5 Things to Consider When Selling a Home

Review these 5 financial considerations for both before and during the process of selling your home.

happy-family-new-home.jpgThe decision to sell a home can be a complex one. From an emotional perspective, you could be leaving a place where you’ve likely spent years of your life and experienced significant life events—marriage, birth of a child, children growing up there, and so on. From a logistical perspective, selling can be a particularly grueling process, especially for those who are simultaneously looking for their next place to call home.

The selling process varies greatly depending on not only your personal situation and finances, but also on your geographical location, whether or not you work with a real estate agent, and other variables. However, in most cases there are two things that sellers ideally want1:

  • To sell their home within their desired timeframe
  • To sell their home at (or above) their desired price

These two items seem simple enough. Yet, with the constantly fluctuating market and demand for homes, it can be fairly difficult to walk away from the process getting everything that you wanted. Additionally, don’t assume that you know everything about the selling process just because you’ve purchased a home before. Sellers and buyers have entirely different challenges and opportunities. For example, in markets where demand is high but supply is low, sellers could potentially have a plethora of offers to sort through almost immediately, with their home ultimately moving off the market fairly quickly and either at or above their asking price. Buyers, on the other hand, would most likely prefer the opposite situation—a market where they have their pick of choices and where their offer doesn’t have to be well above asking price just to compete with other buyers.

Given the risks involved with selling a home, it’s wise to approach the process having thoroughly thought through multiple angles, especially on the financial side of things. Here are 5 things to consider when selling a home:

1. Start early.

Generally, you wouldn’t make the decision to simultaneously sell your home and buy a new one overnight. Yet, 24% of sellers said they would begin the process of selling their home much earlier if given the choice.1 If you have the luxury of not needing to move right away, give yourself and your family plenty of time to consider exactly what you want to get out of the process. Be realistic, research how the housing market both in your area and the area you’ll be moving into is performing, thoroughly account for how this could affect you financially, and make a move when you’re confident that now is the right time for you. Your financial advisor can be a great resource during this time to let you know whether selling or not selling would be in your best financial interests for both your short- and long-term future.

2. Consider any home improvement or renovation projects that should be completed beforehand.

78% of sellers tackle improvements or renovations to their homes before selling in order to increase the value of their home.1 These could include anything from repainting the trim in your living room to re-tiling the bathroom to finishing the basement. Two important items to consider are whether or not any potential projects will improve your return on investment in the home and/or improve the home’s overall appeal to potential buyers. First impressions are critically important and while projects that could possibly contribute to a boost in the overall value of your home are definitely advantageous, also consider small projects that could help draw in potential buyers. While they may not contribute to a boost in your asking price, small projects like sprucing up your front porch or reducing the clutter in your home could help buyers focus more on the home itself, rather than on small issues that can be easily fixed but may deter initial interest. Financial resources should play a substantial role in deciding whether or not to take on projects. If you don’t have the resources necessary to take on a big renovation and have to tap into your home equity loan or line of credit, you’ll need to critically weigh the pros and cons of completing the project. Consider having a real estate professional out to your home to get their professional opinion on which projects are worth moving forward on and which are not. If the renovations or projects are within your budget, within reason, and you feel comfortable taking them on, go for it! It could pay off nicely for you when it comes time to sell.

3. Decide whether or not to utilize a real estate agent.

While selling your home on your own may certainly have some appeal, there are some serious drawbacks associated with not utilizing the services of a real estate agent. An agent can provide you with valuable background knowledge and research on the current state of the real estate market in your area, right down to the neighborhood and immediate surrounding area you’re located in. They’ve likely either observed or have immediate access to records on what similar homes have sold for and the overall experience of the sellers. They can help you settle on the appropriate asking price and also have the means to effectively promote and market your home, whether via online platforms, print advertising, social media, or more. Lastly, and potentially most importantly, they possess the knowledge and skill-set to negotiate with buyers and/or their real estate agent, as well as to navigate the tricky legal issues that often accommodate closing costs.1 There are plenty of advantages to using the services of a real estate agent but you’ll certainly need to factor in their fee and commission into your overall budget.

