Selling Costs Money Too: Reading a Closing Statement
Phyllis had pictured 4% a year on US$500,000, which is US$20,000.
Picture a woman named Phyllis, 70, who lives alone in the house she has owned for most of her adult life. It is paid off. A buyer has offered US$500,000, and her brother Don asked what she planned to do with the money. "Put all of it in the bank," she said, "and live on what it earns."
Don sold his own house last year. He kept the closing statement in a green folder, and he brought it to her kitchen table. "Read the bottom line first," he said.
The bottom line was smaller than the price at the top. Phyllis asked her agent for an estimate of her own, and the agent walked her through it. A closing statement starts with the sale price and then subtracts.
| Line on the statement | US$ |
|---|---|
| Sale price | 500,000 |
| Selling costs, about 6% (agent commissions, closing costs, repairs, moving) | −30,000 |
| Money in her hand | 470,000 |
Phyllis had pictured 4% a year on US$500,000, which is US$20,000. On US$470,000 the same 4% is US$18,800. That is US$1,200 less every year. The 4% is an assumption, and markets vary.
She looked at the US$30,000 for a while. "I planned around the big number," she said.
Don nodded. "So did I. I wish somebody had put the small number in front of me before the day."
Phyllis called her agent back and asked which lines could change. Commissions and closing costs depend on the place and the year. Repairs depend on what a buyer asks for. Moving depends on how much she takes. Each line had a person with a good reason behind it, and each line had a price.
Then Phyllis noticed a gap in her own plan. If she sold, she would still need somewhere to live, and the bank interest had to pay for it. She set out her year in three ways.
| Per year | Keep the house and live in it | Sell, rent a home like it | Sell, rent a one-bedroom |
|---|---|---|---|
| Income from US$470,000 at 4% | 0 | +US$18,800 | +US$18,800 |
| House costs: tax, insurance, upkeep, utilities (illustration) | −US$14,900 | 0 | 0 |
| Rent plus utilities (US$3,000 and US$200; US$900 and US$150) | 0 | −US$38,400 | −US$12,600 |
| Result | −US$14,900 | −US$19,600 | +US$6,200 |
Her plan to "live on what it earns" held up only for the one-bedroom. The 4% on the sale money paid for a one-bedroom with about US$6,200 left, and it fell US$19,600 short of a home like hers. The US$30,000 of selling costs is already inside the US$18,800. It is a one-time cost that reduces the income every year.
You could…
- Ask an agent for an estimated closing statement before you pick a number to plan around.
- Ask which repairs a buyer in your area often asks for.
- Price a home to rent that is like yours, and a smaller one, and put them in the same table.
- Ask an accountant how the US home-sale tax exclusion applies to your sale.
If an offer came in tomorrow, what number would you plan around, the price or the amount left after the fees? Write to us with your number. A reader holding an offer could use it to work out what is left after fees.
Figures are estimates for planning, based on public data, before income tax.
Tell us in the comments