How Much Equity Do You Need in a House Before Selling?

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Before deciding to sell your house, the first thing to consider is much equity you have in your home. Equity is a measure of how much your home is worth compared to how much you still owe on it. The less you owe, the more equity you have.

To determine how much equity you have in your home right now, subtract your remaining mortgage balance (as well as any other debts owed on your home) from your home’s current market value. For example, if your home is worth $400,000 and you currently owe $250,000, your equity is $150,000.

The more equity you have in your home, the more money you’ll have to pay off any costs associated with selling, but the exact amount you’ll need to sell depends on a few factors. Here’s what you should keep in mind when determining whether or not you have enough equity to sell.

How much equity should I have in my home before selling?

The minimum amount of equity you’ll need to sell a house without paying cash out-of-pocket is mainly dependent on where you live. You’ll need enough funds to cover closing costs plus realtor commission fees. But how much both of these expenses will cost you varies from state to state. You can see each state’s average closing costs (not including realtor commissions) here.

STATEAVERAGE HOME SALE PRICEAVERAGE CLOSING COSTS WITH TAXESAVERAGE CLOSING COSTS WITHOUT TAXESPERCENTAGE OF HOME SALE PRICE
Alabama$174,247 $2,416 $2,198 1.39%
Alaska$300,079 $3,517 $3,517 1.17%
Arizona$296,978 $3,631 $3,631 1.22%
Arkansas$160,261 $2,562 $2,056 1.60%
California$622,881 $6,537 $5,064 1.05%
Colorado$424,479 $3,672 $3,593 0.86%
Connecticut$321,609 $7,091 $3,489 2.20%
Delaware$281,308 $13,273 $3,350 4.72%
District of Columbia$645,108 $25,800 $5,723 4.00%
Florida$280,389 $6,457 $3,569 2.30%
Georgia$231,593 $3,658 $2,792 1.58%
Hawaii$646,019 $6,746 $5,388 1.04%
Idaho$290,099 $3,063 $3,063 1.06%
Illinois$238,982 $5,609 $4,502 2.35%
Indiana$193,284 $1,909 $1,909 0.99%
Iowa$172,227 $2,194 $1,954 1.27%
Kansas$236,909 $2,459 $2,459 1.04%
Kentucky$172,637 $2,276 $2,126 1.32%
Louisiana$193,364 $3,365 $3,040 1.74%
Maine$259,925 $3,654 $2,543 1.41%
Maryland$325,234 $11,876 $3,737 3.65%
Massachusetts$497,429 $5,964 $3,876 1.20%
Michigan$172,599 $4,014 $2,716 2.33%
Minnesota$248,296 $3,785 $2,434 1.52%
Mississippi$224,323 $2,548 $2,548 1.14%
Missouri$202,572 $2,063 $2,063 1.02%
Montana$292,942 $2,773 $2,773 0.95%
Nebraska$189,620 $2,303 $1,952 1.21%
Nevada$331,296 $5,546 $3,851 1.67%
New Hampshire$274,653 $6,271 $2,485 2.28%
New Jersey$359,349 $6,012 $3,635 1.67%
New Mexico$258,857 $2,908 $2,908 1.12%
New York$421,836 $12,847 $5,612 3.05%
North Carolina$237,867 $2,839 $2,308 1.19%
North Dakota$214,782 $2,428 $2,428 1.13%
Ohio$165,732 $3,360 $2,846 2.03%
Oklahoma$152,272 $2,997 $2,631 1.97%
Oregon$356,408 $3,969 $3,612 1.11%
Pennsylvania$206,405 $10,076 $4,059 4.88%
Rhode Island$318,095 $4,527 $2,912 1.42%
South Carolina$228,866 $3,316 $2,402 1.45%
South Dakota$181,137 $2,159 $2,002 1.19%
Tennessee$213,455 $3,745 $2,575 1.75%
Texas$274,163 $3,744 $3,744 1.37%
Utah$363,324 $4,026 $4,026 1.11%
Vermont$231,934 $5,994 $2,934 2.58%
Virginia$330,371 $5,959 $3,282 1.80%
Washington$433,404 $12,406 $4,538 2.86%
West Virginia$158,063 $3,384 $2,483 2.14%
Wisconsin$195,654 $2,615 $2,158 1.34%
Wyoming$283,881 $2,430 $2,430 0.86%

And their average realtor commission rates (not including closing costs) here.

