Are the current costs too high to sell real estate? What can you do to save a packet when you want to sell your home?
The Australian average for the period of time for residing in the same house is somewhere between 7 – 9 years. So about every 7-9 years, and for a hundred different reasons, we put our home out to the market to sell.
For the average Aussie family, who might have an adult working life of around 40 years, plus a healthy 20 years enjoying retirement, that means you may sell up, buy and move about 6 or 7 times. Each time the costs are as real as they are weighty.
Costs to sell your home
There are no taxes payable when you sell a residential home that you have lived in as your Principal Place of Residence. Phew! But when you buy your next property to live-in, there is an inescapable impost (tax) that you have to pay for the privilege of putting a roof over your head – Stamp Duty.
It is applicable to almost every property purchase in every State and Territory in Australia. For this article, we are going to stick to residential/buy to live in purchases, because purchases to invest attract a different and higher rate of Stamp Duty.
Before we talk about the immovable, non-negotiable cost of Stamp Duty, what about the optional, negotiable cost of sales commission.
To sell a home or property, around 97% of sellers will hire an agent to market the property and help negotiate a sale.
The average commission charged by Agents across Australia is 2.6% of the sale price, plus whatever advertising costs the Agent recommends and you agree to.
We’ll use the RP Data-Rismark Daily Home Value Index, 5 City Aggregate; which is an average of the current prices being obtained in Australia’s five largest capital cities (as at 3 March 2014). That price is $625,000.
You have just sold your house for $625,000.
Commission payable @ 2.6% is – $16,250
Marketing Costs (these vary) – $3,000
Total marketing and sale costs $19,250
There are still a few fixed cost, low fee Agents inhabiting the sales space, and they are usually charging around 1%-1.5% of the sale price plus advertising costs, whereas at the other end of the scale some ‘upmarket’ agents will charge in excess of 3% of the sale price.
Hence, the 2.6% average, which the vast majority of Agents observe and charge.
Then there are solicitor and moving costs. Of course you could go through the backbreaking effort of shifting the furniture yourself and save a few bucks. And it is possible to avoid the solicitors fess, though as discussed in my previous post, DIY conveyancing should be avoided.
So after all this, the $625,000 sale price will have cost you well in excess of $20,000.
Costs to purchase a property
Now for your purchase. Yahoo! Let’s say you found the dream home, in the area you always wanted to be in for $650,000. Going in (the purchase) the Stamp Duty must be paid. Calculated on the averages of all the State and Territory Stamp Duties throughout Australia, your $650,000 purchase will have you coughing up $28,600.
Throw in solicitors fees for the purchase, and you have a total ‘change over’ cost of $50,000 +, in this scenario.
How can you save on real estate transaction costs?
As you can see those 6 or 7 moves over your adult lifetime could really start to add up.
So how do you put a big hole in those selling and moving costs when you HAVE to pay stamp duty and pay an agent?
One of them is actually an ‘optional’ cost and I can already hear you saying it – “hiring the Agent is the big variable, can I sell my own home without an agent?”
In the scenario we described earlier, considering and undertaking a private sale, i.e. to sell your own home, would save you at least $19,000, almost halving the overall ‘change over’ costs.
Although, only 3% of Australian Home Owners are taking the calculated plunge into a Private Sale, this number is expected to increase as online marketing, sales, knowledge and support services such as Agent in a Box grow in popularity and strength.
These minimal fee, no commission, owner assisted models are becoming a viable, proven and cost saving alternative.
Everyone is looking to save money wherever they can in an economy that is showing signs of confidence, yet being tempered by job cuts brought about by large corporations looking to minimise labour costs.
The costs of selling a home or property are definitely going to come under the spotlight and alternatives to the long held traditional methods are emerging to bring relief to home owners.