By Motley Fool Wealth Management
Alison Southwick: This is Motley Fool Answers! I'm Alison Southwick and I'm joined, as always, by Roberto Brokampo...
Robert Brokamp: Si!
Southwick: ...personal finance...
Brokamp: ...con mucho gusto!
Southwick: ...expert here at The Motley Fool. Hello, Bro!
Southwick: In this week's episode, Ross Anderson is back in the next installment of our series on tackling major life events. This week -- selling a house. All that and more on this week's episode of Motley Fool Answers.
Southwick: So, Bro, what's up?
Brokamp: Just a couple of things this week, Alison. No. 1 comes from the Center for Retirement Research at Boston College. The name of the study is, "Retiring Earlier than Planned. What Matters Most?" And I think of this, often, because we've talked before about the power of delaying retirement. We've referenced the study that found that just retiring one year later has the same power in terms of your income as saving 1% more over the course of your career. So it's pretty powerful. The thing is not everyone can work later. This study took a look at how many people retire sooner than they expected and why they retired sooner.
The number they came up is exactly 37% of people retiring sooner than they expected, which is higher than I have read in the past. So that's a little surprising. And then it looked at the causes and, as I think we could all expect, the No. 1 cause is health issues.
Southwick: Health, yeah...
Brokamp: But it was surprisingly small. So if you took out the health issues, it dropped it down from 37% to 32%, so there's all these other reasons why people retire sooner.
Some of them are a little surprising. One is that your parents move in with you. It doesn't happen that often, but it does happen to people. Your parents move in with you and you have to take care of them, so you retire sooner. Another one is you get divorced. I don't quite understand why that would cause you to retire sooner, because divorce is financially devastating and it should make you have to work later, but for some reason it leads to that.
Southwick: Well, with this survey, are they always assuming there's a negative reason why you retired early?
Brokamp: No, it has some positive ones, too. Like if you had a positive wealth shock. In other words, if you inherited a lot of money.
Southwick: Yes, ooh, a positive wealth shock!
Brokamp: Yes, a shock meaning something...
Southwick: That's a fun phrase!
Brokamp: Yes, it is. Another one is your spouse retired and we've talked about this before. Spouses often tend to retire together, even though that's not necessarily the thing you should be doing. So it turns out there are just all these reasons why people retire sooner.
And I'll just add, anecdotally, that I've talked to people who said they had to retire sooner. Let's just use the health example. Something happened to their health. And I've often thought it's because that happened to you and because you were around retirement age, and if this health thing had happened to you when you were in your 40s, you probably wouldn't have retired. You would have said, "I'm too young to retire. I'm going to keep working."
Of course, what happens to these people who retire sooner than they expected is they may not have as much as they expected. My advice, here, is if something happens to you where you feel like you should retire sooner than expected, take the time and spend the money to see a qualified fee-only financial planner to make sure that's the right decision for you, because if you retire sooner and you run out of money 10 minutes later it's a lot harder to get back into the workforce.
And then the second is we just celebrated Mother's Day. Did you have a nice Mother's Day, by the way, Alison?
Southwick: Yeah, Bro, I did have a nice Mother's Day. Thank you!
Brokamp: Well, good, because I'm going to follow up with a piece of Mother's Day advice for people -- and this comes from Insure.com, which does a Mother's Day Index every year. What they do is calculate how much it would cost to pay someone to do all the jobs a mom does. And the figure for this year comes in at $71,297 for the 13 different jobs that your typical mother does.
Now they admit that this is somewhat lighthearted, because some of the jobs are like private detective investigator, licensed vacation nurses, party planner, so it's kind of funny. But clearly stay-at-home moms and stay-at-home dads do a lot of work that if they were not around, you'd have to pay someone to do it, which is why Insure.com comes up with this. Point being it's not just the spouse that works that needs life insurance. The spouse that stays at home takes care of the kids. That person also needs life insurance because you're going to have to pay someone to do it.
A rule of thumb we've talked before about in terms of life insurance is 10 times the salary plus maybe another $100,000 for each kid you have to put through college. So using the number they've come up with, you'd say, "The typical stay-at-home mom or stay-at-home dad should have about $700,000 in life insurance and then you add on the $100,000-$300,000 for the kids." You're talking about $1 million. I think, actually, that's pretty reasonable for someone, these days, to have in terms of life insurance.
