True Cost of Buying or Selling your Home
Since the housing recovery began back in 2011, the subject has dominated news headlines. The National Association of Realtors (NAR) keeps telling us that monthly existing home sale prices are up over the past year—good news for homeowners, and a nudge to everyone else to run out and purchase a home. But how accurate is this assertion in the reality of homeowner benefit, and what is the economic forecast going forward?
More importantly, what is the true cost of selling your home, and how can buyers and sellers balance saving money and level of service?
Reading Between the Numbers
According to renowned Yale Professor Robert Shiller, PhD, home price appreciation adjusted for inflation increased by one-half of one percent per year from 1890-2008.
Kenneth Rosen, PhD, chairman of the Fisher Center for Real Estate and Urban economics at the University of California-Berkeley says home prices at the national level are back toincreasing1 – 2 percent more than the inflation rate over the next ten years.
Both experts confirm that home prices will beat inflation, but a homeowner should not consider a home a short term investment, nor should they expect significant appreciation on their investment. I say, that depends on the homeowner.
A 2011 PEW Research Study found that 81 percent of respondents believed owning a home is the best long term investment a person can make. A home investment suggests that at some time in the future the home you purchased will appreciate in value and increase your wealth, pad your retirement fund and make you a happy camper!
Interestingly, a September 2013 study by iGOfsbo found that 34 percent of Americans who have sold a home felt that the service of their listing agent/broker was not worth the commission paid.
In real estate, homeowner equity doesn’t factor in the commission charged by a traditional agent/broker, which can actually be the difference between a homeowner making or losing money! For example, Dr. Shiller’s asserts that a home seller who purchased a home prior to 2009 and owned the home for 10 years will have recognized home appreciation of 5 percent. In reality, once the seller factors in the Cost to Sell (a 5 percent commission for the agent, plus closing costs) the seller winds up losing money. It appears that the commissioned broker/agent is depleting the appreciated equity gained from the seller’s home (if any).
FSBO vs. Agent Commission
Alternatively, let’s say the broker/agent’s commission is factored into the sale price of the home. Consequently, the home buyer is financing the commission paid to the broker/agent. A $20,000 commission factored into the sales price of the home amortized over a 30 year loan will cost the buyer nearly $60,000 in extra, unnecessary mortgage payments.
That’s right, unless you manage to sell your home FSBO-style, at a significantly inflated price to cover the agent’s commission, that “small” percentage of your selling price is a big chunk of your money.
Let’s say your house’s market value is $250,000 and it has appreciated by $20,000.
Let’s say you hire a real estate agent who charges the customary 6 percent commission. Even if your home sells at full market value, you’ll end up paying the agent $15,000. There goes 75 percent of your equity—a significant chunk of real, hard cash that cannot be recouped.
Let’s do the math:
– 15,000 realtor commission at 6 percent
= 75 % of your appreciation is gone! You lost on this investment!
Your home’s down payment is like your 401(k); these are financial Holy Grails. Unless it’s a matter of life and death or putting food on the table, you don’t touch either.
This is the reason one in eight homes are now being sold direct—For Sale By Owner (FSBO).
Listing Door provides all the tools you need to sell your own home FSBO-style, and keep the realtor’s commission in your own pocket. Without the expense of an agent, you can keep your equity, sell faster, and get top dollar!