I'm no math genius, but I'm getting an uncomfortable worry as I watch how my home sale is playing out. I've only owned this home a few years, and still have a huge mortgage on it—approximately $420,000. It's selling for $450,000. But the buyer is negotiating hard, expecting me to pay for various closing costs and repairs, including a new roof and foundation. It's looking like the total costs will be around $45,000, for a home where my profit will be only $30,000. How do I deal with this? I don't exactly have cash sitting around, but will I be expected to come up with the extra in time for the closing?
Short answer: Yes, it sounds like you will most likely end up having to bring a check to closing.
A seller has to take into account more than just paying off the mortgage when deciding on a sales price. One of the largest expenses besides your mortgage will be the commission you owe to your real estate agent (if you are working with one), and to the buyer’s real estate agent (if he or she is working with one). As the seller you are most likely responsible for paying both sides. These commissions are usually a percentage of the sales price.
Another sizable expense at closing often results from the buyer’s inspection. As you are already discovering, the buyer may present you with an inspection notice demanding that you make costly repairs to the property before closing.
Although you are not required to go along with buyer's demands, if you want to continue working with that buyer you will likely have to negotiate and may end up making some concessions. How hard you can negotiate depends in part on whether or not you have other parties interested in buying.
Other costs at closing may include taxes, back homeowners’ association fees, assessments, title insurance costs, closing costs, and other negotiated expenses. Therefore, even after the money from the buyer is applied to the sale, you as a seller can certainly end up “in the hole,” owing more money on the property at closing than you have in home equity.
Based on your question, it sounds like this is unfortunately the route you are headed down, and you will have to bring a check to closing. You will need to have that money liquid and in hand prior to closing. You should talk with your agent or the title company as soon as possible to get an estimated settlement sheet and see exactly what amount you will have to bring to closing.
Note for readers who may be starting to plan to sell: It’s prudent for a seller who doesn’t have a great deal of equity in the house to run through the numbers with his or her real estate agent prior to putting the house on the market. Having to bring a check to closing as a seller is not a pleasant experience, and is not how most people envision the ultimate sale of a property. Sometimes this cannot be avoided depending on the seller’s level of need to sell, but an agent should be able to work with a seller to minimize the amount the seller will owe.