STATERANKRATES
Alabama335.61%
Alaska165.25%
Arizona205.36%
Arkansas445.91%
California24.92%
Colorado265.50%
Connecticut225.41%
Delaware365.75%
District of Colombia185.25%
Florida215.38%
Georgia405.87%
Hawaii175.25%
Idaho305.55%
Illinois155.21%
Indiana415.87%
Kansas486.00%
Kentucky355.73%
Louisiana135.19%
Maine235.45%
Maryland65.08%
Massachusetts34.97%
Michigan475.98%
Minnesota345.68%
Mississippi295.54%
Missouri455.92%
Montana275.50%
Nebraska195.29%
Nevada55.00%
New Hampshire14.83%
New Jersey125.18%
New Mexico516.21%
New York75.11%
North Carolina245.45%
North Dakota496.00%
Ohio395.84%
Oklahoma425.89%
Oregon145.19%
Pennsylvania325.60%
Rhode Island85.15%
South Carolina385.83%
South Dakota45.00%
Tennessee315.56%
Texas375.78%
Utah105.17%
Vermont506.00%
Virginia95.15%
Washington115.17%
West Virginia285.54%
Wisconsin465.93%
Wyoming255.48%
National AverageN/A5.50%
.

Most states (not including Texas) also require sellers to pay a real estate transfer tax.

How much you spend on a sale also depends on the method you are using to sell your house. Selling with a real estate agent is the most expensive, costing sellers in Texas an average of 8% of a home’s sale price in closing costs. Texans who list a property as for sale by owner, on the other hand, pay an average of 2% in closing costs, and selling to a cash buyer usually requires no fees or closing costs to be paid by the seller at all.

Should I sell by myself or work with a realtor?

Hiring an agent to help you sell costs more than selling independently, making it tempting to not work with a realtor. However, there’s a reason the vast majority of sellers who initially list a home as for sale by owner end up using an agent eventually. It’s because agents’ insider knowledge and connections make them highly valuable at selling your home for a better profit and addressing any issues that come up along the way.

Yes, hiring a realtor will cost you more, but the money you spend on commission fees is an investment that will typically bring you more cash at closing. In fact, sellers who work with a realtor make an average of approximately 25% more in profits than those who work alone. That means you’ll be making back the money you spent on commissions and closing costs and then some.

What are the pros and cons of selling to a cash buyer?

Selling to a cash buyer tends to be quicker and more convenient. It often makes complicated sales — such as foreclosure, tax issues, property liens, and property damage — easier to settle without any added drama. In some situations, it makes more sense to sell this way than to list your home on the traditional market with a realtor. However, for most sales, the benefits of selling to a cash buyer are outweighed by the loss of profit.

Because cash buyers typically cover closing costs, you might expect this selling method to save you money, but such is rarely the case. Cash buyers are investors looking to score the best possible deal. That means they almost always pay below market value for homes. Once again, it’s much better to work with a realtor if you don’t have any pressing need for speed or if the home doesn’t have any significant issues to address, to ensure that your home is sold for what it’s worth.

What happens to the equity I have in my home after I sell it?

After you sell your home, the money you make will pay off the remainder of your mortgage, any liens you may have, and closing costs. After meeting these obligations, whatever money is leftover is yours to do with as you please. If you close with a title company, they will send you this money in the form of a check or wire transfer.

Luckily, this income usually does not count towards taxes. If you owned and lived on the property for at least two of the five years leading up to the sale, you’re exempt from paying taxes on $250,000 of your profit if you file your taxes individually and $500,000 if you file jointly with a spouse. Even if you don’t meet the required conditions, there may still be special circumstances allowing you to gain a full or partial exemption, so thoroughly research all your options before committing to paying taxes.

What if I don’t have any equity in my home?

If you don’t have any equity in your home, you may be wondering if you can still sell it. The good news is that selling a house with no equity is possible through a short sale.

A short sale is an option for financially struggling homeowners who owe more on a property than what it’s worth. With permission from their mortgage lender, a homeowner in this situation can avoid foreclosure by selling the home for less than the amount owed.

Because neither the homeowner nor the lender will make a profit in this scenario, a short sale will only get approved as a last resort — the bank needs to be confident that it’s the best way to mitigate their losses. The lender also needs to agree to all the terms of the sale, which makes the process more time-consuming than a typical sale.

What happens after a short sale depends on whether or not the bank decides to forgive your outstanding debt. For example, if you owe $400,000 on your home and sell it for $350,000, your lender may require you to pay the remaining $50,000 you still owe, or they may forgive it. If they forgive the deficiency, they’ll report the debt cancellation to the IRS on a 1099-C form. This $50,000 is then considered taxable income to you. You should consult with an accountant to understand the income tax implications a short sale may bring.

While a short sale negatively impacts the seller’s credit, selling a house without equity is still a better option than foreclosure. Short sales typically lower a homeowner’s credit score by slightly less than foreclosures. They also look better on your record as it shows that you were proactive in avoiding foreclosure, which can make it extremely difficult to buy a home in the future.

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