Cutting Your Costs
Would you buy someone a new car to sell your home?
That may sound a little crazy but, in fact, the sale of an average Southern California home will cost the seller about as much as a new Honda.
On a $200,000 home, the seller typically pays $12,000 in commissions to real estate agents, plus thousands more in an array of fees to escrow and title companies, inspectors, the seller’s lender and many others.
Even if your house has appreciated in value, you may end up losing money because of the selling costs.
Can a seller do anything to control these costs?
Yes, but it takes some determination. I recently sold my home in Tustin (the fourth home I have bought and sold) and managed to shave more than $4,500 from my costs.
I saved primarily by using a discount broker but also by carefully monitoring the many fees involved in the transaction. Had I not made some critical mistakes, I could have saved even more.
It’s not easy for sellers to cut fees, in part because it requires challenging a system that’s protective of the interests of real estate agents and escrow and title companies while often being insensitive to the people who pay the bills: the homeowners.
To trim selling costs, look closely at these areas:
The Agent
My biggest savings came from using a discount real estate agent. I had tried to sell my home without an agent for two months but had had no luck. (Various studies show that only 5% to 15% of owners who try to sell their own homes succeed; your best odds are in a hot sellers’ market).
Then, in a flurry, I was contacted by three real estate agents willing to sell my property for less than the usual 6%.
Normally, half that amount goes to the buyer’s agent and half to the seller’s, but these agents offered to substantially reduce their share.
I chose Dianne Wall of Better Real Estate in Dana Point, and it proved to be a smart choice. Wall charged me $250 to list my home on the Multiple Listing Service--the comprehensive listing of properties used by all agents--and $500 for everything else, including handling offers and counteroffers, drawing up contracts and virtually all the services a full-price agent provides.
The selling agent’s customary 3% fee would have cost me $5,145. Hiring Wall saved me $4,395.
Did I get inferior service for my reduced cost? Absolutely not. Compared to the five full-price agents I’ve used over the years, Wall was better than four and roughly the equal of the fifth.
Discount agents have stirred up the real estate industry of late, popping up throughout the country to help sellers turned off by standard brokerage fees. Some are chains such as Help-U-Sell and Assist 2 Sell, but more are small independent agents. The big brokers have taken notice; even some offices of Century 21 have experimented with discount programs.
Some discount agents offer reduced fees to sellers willing to take on certain chores, such as showing the house to potential buyers and holding open houses. Others are simply willing to work for less on the theory that they’ll make up for it with a higher volume of customers.
Hiring a discount agent is an appealing option in a strong sellers’ market, which many Southland communities are experiencing now. After all, why pay full price when houses are selling with only minimal effort by the agent?
Still, finding discount agents can be tricky because, to hold down overhead, they rarely advertise in the Yellow Pages or major newspapers. Try asking friends and neighbors for names, look for agents’ signs and check smaller newspapers and Penny Saver-type publications.
One growing source is the Internet; many discount agents have Web pages.
In my case, discount agents found me. The three who contacted me had seen my for-sale-by-owner ad in the paper.
A warning: If you ask conventional brokers about discount agents, you may get sneers and scorn. That’s what I encountered. Naturally, any profession feels threatened by those who offer equivalent service for a lower price.
Of course, discount agents should be selected with the same care you would use in choosing other agents. Don’t hire someone just because he or she is cheap; ask about experience and find someone you can work with.
Though you can save money on your agent, you’re usually still going to be stuck paying 3% to the agent who brings you the buyer. But if you can find a buyer on your own--through a “for sale” sign or advertising--you may be able to avoid that fee, too.
Title and Escrow
After the agents’ fees, your big costs are for title insurance and escrow services. Many sellers don’t think about these until they have an offer in hand, then they hurriedly agree to use whatever title and escrow companies their agents suggest. That’s a big mistake. You’re paying these companies; it’s worth it to take the time to find ones you like.
Start shopping for escrow and title companies as soon as you put your house on the market.
In most sales, the seller has to pay for the “owner’s policy” title insurance. I called four title companies and got quotes over the phone; it took about 20 minutes total. There wasn’t much difference, but one company was about $25 cheaper, so I chose it.
Unfortunately, I didn’t ask enough questions. Title insurance is just one of the items that a title company will charge for. The company I used also charged for wire transfer of funds, plus the cryptically named “reconveyance tracking fee,” “deed fee” and “sub-escrow fee.” These added $113.50 to the total.
Escrow companies can slip in extra fees too. My company charged a base fee of $150 plus $1.95 per thousand of the sale price (total: $484.40). Then it added an extra charge of $100 for “drawing documents” and a $65 “statement fee.” The statement fee was for ordering the payoff statement from the lender and an account statement from my homeowners association. In other words, $65 for making two phone calls.
