To know the actual cost of selling a home, sellers need to look beyond the fine print.
61% of today’s sellers have never sold a home before, according to Zillow. These sellers have little to no clue about the hidden costs of selling, and thus many are unprepared to sell.
The average “hidden” home selling costs total $18,300 for the median U.S. home. Most of these additional costs stem directly from seller closing costs.
Here in California, hidden selling costs are an even bigger burden on the seller, averaging:
- $81,500 in San Jose (the highest selling costs in the nation);
- $63,100 in San Francisco;
- $44,300 in Los Angeles;
- $40,400 in San Diego;
- $30,100 in Sacramento; and
- $28,300 in Riverside, according to Zillow.*
*Zillow’s analysis includes local real estate transfer taxes, the average expense sellers pay to fix up their home to sell, plus a 6% real estate fee paid to the seller’s and agent’s brokers. In reality, total closing costs tend to be higher since this calculation does not include other closing fees or moving expenses.
High closing costs discourage home sales
When it costs tens of thousands of dollars to sell a home, most sellers are going to think twice before listing.
True, rapid home price appreciation in California covers most of the costs associated with selling. But the thing about rapid price increases is they can be a zero-sum game for sellers who are interested in buying replacement property. Every dollar saved counts in today’s over-priced market.
High selling costs aren’t the only thing discouraging today’s sellers from listing.
Every day that interest rates edge higher, the lower interest rate potential sellers hold with their current home looks more attractive. Higher interest rates mean lower buyer purchasing power, so their same mortgage payment will qualify today’s sellers for less home.
As a result, home sales volume — and thus the flow of agent fees — has been flat. 2017 home sales volume was essentially the same as 2016, which continues a long, level trend. This is despite heightened demand for homes and a shrinking inventory, causing concerns that today’s high prices are untethered from real estate fundamentals.
What’s needed to boost home sales volume and add sustenance to California’s housing market?
More housing! New residential construction will add to California’s emaciated inventory, giving buyers more options. Price increases will cool down and sellers will feel more comfortable listing their homes when the time is right for their individual circumstances. Transaction fees will expand from a trickle to a more predictable rate.
Construction is likely to pick up towards the end of 2018 and continue to rise over the next couple of years. California’s affordable housing package passed in late-2017 provides numerous incentives to local governments to encourage more housing.
New laws, along with pent-up homebuyer demand, will push builders to build. But there are potential obstacles to watch for, which include:
- the tariffs on lumber and certain home appliances;
- rising interest rates; and
- local pushback from not-in-my-backyard (NIMBY) advocates.
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