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When I was in elementary school a classmate was witnessing a divorce. I remember him saying that the reason he hadn’t moved was that his mom couldn’t afford to. At the time I thought, but if you are going to a smaller house than how can that be?

Now that I am a homeowner myself I fully understand that some life events can cost a lot of money. Moving is no exception. It costs money to hire movers or rent a truck, renting a home requires a security deposit, and buying and selling a home incurs closing costs.

Feeling confident that you will have enough money to buy a more expensive home after selling your current one can be a tricky situation. Understanding what to expect as closing costs can help greatly in deciding whether it is time to make the move, or to plan and prepare for when you expect that time to come.

A general rule of thumb is to expect to pay 3% of the sales price plus the real estate agent’s commission. The percent that goes to commission is negotiable and you will agree on it with your agent before listing your home. On average commissions tend to cost between 4-6%, and that money pays for advertising the listing and fees to the cooperating brokerages and agents in the transaction.

In Chicago the 3% pays for, but is not limited to, the following:

  • Transfer stamps
  • Attorney fee 
  • Title insurance
  • Taxes, in Cook County these are paid in arrears, so the seller needs to pay the difference of his upcoming tax bill at closing.

A conservative way to estimate the costs of selling and buying property would be to assume it will cost 9% to sell and 4% + a downpayment to buy. Therefore, if you want to sell a $200,000 home and buy a $300,000 home you can expect the closing of your sale to cost approximately $18,000 and your purchase to cost $12,000 plus your down payment. Notice, this estimate uses the highest percentages one can expect to pay, so if that much is needed and you put down 20% for the purchase these transactions will cost you about $90,000; $60,000 of which is now in equity in your new home.

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