How Much Do You Need to Sell Your House for to Break Even?
Considering selling your house but unsure about the minimum selling price? Finding the right selling price to break even is crucial for maximizing your financial returns. This article will guide you through the necessary calculations and considerations to determine how much you need to sell your house for to at least break even.
Understanding the Break-Even Point
To break even, you need to ensure that the total amount you receive from the house sale covers all your associated expenses. Typically, the minimum selling price needed to break even is about 8-10 percent more than what you owe on your current mortgage. This amount is divided into several key components, including the real estate agent's commission, closing costs, and other incidental expenses.
Breaking Down the Expenses
Here's a breakdown of the expenses you should consider when determining your break-even selling price:
Real Estate Commission: This fee is generally around 6 percent of the sale price and typically splits between the buyer's and seller's agents. Closing Costs: These can include title insurance, prorated taxes, and other fees that can add up quickly. Original Cost: This includes the purchase price of the house and any renovations or improvements you've made. Initial Purchase Costs: This involves legal conveyancing fees, inspection fees, movers, and other setup fees. Mortgage Balance: You'll need to clear your outstanding mortgage balance, which is usually the starting point for your calculations. Mortgage Payoff: Contact your lender to find out the exact pay-off amount owed to them. Financing Fees: Any additional fees associated with your mortgage or other financing sources. Legal and Title Fees: These include legal documents, title insurance, and other legal-related expenses. Maintenance and Utilities: While these costs are ongoing, they'll still be incurred whether you live there or rent.Totaling Up Your Expenses
To calculate your break-even point, add up all the expenses and subtract the ongoing costs you would have if you were renting:
Original Cost Realtor Fees Legal Conveyancing Fees Inspection Fees Movers Renovations Financing Fees Taxes Utilities Maintenance Other Transaction Costs
Minus: Rent you would have paid if living elsewhere
By adding back the rent you would have paid if living elsewhere, you can determine the overall cost of owning versus renting. If the total is higher, it may make more sense to sell and break even, or even make a profit.
The Selling Price Formula
To determine the selling price, follow these steps:
Total all your expenses and the remaining mortgage balance. Subtract your rent or other ongoing costs if you were renting. The remaining amount is your break-even price.Typically, the total sales price will include a 6 percent Realtor commission and other closing costs. So, for every $100,000 selling price, you need to add another $6,000 for these commissions and fees. This means you need to sell your house for approximately 1.1 times the total of your mortgage balance plus closing costs.
For example, if you owe $300,000 on your mortgage and expect closing costs of around 3 percent, your total break-even price would be:
Total mortgage: $300,000 Closing costs: $9,000 (3% of $300,000) Total break-even price: $309,000Therefore, you would need to sell your house for at least $309,000 to break even.
How to Determine Your Break-Even Price
While you can use online calculators to estimate your break-even price, the most accurate method is to consult with a real estate agent who can provide a detailed estimate based on your location and the current market conditions. They can also help you negotiate the best possible price and guide you through the entire process.
Remember, selling your house independently is also an option, and it can be done for free with guidance. The key is to understand all the associated costs and ensure you don't end up losing money in the process.