It included a couple of other interesting stats. First of all saying that more than 40% of people don't have life insurance, but one of the big reasons people have said why they don't have it is they think it's going to be too expensive. But what they found is that a lot of people overestimate the cost of life insurance. For example, they said that a $250,000 term life insurance for a healthy 30-year-old would only cost $160 a year, but people estimate that it costs three times that much.
So if you're one of those people who thinks, "I can't get life insurance. It's too expensive," chances are it's actually not going to be as expensive as you think, so go ahead and look into it because it's really important to have it. And that Alison, is what's up!
Southwick: Well, hey! Ross Anderson is back in the studio!
Ross Anderson: Hello!
Southwick: How are you?
Anderson: I am awesome! Thank you guys for having me!
Southwick: Of course, Ross is a planner with Motley Fool Wealth Management...
Brokamp: A sister company of The Motley Fool.
Southwick: ...and he's here today because the last time he was here he talked about how to buy a house. Now we're going to talk about selling a house.
Southwick: Which is something all of us have done? Yes?
Brokamp: All of us but Rick.
Southwick: Oh, yeah! Rick has not. He's been tried and true.
Brokamp: He's decided to stay put and improve his house. Which is going well?
Rick Engdahl: That's for a different show, I think.
Southwick: Yeah, right. The "renovate your house" episode. We'll do that, too. So Ross, today we're going to talk about your advice as a planner for selling your house and making it as painful as possible. [laughs] Painless as possible!
Anderson: Maybe. Maybe painful, maybe not.
Southwick: Reducing the pain. Let's start off with why. Why do people want to sell their house? What's up with that?
Anderson: I see a lot of different things, both in my role as a planner and then also through the experience I just went through, which was closing on a sale and a purchase around the same time frame.
There tends to be a couple of common themes. Earlier in people's life cycle, it might be that they're trying to upgrade. Upsize. They're expecting a family. Preparing for that next step. It might be a job change. It might be something along those lines. Moving across the country.
And then also we deal with a lot of folks that are headed into retirement, so I see that downsizing transaction quite a bit. People are thinking, "Hey, the kids are out of the house. We don't need all of this room. Maybe we're going to take some of that equity, put it back into our investments, bolster our retirement, and also maybe move into something that's a little bit easier to manage." That tends to be a very personal decision, but also those are the things that I see most often.
I was actually interested to see -- preparing for this show -- that people tend to be staying in their homes longer, these days. The number I used to hear was that eight years was the average that people stayed in a home. It looks like the median seller, since 1985, has actually ticked up to almost 10 years. Which across big groups of people, that's a pretty meaningful difference. But at least financially that's probably a big help, because every additional year means a lot.
Brokamp: And as we'll talk throughout this show, there are a lot of transaction costs involved with selling the house. I certainly tell people that you should not be buying unless you plan to stay there for at least six years, 10 years being optimal.
Anderson: I think that's absolutely true! The frictional costs are higher than you'd expect, both from the actual transaction standpoint, which we'll talk about, and then just the soft costs; everything from moving, to buying furniture and selling furniture, and all of like getting the stuff done. It just takes a lot of effort and certainly some money.
Southwick: So even before you're thinking about selling your house, what should you be thinking about while you're living in it?
Anderson: When we've been in a home a little while, we tend to have some of those project areas where you go, "Well, someday we'll do this." I tried to take the process along the way that if it was something I was going to upgrade at the time of sale, I wanted to enjoy it. I don't want to put brand-new kitchen counters in for the next person. I don't care about them that much. I'd like to enjoy the new kitchen counters.
Even from the very point that we bought the home we didn't think we were going to be there forever. We ended up being in our condo for about six-and-a-half years. And things like the kitchen counters we replaced, but we did it a few years ago. We knew it was ultimately going to be necessary to upgrade some of the finishes for sale. [We] didn't want it to just be at the very end where you fix all this stuff, and then you look at it, and think, "Hey, this place is actually kind of nice. Maybe I'm OK staying here."
I think looking around at your projects list and just saying, "Do we need new carpet? Do we need some of these things that might improve our ability to sell the home, but would also improve our quality of life in the home?" You may find that a little bit of touching up might extend your happiness in the home and let you extend that further, but at the very least it will help you to list and be a little bit more attractive.
Southwick: Once you decide, though, that you are ready to sell a house in the somewhat immediate future, what should you start doing?
