Financial Aspects to Consider When Selling Your Home

There are few things quite as financially intimidating as selling your home. Investing in upgrades, staging your house, finding a new living place, and paying for an endless string of “nickel and dime” expenses can quickly add up.

If you’re considering selling your home in the near future, here are a few of the biggest financial aspects to consider.

Is Now the Right Time to Sell?

One of the first questions to ask yourself is if now is the right time to sell your home. In the pandemic and post-pandemic markets, home prices have skyrocketed. This can make it very alluring to sell your current home in order to land a huge profit.

Before you do so, though, consider the other financial repercussions that come with moving your property in the short term. For instance, will you need to buy another home at a similarly high price point? That may undermine the profit you make from your current dwelling.

Do you plan on renting for a while? If so, that will be money lost. Make sure to think further than the short-term price of the sale to ensure that selling now is the best move for your finances.

Is Your Home Optimized?

Another aspect to consider is whether you’re in a position to get the most out of your house. You don’t want to list your home until everything is in order. This naturally leads to the follow-up question, should you do any renovations? This isn’t an obvious answer one way or the other.

On the one hand, renovating is a classic way to both improve the value and increase the buy-appeal of your home. By giving the kitchen a fresh look, sprucing up your curb appeal, or adding a bathroom or bedroom, you can boost your home’s value.

At the same time, in most cases, you only regain a portion of your investment when you sell the home. For instance, a kitchen or bathroom remodel tends to yield a 50% to 60% return.

In other words, if you put $1,000 into your bathroom, you’ll only get around $500 to $600 back when you sell the house.

Of course, these kinds of projects can help you sell your home more quickly.

But if you’re selling in a seller’s market, as has been the case after the pandemic, you may only need to make minor cosmetic changes (i.e. cheap changes) in order to get the best price and avoid investing too much money into your home beforehand.

What Is Your Current Financial State?

Another major aspect of your home-selling finances is your financial health in general. What is the state of your finances as you prepare to sell your home?

Do you have lots of debt or a lack of cash to help you purchase another home? Can you invest in cosmetics or curbside appeal right now or are you strapped for cash and scrounging to pay bills?

If you are tight on cash, but you want to sell your house and buy a new home now, there are options you can consider to still make the move happen.

For instance, you may be able to take out a personal loan or even a home equity loan to cover some of the expenses. You also may be able to borrow against your 401(k) in order to cover the short-term costs of the move.

However, it’s recommended that you seek legal counsel before doing anything of this nature. There are many rules that come along with the funding, such as limits in how much you can borrow, interest accrued, and how quickly you must repay the loan.

In addition, borrowing from your retirement is different from using an IRA to buy a home. In the latter case, the purchase is an investment and cannot be used until you retire.

The point is, make sure your finances are in order. Also, ensure that you’re well aware of your options before you start investing in selling your current home and the various expenses that surround that activity.

Don’t Forget Your Taxes

It’s easy to lose sight of the taxman in the midst of so many other financial decisions. However, if you’re selling your home, it’s important that you keep track of all of the expenses that pertain to your taxes.

The most obvious one of these is reporting any gains you may make on your home sale. Fortunately, unless you’re selling a multi-million dollar mansion, there’s a good chance you won’t have to pay on your gains if you report them correctly.

You may be able to exclude as much as $250,000 ($500,000 if filing a joint return) from your taxes.

There are also many other potential tax write-offs that you may be able to take advantage of if you buy a home shortly after selling your property. Make sure to do your homework and consult with an accountant regarding your options.

Considering Finances When Selling Your Home

It’s easy to treat selling your home as a financial windfall that will take care of itself. However, there are many areas of the home selling process that can have a major impact on your finances, both for better and for worse.

Make sure to consider things like taxes, timing, staging your home, and the state of your finances as you consider if, how, and when to move your property. By putting in the upfront effort, you can ensure that you get the most out of your home sale when the time comes.

Dan Matthews is a freelance writer with a penchant for financial wisdom and solid research. You can find him on Twitter @danielmatthews0 and LinkedIn.

Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.