Best of Q&A: I’m Selling My Home, How Much Of The Sale Price Will I Leave With?

Q: When I am pricing my home for sale, how much of the sale price will I actually leave the closing with?

I have been told fees consume as much as $9,000 of the sales price. I have had three buyers offer to purchase my home at the asking price of $99,500, they all agree it is worth that much. The financial group handling the mortgage have informed me that, due to foreclosures being flipped in the area, they will only finance a price of approx $70,000 and I will only receive $61,000 of that. This has created a very stressful situation for me. The home has been rented for $800 month for three years, good renters have never been late and do not want to leave – they want to buy the home at my asking price. Why can I not leave the closing with the entire appraised amount? Cutting the price from $99.5k to $70k is hard enough to swallow, let alone losing another $9k to closing costs. Is this a common problem today or am I being cheated?

A: Indeed this is a common problem today! Appraisals rule if a home is being financed, as the lender must be assured that the asset that is being financed represents a market value that is equal to if not greater than the amount being financed.

Having said that… there are several things you will want to look into a bit deeper…

Appraised Value: Was this the result of an appraisal paid for by the purchaser and ordered by the lender? Appraised Values can be protested. This is done by finding properties nearby (generally within one mile) that have sold recently (generally no longer than 12 months ago) that would support a higher price. Your Realtor should be able to help you protest a valuation that is off target. If you aren’t using a qualified Realtor … that will of course be much more difficult for you to address.

Alternative solutions would be to offer owner financing through a purchase money mortgage… Again you will want to discuss these options with your Realtor and/or an attorney. If you have an existing mortgage on the property the terms of that mortgage could prohibit your offering the home through owner-held financing. If there is no mortgage, then you have more options in this area. However, this means that you will receive your funds of a prolonged period of time which may not meet your goals.

As to closing cost there are several points to consider. First is what is meant by closing cost. My guess is that if you’re looking at a $9,000 number on a $99,900 sale you are looking at all cost incurred with the transaction not just closing costs. In the Odenville market, the seller’s closing cost for a financed transaction in this price range would be around 1.5% or $1500. However, since this is at the lower end of the scale the 1.5% doesn’t hold as your sales price decreases, as there are some minimum fees that will have to be paid that do not get reduced beyond a certain point because price has reduced. So even though the home may be sold at $70,000 the seller’s closing cost could well stay around that $1500 mark and could even be higher since it is likely that this home is being taxed at a non-homesteaded tax rate. Realize also that the Seller’s pro rata share of taxed will increase as you move further into the tax year (which ends September 30th each year in Alabama).

Now often in today’s market buyers have little if any cash available beyond the minimum to cover a down payment, so they request the seller to pay their closing cost and pre-paid items as well.

If financing is being provided under USDA or FHA financing the amount of seller’s assistance to the Purchaser’s closing cost is currently restricted to no more than 6%. However that would generally be more than the required amount to cover their closing costs, unless you are providing extraordinary items such as a Home Warranty *(not really all that extra ordinary), paying for their inspections, etc.

Assuming the normal range of purchaser closing cost for a transaction this size, I would estimate that $4,000 would be sufficient to cover those costs.

So at this point you would be looking at around $5,500 in closing cost if you are paying all closing costs.

Add to that any commissions that you owe to the agent for assisting in the transaction and you have the normal amount that would be deducted from your proceeds after paying any encumbrances such as mortgages, past dues taxes and other possible liens. Assuming a standard commission of 6% (Commissions are not set in stone … they are negotiable… that negotiation should be handled up front) and a sales price of $70,000 ($4200 commission) you would be looking at around $9,700 in total expenses.

Obviously, I am making several assumptions here with the limited information provided. My recommendation would be to challenge/protest the appraisal, get your agent to look at the comps which could be used to support the challenge. If you aren’t using an agent to help you with this, it sounds like you need one… a good one!

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