Anderson: The best way I can categorize it is to get rid of all of your stuff.
Southwick: Just put it on the front lawn, see who takes it, and then burn the rest.
Anderson: And maybe this is just me. Some other folks are very neat people and maybe they do a better job at managing clutter, but the amount of junk that two people in my home accumulated just shocked me. We'll talk about how you list in just a moment, but if you have a realtor come through, they're going to tell you you've got to get rid of all of the clutter. You've got to get rid of some of the personalization. People want to be able to picture themselves in the home and not necessarily your family photos and things like that.
But getting rid of that clutter you can start doing right now. That's one of those things where you can go through. Marie Kondo it. If you've been watching that on Netflix...
Southwick: See if it sparks joy.
Anderson: Yes. If it doesn't spark joy and if you don't need it, start to whittle that down, because you're going to be so much happier not having to move all of this stuff.
That's really what's coming next is No. 1, you need the house to show well. It's going to show better with less stuff in it and you start realizing how much junk you don't have to have. Even though we tried to downsize our stuff, we were still shocked by the process.
Southwick: Bro, we've done episodes in the past about decluttering. What were some of your favorite ways that you've gotten rid of stuff in the past when you moved?
Brokamp: One issue with us is having the kids.
Southwick: Ugh! Kids have so much stuff!
Brokamp: That's part of it -- just getting rid of the stuff that kids no longer play with or the clothes that [don't] fit them. We're big fans of once a year having a yard sale or putting a bunch of stuff on Craigslist. If you tell your kids, "If you sell this, you get to keep the money," that is a great way to get rid of a lot of stuff that they don't play with anymore.
I'll also say that the last couple of times that we sold our house, we didn't just get rid of stuff. We also got storage to put stuff in because sometimes you have some furniture that is maybe not the best-looking furniture and may not help the house show well, but you still want to keep it. And you can stretch out that process of decluttering the house and getting ready to show by just starting to move that. And it only costs like $100 to $300 a month or so. You can stretch it out. And a lot of the things you have to do to your house -- like painting, new carpets, or stuff like that -- you have to clear the room anyhow, so getting a storage facility is helpful for that, too.
Southwick: And then are you good about going back and actually emptying out the storage facility or do you just tend to put that into the "this is always going to be here."
Brokamp: No, no. For me, I hate paying for something. Anything that's related to just paying just because you have stuff. As soon as we get the new house, we clear that out.
Anderson: These storage facilities know they've got most people on the ropes. They keep increasing that rent year by year. That's a tremendous business just because I think most people get all that junk in there and they go, "Oh, no, I'm not going back in that." I know my dad was one of those people for years. He would have paid anything to just not have to clean it up.
Southwick: So after you've gotten rid of the clutter...I make it sound so easy. It took us months and months, and so many car trips, and so much posting on Slack on the Fool. "Who wants six martini glasses that we have not unwrapped since our wedding?" Because why did we put martini glasses on our registry? I don't know. That was dumb!
Anderson: For all of your cocktail parties.
Southwick: For all of our cocktail parties. We have one friend who drinks cosmos, and she's the only person who has ever had a drink in one. All the rest of them were in their original little box, never touched. Oh!
Anderson: You've got to start making Manhattans. That can go in a martini glass.
Southwick: That's a dumb shape for a glass. I don't care. Everything can be drunk out of a jelly glass. Who cares! So clutter's gone. It was not hard, but you did it. Good for you!
Anderson: And honestly, we got lucky. My parents live in the area and let us put a bunch of boxes in their home and that helped with two phases of it. No. 1, getting rid of our stuff, which ended up being out of the house for like months at a time. Then you go to pick it up and you're like, "Why do I need any of these things?" I've been living for months without this stuff. Do I really need it? But they were also very motivated to get the stuff back out of their home, so that made sure we went and picked it up because my mom wasn't having it.
She said, "You've moved now. Go ahead and get it." So decluttering, and then you start to neutralize a little bit. You've got to assume that your taste is not everybody's taste, so to the extent that you can go less knick-knacky and more just kind of neutral colors. Try and appeal to the broadest audience. Again, not all of us are interior designers. That's certainly not who I am, but I just assumed most people wouldn't like my stuff, so as much of it as I could put away, I think that was the goal.
