HOME SELLING GUIDE
PART 1 - EVALUATE YOUR SITUATION

Do you really need to sell? If you love your neighborhood and just need more space, perhaps you can remodel and stay. Or if the market is slow and houses aren't selling, you may be better off waiting or renting your home out.

Whatever your reason, before you even put up the "For Sale" sign, crunch the numbers to see if it makes financial sense to sell your home. These steps will help you figure out whether you should sell or stay.

The Steps:

  • Step 1: Gauge your need to sell.close

    Most would-be sellers typically don't have to move. Most would-be sellers typically become unsatisfied with their homes, neighborhoods or careers and sell based on desire rather than actual need. Decide if your desire is worth the time, money and energy of selling, moving and buying again.

    As a guideline, expect to spend 15 percent or more of your home's value in this process. And depending on how much money you still owe on the mortgage, expect a large chunk of your equity -- the amount of money you've actually invested in the home -- to be eaten up.

    Before you take any action, take stock of your situation. Look at the big picture and figure out why you want to sell. Consider your options. Take our "Should You Move?" Quiz to find out what's really behind your urge to move.

  • Step 2: Define your goals for the next 5-10 years.close

    Consider your family, career and interests, and create your vision of home. You may have done this when you were shopping for your current home, and now it's time to reexamine your priorities. Ask yourself:

    • Where do I want to be in my life?
    • How does my current home stack up to my needs and goals?
    • Will the selling process derail me from my long-term goals or help me achieve them?

    For instance, if you're buried in credit card debt and need to gain financial stability, now is probably not the time to sell. The transaction costs of selling and buying another home will only add to your misery. On the other hand, if you have to move cross-country for your career, it may make sense to sell.

  • Step 3: See if you're subject to capital gains tax.close

    Capital gains tax is the money you owe Uncle Sam if you happen to profit big from the sale of your home. Have you lived in the house you intend to sell at least two of the past five years?

    • If yes, then you could be exempt. Read more.
    • If no, you might incur early mortgage payoff penalties and capital gains tax -- two very hefty bills that may make it financially unwise to sell your home. There are exceptions to the tax rule -- job change, divorce, death of a spouse, etc. -- so check with your accountant.

     

  • Step 4: Calculate the costs of repairs and home improvements.close

    If you're trying to get top dollar for your home, you'll need to do some remodeling to get it into selling shape. Prioritize by choosing projects that'll give you the most return on your investment. Estimate the costs of supplies and contractors, see what projects you can afford and adjust how much you expect to get for your home.

     

  • Step 5: Compare the costs of selling and remodeling.close

    If you want to sell because you're unsatisfied with the size or lack of features of your home, you may find that remodeling it to fit your needs could cost less than selling the house, moving and buying another one. Perhaps you can build an addition or "greenify" your home to lower energy bills.

    If you have to renovate before you sell anyway, it won't hurt to do the extra research to see what it would take to make you stay. It may make more financial sense to customize your current home rather than buy another one. Read more here.

  • Step 6: Calculate your selling and moving expenses.close

    In addition to repairs and improvements, expect to pay about 7 percent to 10 percent of the home's sale price in closing costs. These include:

    • Real estate agent commissions - This is typically 4 percent to 7 percent of the sale price, but shop around. Commissions are negotiable, and in a slow market, an agent may be willing to accept less of a commission. Or, consider paying a flat fee to add your house to the multiple listing service (MLS) or contracting an agent for specific services.
    • Professional home inspection - It's not required but getting one will reveal any problems with your home before a buyer finds them. Read about the benefits.
    • Transfer taxes - Some cities charge a transfer tax, which is based on the property's sale price.
    • Prorated property taxes - Depending on the date of your closing, you may owe property taxes. Check your state laws. If you've prepaid your property taxes for the year, you may get a credit. You may also get a refund on prepaid escrow costs like your annual home insurance premium.

    Factor in other selling-related costs:

    • Staging and marketing expenses - You'll need supplies to prep the house, such as new paint, furniture, light fixtures, window treatments, rugs and other accents.
    • Mortgage payoff penalties - If you're subject to a penalty, negotiate with your lender to reduce it.
    • Capital gains tax - See if you're exempt and use this calculator to estimate what you owe.
    • Moving expenses - This can range from a few hundred dollars for a local move to thousands of dollars for a cross-country relocation. Read our Moving Guide for tips to estimate costs and minimize the stress of moving.

    To determine the potential proceeds from your house sale:

    • Roughly estimate how much you expect to get for your home, based on comparable home sales and listings in your area. Use FrontDoor's comparables tool to easily see what listings recently sold in your area and for how much.
    • Subtract your selling and moving expenses. If you're lucky or live in a solid housing market, you'll see a good percentage of appreciation and potential profit.

     

  • Step 7: Calculate your buying expenses.close

    Selling is really three parts: selling, buying and moving. If you want to "trade up" to a better home, job, neighborhood, school district or city, make sure you thoroughly research your destination. This will require several trips to see homes and get to know the area - another expense.

    Know what to expect with home prices, cost of living, schools, crime rates and amenities. For example, moving from Cleveland to Los Angeles for a promotion may seem enticing, but you may become more financially challenged when living in your new city. Make sure you can handle any changes in overall costs of living.

    Read our Experienced Homebuyer's Guide to get an idea of the costs and process of buying your next home.

  • Step 8: Know the mortgage options for your next home purchase.close

    The last thing you need is to be "homeless" or waste cash on rent because you sold your home too soon. If possible, hold off until you're sure you can find a new place to live.

    • If you're looking for more space or amenities, crunch the numbers to see if you can afford a larger mortgage. Use our "Can I Afford It? Calculator."
    • Check your credit report and credit score. Talk to your current lender and others to find out what kind of mortgage terms and rates you can get. Make sure you can secure a mortgage that works with your financial goals.

     

  • Step 9: Research the local housing market.close

    Now that you've gauged your motivation, look at current market conditions. Are people buying in your neighborhood? Do research on the Internet and consult with local real estate experts. If home prices have dropped significantly or foreclosures and short sales have flooded your market, you may want to wait it out. Otherwise, you're likely to be bombarded with low-ball offers.

    Evaluate the popularity of your neighborhood. If demand for housing in your area is high because of factors like a great school district or walkability, you may want to capitalize on that and sell at a premium.

  • Step 10: Consider renting out your house.close

    If you haven't lived in your home for two of the last five years, or you have the capital to finance another move without selling your home, or if the market is slow in your area, you might want to consider renting out your home.

    When budgeting for a renter, be sure to include the following costs:

    • Mortgage payment
    • Property tax
    • Homeowner insurance (check to be sure your premiums won't change if you convert your residence into a rental property)
    • Homeowner association dues (if applicable)
    • Property management company (if applicable)
    • House maintenance

    Warning: Not everyone is cut out to be a landlord. Prepare yourself mentally. Realize this house is no longer your home but your rental property. Check out these risks to renting.