When selling property, many people use their final sales price as their determining success factor, forgetting to detract all the costs they’ve paid along the way before and during the sales process.
Whether you’re a property investor or selling your home, it’s important to factor in all of the costs involved with the sales process.
Real estate agent commission tends to be a hot topic – with good reason. It’s one of the highest sale costs you’ll face when selling property. Most real estate agents charge between 1%-3% of your final sale price, which accumulates to tens of thousands of dollars even for the average home.
While real estate agents claim to make up this difference by achieving a higher sale price, this argument is debatable with so many resources and avenues now available to sell your own home. So, it’s worth determining which option suits your personal situation to achieve the highest return.
Read more about 13 things most real estate agents won’t tell you
These days, there’s a myriad of options when it comes to getting your property in front of buyers; virtual tours, aerial images, 3-D floorplans, digital, print etc. The problem with all these choices is it’s easy to get carried away thinking the more you spend, the higher return you’ll achieve. Not always the case. When it comes to advertising, you need to consider your home and the most effective way to showcase its best aspects. And with 90% of buyers using the internet to find property these days, you might also want to consider whether a print campaign is necessary. The internet offers a cost-effective, targeted and highly visible means to reach the right buyers all by itself.
Your solicitor or conveyancer looks after the legal aspects of your settlement including successful transfer of title from you to the new owner. Fees vary depending on the complexity of your sale, but usually sit between $700 and $1500.
Mortgage exit fees
One of the most despised fees when selling property is the home loan early exit fee. This fee is intended to protect the lender from losing interest earnings when a borrower pays off or exits their mortgage before the loan period officially ends.
The good news is, the federal government outlawed home loan exit fees in 2011. The bad news is, this only applies to mortgages taken out after 1 July 2011.
Check the terms of your mortgage agreement to see whether an exit fee forms part of the conditions you signed for and, if so, how much you’ll be charged.
If you are facing an exit fee and you’re going to need a new loan for your next property, you could try shopping around to see whether a new lender will pay out the exit fee on your existing loan as an incentive to refinance with them.
Capital Gains Tax
If you’re selling your principal place of residence, Capital Gains Tax (CGT) won’t apply to you. Investors, on the other hand, selling an investment property, are likely to face CGT.
Capital Gains Tax isn’t a separate tax by itself – it’s calculated as part of your income tax. So, the capital gains you make when selling your property are added to your assessable income for whichever year you sell the property.
The good news is, if you’ve owned your property for at least a year before selling it, you’re entitled to a 50% discount on CGT (so only half of your capital gains will be taxed).
Preparing your property for sale
Some would say, you make up the costs you pay to prepare your property for sale in achieving a higher sale price. But in order to understand your true profit, you still have to factor in these costs. How much we spend in preparing our properties varies greatly. From full house renovations and in-house designer styling to quick paint makeovers, declutters and spring cleans, keep note of what you spend and factor in these costs.
Many banks charge a one-off discharge payment to cover the completion of your mortgage process and paperwork. Discharge fees vary from lender to lender, but usually cost between $150 and $400.
Outstanding council rates
These are probably the most forgotten cost. As the current owner of the property, you’re responsible for council rates up to and including the day of settlement. Any outstanding rates are usually paid from your sale proceeds.