And buyers -- and I think this is true across all buyers -- are going to prefer a turnkey house. The less they have to do, and the more you can do for them so that your home looks like it's ready to just come plop your stuff down and sit and relax, I think it's better.
We had a tough choice on our carpet. We knew it needed to be replaced, and we ended up not doing it because we were still living in the home at the time it was showing, and we were going to have to move all of the furniture. And quite frankly, I think we paid for that a little bit in terms of what we got for the home and probably should have done that work ahead of time, but people definitely appreciate if they don't have to do the work when they move in.
Southwick: For us it was important to be moved out of our house before we started showing it. We just didn't want to have to deal with people walking through our house and all of our things. But then our realtor was like, "Well, but we need to stage the house to take photos." And so we had to do this whole rigmarole where we took photos of one specific floor. The whole staging your house can be expensive if you actually are going to stage it and bring in other people's furniture.
Do you find with the people that you've been working with -- and granted the people you've been working with live all around the world -- that they are having to do a lot to sell their house? Is it hard for them to sell? Or generally speaking is it actually a pretty good time to be selling?
Anderson: The message I hear right now, at least locally and certainly in other parts of the country where the market's been hot, is that it is a seller's market at least at the moment. Now I was going through this process at the end of last year and the market was falling like a knife through butter. That was not going as well, because the traffic was down. I think people were a little concerned and heading into the holidays was not a great time to list. It was a decent time to be a buyer and I think what I gave up on the selling side I got on the buying side and being able to be a little bit more aggressive there.
But right now it seems like inventory is exceptionally low. The home across the street from us in our new place went up and it was under contract within three or four days.
Southwick: Yes, D.C. is...
Anderson: A very quick turnaround. It seems like that at the moment if you're in one of those markets that you can basically write your ticket. But at the time we did it, we definitely had a little more effort that had to go into it.
Southwick: Let's talk about the money part. You know...
Southwick: ...that part. It gets tough, especially if you are selling your house and buying another house...
Anderson: For sure.
Southwick: ...because basically you're looking at carrying two mortgages, potentially, or having to time it right. Let's talk money!
Anderson: The logistics of this and the finances of this are really challenging. You've got to decide, first of all, whether you can afford to carry two mortgages if you're going to have to before you've got a closed deal. And really we're focusing on the buying side, but when we were buying our home, the person we were buying from had our closing date sale and they were closing on their new property on the same day.
What we ended up finding out is that when we went through the home inspection, we found some extra stuff that we weren't really prepared for. We kind of had them on the ropes a little bit, because they clearly needed that sale to go through and they were very worried about losing that deal if we had backed out at that time. We got to renegotiate price and seller credit again at that home inspection point.
I think there's a couple of lessons there. No. 1, try not to paint yourself into a corner if you can and if you do, make sure your realtor doesn't tell the other person that's buying your home. That puts them at a huge information disadvantage. Again, I don't think we took advantage of them. I think there were real things in the home, but that is really critical to me that you control some of that information flow.
So if you're going to put yourself in a position where you have to have the new money out to make your down payment, I think you've got to be thinking about maybe having a gap, there, where you're going to be in some sort of an extended hotel, or something like that, for a couple of weeks, maybe, so that you're not right against the ropes for making the closings work.
Brokamp: There are a couple of ways of doing it and I've done one of them. That is the bridge loan. It's a very short-term loan that you use as the down payment on the purchase of the house until you sell your house and get that money out and pay off the loan. It was very easy to do, and I almost wondered why the bank was even bothering, because we only had the loan for a month or two. Regardless, that is an option.
Another thing that people have done is borrowed from their 401(k), which can have advantages.
Southwick: Some people. Some people you know have done that.
Brokamp: Some very responsible, smart people.
Southwick: Thank you!
Anderson: One of the three people in the room.
Brokamp: Yes. And the good thing about that is that it's very easy. It's actually not even a loan...
Southwick: It's so easy!
Brokamp: So you don't have to get a credit check or anything like that. And the interest that you pay is to yourself. The downside is that money's not in the market, so if the market shoots up while that's happening, you miss out on that. And if you don't pay it back, it's considered a distribution and you pay taxes and penalties. So it's definitely an option for very responsible people.
Anderson: The other way to do it -- and this was the plan that we ended up doing and then I screwed that up a little bit...
Southwick: Hey, everybody makes mistakes!