The lesson: Ask prospective title and escrow companies about all their charges.
It’s easy to get confused when you start asking about fees, because charges often go by different names at different companies. So ask the companies to put the amounts in writing (e-mail would work too).
They may say that fees vary by transaction; that’s understandable, so tell them about your situation and ask them to give a range of amounts. If they’re uncooperative or won’t explain their fees in plain English, take your business elsewhere.
And remember, when you get an offer for your house, you’ll need to stipulate in the sales contract the escrow and title companies you want to use.
The Contract
When you get an offer for your home, it’s easy to get caught up in the excitement and overlook closing cost details in the sales contract, but that can cost you.
In a typical transaction, the seller’s closing costs are taken directly from the seller’s proceeds. This gives you little control over unexpected extra fees. You’re essentially giving the escrow company a big pot of money and allowing it to take whatever it decides is right.
You can complain afterward, but I’ve found it difficult to force an escrow company to return money it’s already taken.
To avoid this, you need to stipulate as precisely as possible in the sales contract who will pay what fees and put a maximum amount on those costs.
Another approach is to state in the sales contract that closing costs may not be taken from your proceeds and that instead you will pay the closing costs directly by certified check. In this way, the deal can’t close until you have approved the fees.
Even after you and the buyer have reached a deal, don’t relax your sales efforts. If you can get a back-up offer during the closing period, it will discourage the buyer from trying to pressure you into paying for extra repairs or some added closing cost.
During the closing on my Tustin home, the buyer asked me to pay for some cosmetic improvements. Because I also had a family interested in renting the place, I was able to turn down the buyer with confidence.
So keep your signs up and keep the lockbox on. You may even cut your asking price at this point to generate offers (but beware of cutting it below the sales price you agreed to; that will anger your buyer).
Other Fees
If your home is in an association, be sure to hang on to all the organization’s documents; this can save you money when you leave.
My association, for example, was going to charge me $65 to provide the buyer a new copy of the covenants, codes and restrictions, but because I had mine, I was able to avoid that cost.
You will also need to provide the buyer with a copy of the association’s budget and most recent financial documents.
My escrow officer was going to order those from the association at a cost of $25 to me, but when I discovered this inadvertently in a telephone conversation, I told her to stop. I had the documents, made copies and provided them to the buyer, saving $25. (I’m still amazed the escrow company didn’t even ask me first.)
A relatively new fee for California home sellers is for something called “zone disclosures.” Sellers must prove that their homes are not in areas that have been officially designated as susceptible to earthquakes, floods, forest fires and even tsunamis.
Conveniently, companies have sprung up willing to provide these disclosures--for a price, of course. Wall told me this was going to cost $115, but I got on the Internet and within 10 minutes had found a company (JCP Geologists in Cupertino) willing to do it for $65.
The lesson: Even if you have a good agent, remember that it’s your money and you have to check to make sure it’s spent properly.
There are some selling costs you can’t do anything about, but you’ll feel better learning about them upfront rather than being surprised at the end.
My lender, for instance, charged $66 to pay off my loan (Does Visa charge you when you pay off your balance?), but I couldn’t see a way around it.
Similarly, I was stuck paying my homeowners association $200 to transfer ownership. And, of course, there are taxes--$189, in my case.
Check for Accuracy
I have been astonished in various transactions at how many errors I have found in documents prepared by escrow companies and lenders.
In my latest sale, the escrow company’s initial estimated statement of closing costs had several inaccuracies. Later statements had further problems (including one error that I had corrected earlier).
In one letter, my escrow officer got my address wrong, misspelled my name and included only one of the three items that she had supposedly sent. So be sure to check everything, especially dollar amounts.
Title fees will be listed on your final statement from your escrow company, but it’s a good idea to call the title company to check them directly. In my transaction, the title fees shown on the escrow statement were different than those given to me by the title company.
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Home Seller Resources
Discount Brokers
Help-U-Sell
(800) 366-1177
https://www.helpusell.net
Company will put home in multiple listing service, supervise open houses, handle the ads and the paperwork. Fees vary from office to office. Example: $8,950 on a $300,000 house.
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Assist-2-Sell
(800) 528-7816
https://www.assist2sell.com
Company offers three levels of service. For the basic charge of $995, home seller gets help with paperwork; for a fee of 4% to 4.5% of sale price, seller gets all services offered by traditional broker.
Online Services
Owners.com
(415) 427-1004
https://www.owners.com
Online registry lists for-sale-by-owner homes. For $65, seller gets listing and one photo for four months. For $115, customer gets same four-month listing, five photos and a customized / professional yard sign shipped directly to the seller.
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FiSBO Registry
(800) 500-5520
https://www.fisbos.com
Lists for-sale-by-owner houses for $675 fee, which includes MLS listing, yard sign, some advertising and 800 number.
