If you’re selling your home or downsizing in a hot market, there’s a good chance that you’ll pocket a decent chunk of cash in the sale. While this profit might seem like a goldmine of new money to spend, it’s important to think strategically about how to make the most of this capital and avoid the temptation to spend it on a whim. Here are some smart and creative suggestions on how to use the extra cash from selling your home, while advancing your personal and financial goals.
How much of a profit can you expect?
According to ATTOM’s Year-End 2021 U.S. Home Sales Report, sellers across the country made $94,092 on the typical home sale in 2021 – a dramatic increase from the years prior. And while recent reports show that these high profits may have peaked and will likely decrease in 2022 and beyond, many current sellers are still seeing good returns from their home sales.
This is in part due to people being able to sell their homes for more than they purchased them for, competitive buyers who are willing to pay more than the seller’s asking price, a low supply of housing and other factors. But aside from the housing market itself, there are other factors at play that determine how much money you, as a seller, will see at the end of the process.
This is because selling a home comes with its own costs, which are sometimes paid for out of the money from the sale. For example, sellers need to budget for a variety of potential costs – some of which are optional/negotiable while others are not. These include, but are not limited to: paying for a realtor, paying closing and inspection costs, preparing the home to be in top shape to showcase to buyers, paying off your remaining mortgage balance, etc. Depending on your situation, you may decide to cut out some of these fees – but it’s true that the more you invest in the selling process, the more money you’re likely to get back from the sale.
Next steps after you get the money
So you’ve dotted your i's and crossed your t's and the home sale is official. Congratulations! But what happens next and how soon can you expect to get your money? The state you live in and how you choose to receive your money can affect how soon you’ll get paid. In New England, sellers can expect to get money on the same day as they close the sale – typically by either wire transfer or check.
Now you may be asking, is this money taxable? Well, since the profit you make from selling a home is a type of “capital gain,” meaning that you’ve sold an asset that has increased in value since you’ve owned it, it’s a smart move to check in with your tax advisors to determine whether you will owe capital gains taxes when tax season rolls around. Keep in mind that you may not have to pay these taxes, or can write off a decent chunk of them, depending on how long you've owned the property, your income and your marital status.
Take stock of the big picture
So now that you’ve got the money in your bank account, don’t let it burn a hole in your virtual pocket. Before you do anything with the money, it’s important to look at your big picture – both financially and personally – to come up with a creative strategy to balance saving, spending, debt repayment and other goals. You can do this by asking yourself questions like: What is my overall financial status right now? What are my top priorities for my financial future? What personal milestones do I have on the horizon? Understanding your unique situation and timeline will help you make truly informed decisions about your spending.
Here are some money-savvy approaches to consider:
Avoid these common windfall mistakes
We’re all familiar with how tantalizing a large chunk of money can be to spend on “wants” versus “needs.” You may have a vacation in mind or your eyes on a new car in the lot. And while you may very well be able to spend this profit on fun things, it’s wise to do so only after evaluating the big picture and laying out a well-thought-out plan. You’ll regret blowing through the cash right away!
Part of thinking strategically about how to spend this money includes not dumping all of the cash into one source. It’s usually more effective to take a multi-pronged approach and distribute the money into different things that are a priority for your personal and financial goals.
Rockland Trust’s experienced team can guide your financial planning and help you make the most of your money. Contact one of your local banking experts today or browse our Learning Center for other helpful resources.
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