Anderson: Yes, it's fine. The other thing you can do -- I ended up doing my purchase loan with Rocket Mortgage. And one of the things that you can do with a loan that's in good standing is called "recast" it. For example, if you take out a bigger loan on the purchase, you can then put a huge payment against it. If you typically put a big payment against a mortgage, it doesn't change your payment, but if you recast the loan, they basically redo the amortization schedule with the same ending date, so that actually lowers your payment.
I think this is a fascinating strategy. We may even disagree on this. Some people would say just pay it against the principal, keep making the same payment, and pay it off sooner, but if you're worried about that cash flow month to month and you don't want to have the bigger bill, recasting the loan is like doing a smaller loan for the same time period that you originally started with. I think it's about $100 to get them to do that, where other lenders may charge a much bigger fee.
That was one of the main reasons I ended up going with them on the purchase side, was because my plan was to buy the new home with a bigger mortgage, take the money out of the sale, and then recast the loan. Where that failed is I ended up putting all that money back into renovations, so I still have the bigger loan that I took out, and I bet that's probably what happened to a lot of people in that same strategy, is they can't sit on the cash. That's my failure, but at the same time the house looks nice.
Brokamp: Anecdotally, for the people that I know -- either personally or members I've spoken with -- who have gone the two mortgages route, sell the one house and all that, I would say in about half of those situations it took longer to sell the house than they expected. So you've just got to make sure you have that room in your budget just in case something happens and you end up having those two mortgages longer than you expected.
Southwick: One thing that happened to us is my credit score took a really big hit. We were puzzled by it, and then Ron said maybe it was because for like 30 days we were $1 million in debt, because nothing had really changed in our lives except that we were massively in debt for a very short amount of time. So I think it's going to take a little while for my credit score to recover, which is kind of sad.
Anderson: You also don't have payment history on the new loan, yet, so that's going to be part of it, is just that you haven't proven yourself to be good at paying.
Southwick: I am. I am good!
Brokamp: You'll get the money!
Anderson: I trust you!
Southwick: Thank you!
Anderson: I'll lend you money. Don't worry!
Southwick: Do you have some money to loan me?
Anderson: No, I don't.
Southwick: We're good now. Well, you're going to need help selling your house. I know people who just went through a lawyer, but you are going to need some help, whether it's a realtor or lawyer. Let's talk about that kind of help.
Anderson: This is where I think the numbers really get serious. The biggest cost in selling your home is going to be the commission that you pay to actually have the house sold. Normally, I think a traditional real estate commission is in the 6% range, so you're going to assume whatever you list the home for you're going to end up with 94% of that hitting your bottom line.
There's been pressure on those prices from a lot of places these days. Redfin advertises a 1% listing fee. There's a minimum, there, depending on where you are and what the home is worth. So you're starting to see that come down. It is a negotiation point, so if you're going to work with a realtor, we had the same listing agent on our selling side that we did on our buying side and they were willing to work with us a little bit there.
Southwick: How much did they work with you?
Anderson: I think we took 1% off of it. I think we ended up listing for 5%. I probably could have been more aggressive than that, but I want it to be win-win. They did a lot of work for us in helping us get the house ready, quite frankly, so I wanted to make sure that they were making money and we were. That's not the most capitalist thing I've ever said, but I wanted it to be a fair deal all around and not come out one-sided.
Brokamp: I would say the same thing. I've negotiated every time we've used a realtor and I would say we've done it between 4%-5%, especially if you are using them on the buy side, as well.
Anderson: But the new services depend on what you need and how much coaching you need. Now this is our first time selling a home. If I did it again, maybe I would do something with less of a personal touch. This time, since it was my first time through, I wanted the hand-holding. I can recognize that about myself and being in the advice business, I've learned to trust professionals when I feel like I'm out of my depth and this was one of those spaces. I was happy to do it the way we did it.
Brokamp: And really, if you get a good realtor it's definitely worth the money. And by good I mean helping with the staging, for sure. Helping with the decisions about what needs to be upgraded or not. If your fridge is 10-15 years old, should you upgrade on that. They'll help with that. They'll help with the pictures. And everyone is going to see your house first online in pictures, and you want to make sure that you have good pictures and they know how to do that.
And then also they serve as the negotiator. So you're not negotiating with the people who want to buy your house. They're doing all of that. Sometimes if you want to play hardball, it's a lot easier if someone else is doing it for you than if you have to do it yourself.
