"My Equity"
If you’re like most people, your home is the biggest single investment you have. You expect it to increase in value over time, and you probably have more money tied up in it than in any other investment.
- This money is your equity
- A large chunk of it disappears when you pay a real estate commission at closing.
On this page you’ll learn:
- What constitutes the equity in your home
- How real estate commissions affect your equity
- Why your should price your home fairly and stick to it
A Quick Word to Buyers
Buyers and sellers alike benefit when there is no real estate agent involved. The term "fair market value" has a different ring to it when the middleperson is taken out of the equation, and prices trend to a truer value when they no longer reflect real estate commissions.
EQUITY
Equity is the value of the unencumbered interest in your home. It’s the difference between the fair market value of your home and the unpaid balance of your mortgage, plus any other outstanding debt on the home.
Real estate commissions are the fees earned by real estate agents and are based on the selling price of the property. They’re usually in the range of 5 to 7%, and they represent an large portion of the property's equity, equaling thousands of dollars.
Your equity increases in two ways: as you pay off your mortgage and as your home appreciates. It decreases when you borrow against your home.
But nothing reduces your equity like a real estate commission. With the information and resources available to you on sites like DwellWell.com, more of that equity stays with you when you sell your home.
HERE ARE THREE ASSERTIONS FOR WHY YOU SHOULD CONSIDER SELLING YOUR HOME YOURSELF:
Lower Cost of Selling
If you sell your home using a real estate agent, the commission you might be charged could be around 6%. For a $250,000 home, that’s $15,000. For a $600,000 home, it's $36,000. You have to ask yourself what you’re getting for all that money. The cost of selling your home on your own is negligible by comparison, and the result is the same: your home will sell. The methods described in DwellWell's Sellers Guide for marketing your own home cost a tiny fraction of what you'd pay in commissions.
Retaining Your Equity
Let’s say a couple decides to sell their home. It has a fair market value of $300,000 and they have $60,000 of equity in the home. They decide to use a real estate agent and agree to pay a 6% commission, or $18,000. The house sells. After the closing, the couple realizes they've lost 30% of their equity. The $18,000 commission paid at closing meant that instead of walking away with $60,000, they only walked away with $42,000. Use our Equity Calculator to see how much equity you would save.
Staying Close to Your Asking Price
Studies show that when real estate agents sell their own homes, those homes stay on the market an average of 10 days longer than their clients’ homes. The same studies also show that the selling price of real estate agents’ homes is on average 3% greater than that of their clients.*
Here’s why. A couple who lists their home with a real estate agent for $250,000 may hear from the agent that someone has offered $240,000 for the home. The agent will typically insist that this is a good offer and that the sellers should take it. Why would the real estate agent be so eager to accept a price that’s $10,000 below the seller’s asking price?
It’s simple. Agents split their commissions: half goes to the buyer’s agent, half to the seller’s agent. Then it’s usually split again: each agent gives as much as half of their commission to the agency they work for. So the agent representing the seller is only getting 1.5% of the sales price of the home (6% ÷ 4).
With a $240,000 offer, the price of the home is reduced by $10,000, but the commission is reduced by only $600. The real estate agent’s cut of this is $150. It will cost the seller’s agent only $150 to accept the low-price offer. What does it cost the seller? An additional $9,400.
This situation happens every day. If you choose to work with an agent when selling your home, be sure that together you come up with a fair asking price for your home and do your best to stick to it. After all, agents stick fairly close to theirs.
SUMMARY
As you can see, there are tremendous financial advantages to selling your home yourself. That's not to say it's for everyone. It requires more effort, and some are willing to part with all that equity to have a real estate agent do it.
But selling your home yourself can be easier than you think. The steps listed on our Sellers Guide will help you:
- price your home correctly
- understand the paperwork involved
- prepare and fix up the home for sale
- find the right attorney
And our Seller Resources page lists local resources to help you with everything you'll need to sell your home, from plumbers who can fix that leaky faucet to the right real estate attorney who can help you with the proper paperwork.
At DwellWell, we want you to walk away from your closing with your equity intact.
*Freakonomics, by S. Levitt (Harvard, MIT) & S. Dubner
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