4. Be prepared to make substantial changes to your everyday budget.

In an ideal world, you would sell your house within your desired timeframe, purchase your next dream home, and move right in—a quick, painless process. However, things don’t always go as planned and your overall selling/buying process can be greatly affected by the current state of the real estate market that you’re located in. There are multiple scenarios that you’ll want to plan ahead for in your everyday budget in the event that one of them becomes your reality. For example, if your home sells much more quickly than you were anticipating and you don’t have your next home already lined up and waiting for you, you may have to budget for a few months’ (or more) worth of renting before you settle more permanently. You’ll want to plan ahead for twice the moving costs and for any amount you may have to spend on rent, utilities and so on. In the opposite scenario, if your home takes a while to sell but you’ve already taken the leap and purchased your next home, you could be saddled with temporarily paying two mortgages. Additionally, finding the resources to fund your new home can be difficult without having the funds from the sale of your previous home. In this situation, talk to your financial advisor and/or real estate professional for their thoughts on how you can best navigate this situation.

5. Account for tax considerations.

Selling a home is a significant financial transaction—therefore, there are several tax considerations to take into account. Because the tax considerations specific for each individual situation will vary, it’s best to consult your tax professional throughout the selling process. Here are two general tax considerations to know:

  • Capital gains. To determine whether you have made a gain or loss on the sale of your home, you’ll have to know the sale price, the amount realized and the adjusted basis.2 The following equation indicates a gain or loss:

    Sale price - Selling expenses =

    Amount realized


    - Adjusted basis


    = Gain or loss2

    Selling expenses indicate any costs that directly relate to the sale of your home, including sales commissions, legal fees, advertising fees and so on. The adjusted basis can then be calculated by adding up the total amount that you invested in your home. This includes only items or projects that significantly increased the value of your home, rather than repairs such as a leaky faucet or paint. Items included in the adjusted basis could be the addition of an extra bedroom, a finished basement, the installation of new windows and more.2 For example, if you purchased your home originally for $200,000 and spent $10,000 on a finished basement, your adjusted basis figure would become $210,000. From here, you’ll calculate a positive or negative number which will indicate a gain or loss, respectively.
  • Paying taxes on the profit made from the sale. For homeowners who have lived in their home for two of the past five years, up to $250,000 of the profit from the sale is tax-free.2 For married couples filing jointly, that amount is increased to $500,000.2 Your tax professional can provide helpful information on this, including that the home you are selling must have been your primary residence for at least 2 years and you have not used the tax break on the sale of a previous home within the two years before the sale of your current home.

If you determine that you do have taxable gain, you’ll need to report the sale via Form 1099-S. Even if you don’t have a taxable gain, if you received Form 1099-S from your realtor or anyone else, you are required to complete the form.2 Your tax professional and financial advisor can provide you with further information on this when the time comes.

While selling your home can seem like a rather daunting and difficult ordeal, keep in mind that with the right professional help and a strategy in place for no matter what comes your way, you’ll exit the process just fine.

Interested in discussing this topic further with a financial advisor? With offices in 23 states, there is likely a North Star financial advisor near you. Contact an advisor here.

Written by North Star Resource Group.

1“Consumer Housing Trends Report 2017.” Zillow Group, Inc. Published September 2017.

2“Selling Your Home; For Use in Preparing 2017 Returns.” Department of the Treasury Internal Revenue Service, Publication 523, Cat. No. 15044W. Published January 30, 2018.

Financial Advisors do not provide specific tax/legal or mortgage advice and this information should not be considered as such. You should always consult your tax/legal or mortgage advisor regarding your own specific tax/legal or mortgage situation.

North Star Consultants, Inc. - Insurance Products and Services. CRI Securities, LLC – Securities and Investments. Securian Financial Services, Inc. - Variable Products and Securities. North Star Resource Group offers securities and investment advisory services through CRI Securities, LLC and Securian Financial Services, Inc. CRI Securities, LLC is affiliated with Securian Financial Services, Inc. Members FINRA/SIPC. North Star Resource Group is not affiliated with Securian Financial Services, Inc. North Star Resource Group is independently owned and operated. North Star Resource Group| 2701 University Ave SE | Minneapolis, MN 55414. 2126128 / DOFU 05-2018

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