Anderson: Yes, because you can kind of do a little bit of a good cop-bad cop routine. And quite frankly, you may get an offer that's insulting. Somebody may send you a lowball offer. Again, it depends on the heat of your market at the time that you do this. And your response to that person might be, "Heck, no!", and they may be a little bit more measured in terms of how they respond or this is what they're looking for. But hopefully they're also going to help you find a listing price that makes sense. They're going to look at the comps in your market. They're going to look at what's around you. What else is for sale and hopefully help you come in at an attractive place where the deal all goes just a little bit quicker.
Southwick: One thing I would add from my own personal experience is realtors are going to be sending you lots of contracts. When they start bringing contracts in, they're like, "Hey, take a look at this one! Take a look at this one!" Definitely check them to make sure they are right, because we had offers that they put the wrong address in and they were trying to put in an offer on our neighbor's house. And we got offers where they didn't have my name on it.
Anderson: What a good neighbor, that you could go to your neighbors and say, "Hey, good news!"
Southwick: I have sold your house!
Anderson: You're moving!
Southwick: Got you a good deal! Obviously, you can go through it with a fine-tooth comb, but at least look at the parts where there is the highest opportunity for human error and you will see them. Because every contract we received there was something where it was, "Well, actually, Alison should be on this. Actually, that's not our address."
Anderson: I also love that the documents, this time through -- and again, it had been six-and-a-half years from when we bought our place originally -- are electronic now. We used DocuSign for everything, which was just incredible vs. having to sign all this junk over and over again. It was much easier.
Southwick: And did you guys get any personal letters from people saying, "Hey, this is who we are. We really want to live in your house. Choose us."
Anderson: We didn't. We did get the aggressive lowball cash offer. "Well, you're not going to get anything better than this."
Southwick: Oh, really!?
Anderson: We told them to pack sand.
Southwick: We received some really sweet letters from people saying, "Hey, we just got married. We have a dog. We want to have babies." And I was like, "That was just like you and me when we bought the house." Give them the house. Give it to them!
Anderson: It's funny when you get the cash offer. In theory, the cash offer could close quicker because the buyer isn't waiting on financing, and so if they're making that cash offer, they seem to assume that you're going to show that some preference. I don't really care if it's cash or not. I'm going to get the same check regardless.
Southwick: I'm going to get the same amount of money anyway.
Anderson: I'm worried about the number. Let's go ahead and come to the table. And again, if you're a little bit more desperate to sell or if you're on a tighter timeline, maybe that quick close becomes more and more important to you, but I wasn't going to give up $5,000-10,000 to close three weeks earlier. I don't care. I'll just sit around and wait. And again, that strength of having that patience or being in a position that you're comfortable I think is really important.
Southwick: With us, too. They wrote very sweet letters and I got teared up, but the fact is we want the one whose clause escalated the highest. That's what really got me sentimental! [laughs]
Anderson: There it is!
Southwick: There it is! Actually, to be fair, both of them were exactly like we were.
Brokamp: Another thing that I think is helpful for a realtor to have around is managing the inspection. And every house is going to have an inspection, and an inspection is always going to turn up something.
Southwick: Oh, so much something! It's pages and pages of stuff where you're like, "What? No. This house is fine."
Anderson: And I know some sellers do this. They actually will do a pre-inspection. They'll hire their own inspector to come through and basically do it like a buyer's inspection just to understand what's going to be uncovered. I wasn't willing to go to that length to figure out what was wrong with the house -- I had ideas of what was wrong already -- but that's certainly an idea if you think that they're might be a long list. If you're a little bit worried about what they're going find, just go and pay somebody. It's a few hundred bucks to do it and you can be out in front of it.
Brokamp: And there are some things that turn up that you have to fix. Depending on where you live and state laws, you cannot sell a house if this one thing is wrong. Everything else is negotiable, and that's where the realtor comes in and that's helpful, too. But just know that you are going to spend hundreds, if not thousands of dollars after your house gets inspected.
Anderson: The listing number you've got to keep out of your head. I mean, I think you should go into it with a bottom-line number. We want to get at least this. That's what we ended up doing -- managing to that bottom-line number, but when you start at the top, if you do the math, there, you're going to be disappointed at the end. Between the repairs -- between all the additional costs of moving and all this stuff -- you're going to end up with less in your pocket than you think.
