. How much you owe.

The further into the fixed rate period you are, the lower the break cost will be. For instance if you took out a 3 year fixed rate, and you are 2 years and six months into the fixed rate period when you close the loan, the fee will be less than if you are only six months into the fixed rate period.

If interest rates have increased since you obtained your loan, the break cost will be lower. Conversely, if rates have decreased since you took out the loan, break costs will be higher.

The higher your loan balance, the higher the fee will be.

It is almost impossible to calculate the break cost fee on your own. If considering selling, or refinancing, you should contact your existing lender directly to obtain a break cost figure. If you would like to contact Nick, you can email him on nickbarr@mortgageaustralia.com.au

 

Will I have to pay tax?

This is something I am not allowed to advise you about and therefore I am recommending that you speak to your accountant before you decide to sell. Determining if you will have to pay tax on your sale will depend on the entity you own your property in and if it is your principal place of residence or an investment property. Capital gains tax may be payable but check with your accountant.

 

What does it cost to move my belongings?

Moving to a new home has been described as one of the most stressful experiences we endure. I have always found it a huge effort. The cost is hugely variable and will depend on the way you do it. It can be anything from just hiring a trailer to a full-service pack uplift and reinstall. It also depends on how much you have and how far you are going. So, on this point, as I am not a removalist, I am going to suggest you contact one and do it before you start to sell.

 

Make a budget

I think I have now covered all bases and I hope it has been helpful. I would recommend that you do a budget for the complete exercise of selling and moving. You may even want to include the cost of buying as well. I deal with this subject in my blog What are the expenses when buying a property.

The important message is budget, plan, look at the complete package and be wary of discounts that just may not be as good as they first appear. Discuss all aspects of the marketing and advertising with your agent, make sure they have a plan and it is strategically focused on your property and not just fitting you into plan A, B or C.

If you would like to discuss any part of this blog or talk about selling your property click here.

 

David Forrest - Managing Director