If you’re selling your home, there’s some homework you must do before you even think about listing. We’re not talking about finding an agent, making a list of your must-haves in your dream home, or touring open houses. We’re talking about the nitty-gritty financial steps that will make your dream a reality — a financially sound reality.
Here are four money-musts to add to your to-do list before selling your home:
1. Get clear on your current credit status
The best time to spot any glitches and hitches, bills you need to pay down, rogue errors, and the like? It’s definitely not when your current home is on the escrow countdown.
Some credit rehabilitation projects take months, even a year, to complete, so the earlier you get started, the more time you’ll have on your side.
This advice is for everyone. Even if you think you have stellar credit, check your reports far enough in advance that you can spot and dispute any erroneous information that might have found its way there.
2. Determine how much you can afford
Just a few of the things that prompt a home sale: you just got a raise, your current payment is manageable, and those bigger houses don’t cost that much more. You can afford to sell and move on, right?
Maybe. You need to factor in what the actual increase in your mortgage payment will be, how much you’ll net on your home sale, how much cash you’ll need to close on your next one, and how much your utilities, property taxes, insurance, and other home-related expenses will be once you move.
If you downsize to a brand-new, but smaller, condo, you could actually see an increase in property taxes or get an HOA bill you never had before. By no means does that mean it’s not the right move to make — the increased bills might be offset by decreased heating, cooling, and maintenance.
But you can’t know if a move is a smart choice until you know how much you can truly, sustainably, wisely afford to spend. To get financial clarity, you’ll need to enlist:
- Your agent: to show you what kind of property you can buy at various price points.
- Your mortgage broker: to help you understand various financial scenarios for purchase prices, down payments, and monthly payments.
- Your tax adviser: to inform you of the impact various next-home scenarios will have on your tax situation.
- Your financial planner: to help you get clarity around your current income and expenses, debt, and savings and investments.
3. Get inspections and key reports in advance
And when you’re selling your home, those surprises — (property issues, unknown taxes, and liens) can complicate your sale.
Your best, and safest, bet is to gather this information before you have a buyer on the hook. In many markets, it’s now standard operating procedure for sellers to actually have home, pest, or roof inspection conducted before the house is listed. This empowers you, the seller, to either conduct any necessary repairs or fully disclose what needs fixing and list your home in as-is condition.
If you choose to be upfront about your home’s problems, you might not get the same price as you would have without the reports, but you will minimize the likelihood of tense negotiations and falling out of escrow — things that are common when a buyer gets a midtransaction surprise of negative property condition reports.
Ask your agent for advice about whether obtaining any or all of these inspection reports in advance makes sense in your situation. Get early copies of your home’s preliminary escrow report and HOA disclosures. If you have outstanding liens or there are HOA issues that will complicate a sale, better to know (and solve ) them sooner than later.
4. “It takes money to make money”
Pouring more money into a house that, in your mind, you’ve already moved out of might be the last thing you want to do. But if you really want that new home, it’s going to take some money to turn your current home into the cash you need for the move.
Some items to consider:
- When you bought your home, the seller paid both agents’ commissions. Now that you’re the seller, it’s your turn. Make sure you calculate the average 5–6% of the purchase price that you’ll need to cover your agent’s work, and the buyer’s agent too.
- Depending on its condition, you may need to spend anywhere from a few hundred dollars to more than a few thousand making small updates or larger renovations to get your home market-ready.
- Depending on how much financial margin you have and what your advance inspections reveal, you might want to build in a line item for a repair credit to offset the cost of any repairs that come up during escrow.
- Some other costs of selling your home, like transfer taxes and the buyer’s home warranty, vary widely state by state and even across counties. Your agent can help you project these additional costs. Your escrow holder and agent can also get you up to speed on precisely how much of your home’s sale price will go to pay off your mortgage(s), property taxes, and any other liens.
Your final money-do is to actually document your financial plan and budget for selling your home. Many agents will sit right down with you and help you do this. It’s a perfect time to get educated about the flow of the home-selling process and standard bargaining practices in your area.
The goal is to get a clear, concrete understanding of the dollars that will flow in and out during this major life change so you can make smart decisions throughout the process to set you up for success long after closing.
What money-dos will you tackle before selling your home? Any advice for sellers-to-be?