Brokamp: One reason why you would consider getting an inspection beforehand is once the inspection gets done and something gets found, the buyers will want a certified plumber, or electrician, or handyman to fix that. They don't want you to say, "Oh, yeah, I'll fix that. I'll run to Home Depot." If you find out things that are wrong beforehand, you have the opportunity to fix it yourself before hiring outside help.
Anderson: That's a great point, but yes, you have to prove receipts for anything they ask you to fix.
Southwick: Oh, OK. Well, let's move on to the joy that is moving.
Anderson: Oof! Fun stuff! How much do your friends really like you? It's a good day to find out.
Southwick: Come on! Are we not paying you enough to hire movers?
Anderson: I did hire movers. No, absolutely. We were in a third-floor walk-up. And on the day we moved in, I said to my wife, "We're not moving out until I can pay somebody to take this crap back out." I will not take this stuff the other way. That's done! So we did hire movers, and luckily we weren't going very far. It was just a few miles down the road. That cost was actually less. If you're going to pack yourself, it's less expensive than you would think.
Southwick: Oh, yes! That's what we did. We packed all our stuff ourselves. We ordered big plastic crates and we just threw stuff in the crates. Then the movers came and it was surprisingly reasonable. My back is still in good condition and thanks me for it.
Anderson: That's a huge perk to have there. If you're going to have your friends help you do it, pizza and beer is still your cost. I think it's just not worth it.
Southwick: Shout-out to Bookstore Movers in the D.C. area.
Anderson: There you go!
Southwick: They didn't pay me for that. It's just an endorsement purely from the heart.
Anderson: Love it!
Southwick: They were great! They were fantastic!
Brokamp: The last couple of times we did it both ways. We rented a U-Haul and moved anything that we -- meaning my wife, kids, and I -- could move. Any clothes. Anything that's easy to move we did ourselves. Then what we did for the stuff -- the really big furniture -- is we hired pros. In one of those situations we even rented the truck ourselves. We just hired the help, which you can do, and you pay them whatever -- $20 an hour -- to do that. A lot cheaper than if you hire the moving company to do everything for you.
Anderson: I think at the high end they'll even pack for you, but that changes the economics quite a bit.
Brokamp: The average cost largely depends on what you're getting them to do and how far you're moving, but it can range from $500 to almost $4,000 depending on what you're doing.
Anderson: So if you're moving -- and this is along the line of our don't cut the joists advice that we gave to people when you're buying...
Southwick: Come on! Just leave the joists alone, man!
Anderson: I'm not over it! But don't leave crap in your house. We found an enormous amount of stuff. When I say car seats -- these seats from a car. Not like children's car seats. We're in the attic with this home we bought. We didn't do this to people. Be considerate!
Southwick: We had so much stuff left in the attic that I emailed the previous owners. I said, "Do you want to come get your stuff?" And he's like, "No, you can have it."
Anderson: Yeah, what's your [...] for all this junk?
Southwick: There were skis. Christmas trees. Furniture. Kids' furniture. I was like, "You're horrible people!"
Brokamp: This is a family TV show, er, podcast radio show. But the stuff I found in the attic of one house was stuff that the husband was clearly hiding from the wife in video and magazine form.
Southwick: Oh, my goodness! Thankfully you found that and not...
Brokamp: And not the kids.
Southwick: Oh, wow! Did you email him and let him know?
Brokamp: I did not, but I wasn't putting this in my own trash can, either, because what if someone finds it? For all you Fool employees, it ended up in the Fool bin out back. [Laughs]
Southwick: OK, Bro. It was the previous owners.
Brokamp: Actually, I assume it was the husband. Maybe it was the wife. I don't know. I didn't ask. So as we wrap this up, just one thing to think of as you're budgeting for all this is just all-in cost. So as a rule of thumb, it will cost about 10% of the cost of your house to move, including the realtor fees, home repairs, and moving, but that is variable, to a large degree; the No. 1 expense being what you do in terms of a realtor or if you sell it on your own or not.
Sometimes people wonder, "Well, I made a profit on my house. Do I then owe capital gains?" The answer is probably not. Because of something known as the "home sale exclusion," you could exclude up to $250,000 per gain, $500,000 if you're married if you lived in the house in two of the past five years. So if it was a rental property you still have to pay capital gains or if you didn't own it for two years, you still pay capital gains. But that is one expense that most people don't have to worry about.
