Shocking fact: real estate in Metro Vancouver is expensive. And that isn't referring to just the price of homes. Any time you are part of a real estate transaction in the region, you will be subjected to ‘friction costs’. These costs are all the expenses involved with moving through the market, whether you are buying or selling a property.
Before we take a deep dive into what these costs look like (yes, I promise there will be real numbers and percentages here), please accept my disclaimer that the costs may vary from professional to professional (i.e. lawyers, notaries, home inspectors, REALTORS®, etc.). As well, policy changes do occur from time to time. If you come across this post in 2028, for example, the figures noted may look a little different.
Finally, for the sake of this post and to illustrate real numbers, we’ll be using a hypothetical $800,000 condo as our benchmark. That’s approximately the cost of a high-end one bedroom condo in Metro Vancouver, or a starter two bedroom in the region at present in July, 2022. On this post, we’ll be focusing on costs associated with selling.
Seller Costs
As a property owner, hopefully you have seen a healthy increase in your home’s value. While the costs of selling may eat into some of your profits, hopefully you are still walking away with a strong take-home once the dust settles. So what are the costs you’re looking at when selling?
Commissions
Let’s start with the most significant cost of selling. Real estate agent commissions in BC are not fixed or set in stone. They vary from agent to agent, however most use a standardized percentage. That percentage is 7% on the first $100,000 and 2.5% on the balance of the sale price, plus GST (5% of the total commission amount).
On the sale of $800,000 property, that works out to $24,500.00 + GST, or $25,725.00 including GST. That commission amount typically gets split into two portions: listing agent’s office portion and buyer agent’s office portion. The standard numbers used here are 3.745% on the first $100,000 and 1.3375% on the balance to the listing agent’s office, and 3.255% on the first $100,000 and 1.1625% on the balance to the buyer agent’s office. Don’t ask me where the specific numbers came from, I honestly have no idea.
But wait. Why does the listing agent’s office get more? Well, the reason for the slightly larger take home is that it’s up to the listing agent’s office to field more of the costs associated with marketing the property. This typically includes: the real estate board’s MLS listing fees, marketing and advertising, administrative costs, and strata document orders. Most of these fees are taken care of by the listing agent and never seen by the actual seller.
Staging
Staging is the part of the marketing process and is completely optional. Staging involves preparing a home for the market to appeal to buyers by showing the property off in its best light. This can mean simply re-arranging the furniture and adding a few decorative pieces or can be as comprehensive as fully re-furnishing a place with the insight of a professional interior decorator. More recently, the computer nerds have developed ways to even stage a picture of a room, where a room can be furnished or re-designed completely digitally. Of course, if a buyer does physically walk through a digitally staged property, it will look nothing like the pictures.
Staging costs vary significantly based on the size and needs for a home. If it’s just a quick consultation with a stager and some minor touch ups, you may see a bill in the $500 - $1,000 range. If it’s a full re-decorating and furnishing, it can add up to $2,500 for a smaller home and $7,500 for a larger home. Staging is typically charged with on a monthly basis when new furniture or design items are brought in. Most often, the first month is the aforementioned larger bill, and subsequent months are continued at half or one third the first months bill.
Why stage? Well, statistics show that staged properties sell faster and for more money. See here for evidence:
Legal Fees
Whenever you are participating in a real estate transaction, you will need the services of a notary or a lawyer to assist in the conveyancing process. Conveyancing includes the notary or lawyer doing due diligence on the title to ensure you are aware of anything that may affect the property, preparing documentation to transact the property into your name, transferring funds between the buyer, yourself, and the financial institution/lender that you are working with, and registering or removing your name from the title of the property with the municipality.
For a simple real estate transaction, conveyancing costs are typically between $1,800 - $2,200. Included in these fees are some of the costs that the notary or lawyer bears from the municipality and/or province. If you require in-depth services such as contract review or are seeking legal advice for your transaction or otherwise, there will usually be an additional cost which is best to be discussed with your chosen professional ahead of time to avoid unexpected costs.
Cleaning Fees
One of the simplest yet most effective ways to enhance a property prior to listing it on the market is having it professionally cleaned. Buyers are often immediately turned off a property when they see grime and dirt around the kitchen, bathrooms, and surfaces. Getting your faucets shiny, mirrors streak free, and carpet stains removed can go a long way to making a great first impression on a buyer… and we all know how important first impressions are!
Again, this is a cost that will vary based on the size of your home. A standard one or two bedroom condo will cost around $300 - $400 for a deep cleaning. A larger house will run around $600 - $700. Depending on the last time it was done, it may be worth while to top up your professional cleaning by adding the inside of cabinetry, oven, and fridge to the job.
moving costs
This is more of an after-sale cost but nevertheless worth budgeting for. Whether you’re shifting your belongings to your next home, a storage facility, or your relative’s garage, you will probably appreciate the help of a moving company. Depending on how much stuff you have and the time needed, the bill for this will range between $400 - $1,000.
Circumstantial Costs
The following costs will only apply to to certain sellers depending on both their circumstances at the time of selling and what they are selling.
Repair and replacement costs
If the property you are looking to sell is looking a little tired or has some wear and tear after being resided in, it may be worthwhile to spend some money to improve the saleability of it. Getting a fresh coat of paint, swapping out the flooring, or modernizing some of the hardware (e.g. faucets, closet door pulls, door handles) may set you back $1,000 - $10,000 before taking your property to market. While this may seem steep, the results more often than not speak for themselves. What may cost a few thousand dollars to improve the property might be amplified in a buyer’s eyes. A property that is move-in ready will usually attract a buyer who is willing to pay a premium.
Mortgage penalties
Before you sell your property, it is always prudent to have a conversation with your mortgage broker or bank to see what the terms are on your mortgage. In some cases, if you are selling your property to buy another, there may be options to transfer your current mortgage onto the next property. Otherwise, you may be facing a penalty if your only option is to break your mortgage. This expense can vary greatly depending on the following: size of your mortgage (the dollar amount remaining), the length of the mortgage term remaining, and whether you are in a fixed or variable mortgage. Typically, a fixed mortgage with more term remaining will be the most expensive to break. It’s always a good idea to review your mortgage terms before finalizing your decision to sell or break it!
Capital gains tax
Depending on where your property is, and more importantly, whether you are selling your principal residence or an investment property can greatly impact your bottom line from the sale proceeds. At present, an investor who sells a property that they own in their personal name is typically liable for capital gains tax. The standard terms for this result in 50% of the sale profits being taxable (e.g. if you sell an $800,000 property that you purchased for $600,000, $100,000 of it will be taxable). For specifics, it is vital to talk to your accountant and/or a tax lawyer before selling your property to see what tax implications you may face when selling, and if there are any ways to reduce your tax bill.
Transacting real estate is expensive, but can still be profitable!
The costs explained above are not meant to intimidate you, although they may do so. The intent and purpose is to educate and make sure you are prepared rather than surprised when you decide to sell a home. Many people have generated significant wealth in real estate all over the world, and more often than not, it’s because they have held onto their property assets for a longer period of time. ‘Flipping’, or performing quick transactions on a real estate investment for a profit is often only successful due to luck of timing. Longer holding periods are a time-tested strategy that mitigate the effects of the costs associated with buying and selling real estate.
Stay tuned for the next post about the costs associated with buying real estate!
If you have any questions on real estate expenses or the housing market in 2022, feel free to reach out to me anytime at adil@adilkhimani.com
Thank you for reading,
Adil