Guest post by Mike Olson, GO Colorado Homes
When you go through a divorce, one of the hardest and oftentimes most important decisions is what will happen with the family home. Sometimes this is an easy decision and sometimes a hotly contested, emotional one, but before you decide which route to take, it is important to understand the benefits and potential downsides to each spouse taking ownership and what to expect if you decide to sell.
What to Know If You Plan to ‘Buy Out’ Your Ex
The most common mistake I see is for one spouse to keep the home (the keeper) and “buy out” the other without doing the necessary research. This seems like a simple decision but there are a few crucial steps that need to be taken to ensure that it is both doable and realistic for both parties.
The typical assumption is that the keeper will simply refinance the mortgage under their name and things will move on just as before. What this assumption can sometimes fail to account for is that the new mortgage will need to be (sometimes substantially) higher than the current mortgage in order to pay off the other spouse’s fair share of the equity. This can become a real hurdle if the keeper cannot qualify for the necessary amount for the refinance or is not comfortable with the new payment.
I cannot tell you how many times I have gotten panicked phone calls from a client who blindly agreed to refinance the home within six months only to find out that they do not have the ability to perform on that legally binding agreement. This leads to a hasty sale in which neither spouse gets the full value of their equity. This can also lead to damage to both spouses’ credit scores that can take years to repair and infringe on their ability to purchase a new home on their own.
So if you are going through a situation like this, talk with a quality local mortgage lender to make sure that all of the objectives are attainable and you are comfortable with the new payment.
If you and your ex decide to sell the home, it is important to find a real estate agent with whom both parties have a good working relationship. There is nothing worse than trying to sell a home with someone you do not trust to have your best interests at heart representing you.
As I always tell my clients, especially in divorce situations: “My client is the HOME. I am here to make sure that I get the most amount of money for it with the least amount of stress to everyone involved so you can both take your hard-earned equity and start new in whatever way you want to with as many options as possible financially.”
When only one spouse trusts the agent, things can take a nasty turn and lead to both parties being worse off in the end. So take your time, interview as many agents as it takes until you can agree on one that you both approve of.
What Will Selling the Family Home Cost?
The costs of selling the home can vary a bit, but for the sake of ease, here are average commission rates, title fees and closing fees that I generally see. In terms of a commission, you will likely see anywhere from 5.0%-6.0% for a successful agent who will do the best job of marketing your home and negotiating the best price for you.
Most of the time, 2.8% of this commission will be paid to the agent who represents the buyer as a co-op. In Colorado, it is normal for the seller to pay for title insurance for the buyers. For a $500,000 home sale, this will cost you roughly $1,868. If you have refinanced in the last five years or purchased it within that time period, that cost can get cut by up to 40%, so make sure that your agent knows how long you’ve owned the home.
From there, the costs get pretty minimal but consist of things like the title company’s closing fee (typically split 50/50 with the buyer) which will be around $350 total, an OEC endorsement (extended title insurance for buyer) for about $75 and then other miscellaneous recording fees that will total about $200.
Other costs to account for are staging (if deemed necessary) and repairs uncovered during the inspection.
The inspection costs vary widely from home to home depending on the age, condition and maintenance history, but to be safe, it is good to earmark 1-2% of the purchase price to deal with those issues, if necessary, in order to keep the deal on track. If that is not possible, talk with your agent about the option of listing your home toward the lower end of the market value range and letting buyers know that your intention is to sell it “as-is.” With a well-priced property, you should be able to navigate the sale so you do not have to use extra money out of pocket to get it done.
If you are currently or soon will be going through a divorce, it will be in the best interest of both parties to take your time to make an educated decision to ensure that the right scenario is achieved for everyone involved. Use the resources around you (like your lawyer!) to make sure you are getting credible, solid advice, and then proceed with the best option. Hopefully, at the end of the day everyone will walk away knowing that the best possible outcome was achieved and they move on with confidence to the next chapter of their lives.
About Mike Olson
Mike Olson is the owner of GO Colorado Homes, a boutique real estate team at Keller Williams serving families throughout the Denver Metro area. Over Mike’s 10 years in the business he has helped hundreds of families achieve their real estate goals. He prides himself on being a resource to his clients so if you have any questions he can help with, reach out to him at firstname.lastname@example.org for a no strings attached evaluation.