Anderson: Unless you have a really huge gain, which some people do...
Brokamp: That's true.
Anderson: ...and we've certainly seen that, as well. But for most folks they don't have to worry about it.
Southwick: A $500,000 gain doesn't sound like that much for the D.C. area, though.
Anderson: It depends how long you've owned it. And the other thing is if you've done improvements to the home, you change your basis. So if you bought it for $250,000 and put $100,000 into it, the gain is really going to be above that, but a lot of people do a very poor job of record-keeping on their renovations. If they did those 20 years ago and they can't actually prove that they did it, it becomes a little bit dicey.
Just a note for all of you out there doing home improvements. Keep track of it if you think you're going to be in the home for a while. Certainly if it's a rental, keep track of it because that's how you're going to deal with all of those expenses and deducting that. For most people they're not going to deal with a capital gain, but if you think you might be in that situation, absolutely keep good records.
Southwick: What's your closing thought, Ross?
Anderson: It's just a bigger hassle.
Southwick: Everything's a hassle!
Anderson: Everything relating -- I know this sounds negative -- but everything relating to home transaction seems to take a little longer. Take a little bit more money. It just all is very drawn out and when you make the decision of, "OK, I'm going to buy this home or I'm going to sell this home," you just want it to be like snap and I'm done. But that's not the thing. You're getting into weeks of patience and you doing work and you trying to prepare for the best possible outcome.
So if you're thinking about it, again, whether that's downsizing, moving, upgrading; whatever you're looking at doing, start to assess it with as an objective eye as you can and get out in front of some of that stuff so that it doesn't catch you by surprise when you actually need to move.
Southwick: I know that buying a house and selling a house is always far more money than I think it's going to be, but I think it's just going to be a mistake I'm going to make the rest of my life, just assuming that it's not as bad as it is. I'll forget. Well, hey, good luck everybody. Let's try to end on at least a positive tone if the sentiment isn't so positive.
Ross, thanks for joining us! You're going to stick around, though, for the thing that we always do. Usually do.
Brokamp: The fun stuff!
Southwick: The fun stuff!
Anderson: Can't wait!
Southwick: Our sister company, Motley Fool Wealth Management, is a registered investment advisor that can help put your financial plan and investing needs in the context of your big-life transitions. If you've enjoyed hearing from Ross or the other Motley Fool Wealth Management planners we've had on the show, guess what? You can get even more of them in your life and talk to them in person!
Anderson: The Ross Anderson!
Southwick: Visit FoolWealth.com/radio you can find podcasts, notes, and resources, and even book a no-obligation appointment with Ross or another planner you've probably heard on the show. Please consider the risks, costs, and suitability of investments before choosing any investment professionals. All investments involve risk and may lose money. Motley Fool Wealth Management does not guarantee the results of any of its advice or account management.
Southwick: Selling can be hard, whether it's a house or other thing, so I want to see if you guys can fill in the blanks and answer some questions when it comes to some ishy moments in PR and advertising.
Brokamp: All right!
Southwick: Let's start with an easy one. Erik the Red, famous Viking, didn't discover the largest island on the planet, but he was the first to colonize it after becoming one of the earliest PR men in history. What country am I talking about?
Brokamp: Which country?
Southwick: I was going to say Erik knows this. Rick knows this.
Southwick: There you go!
Brokamp: There you go! That's what I was going to say!
Southwick: Yes. In the most Viking of stories ever, Erik's dad, Thorvald, was exiled from Norway in 960 A.D. for "some killings." The family sailed to Iceland. Twenty-two years later Erik was like, "Dad, that was a great idea!", and he killed a man and then several other men. And they get exiled from Iceland, so they keep heading west, and eventually they find a part of Greenland that isn't covered in ice.
He returns after his exile and regales everyone with his grand tales of the "Greenland." And 500 men and women were like, "Sounds better than this famine we're living in. Let's go!" So off they went. They had settlements in Greenland for more than 500 years, but then suddenly disappeared. No one knows why, but probably a plague.
Anderson: More of the killings?
Southwick: More of the killings. That probably didn't help.
Engdahl: Maybe ice.
Southwick: And ice. And just miserableness.
Engdahl: Lack of green.
Southwick: About 55,000 people live in Greenland today, and if you have not googled pictures of Greenland, recently, I recommend doing it. There's some really cool pictures out there. But it's a very cold place. And not particularly super green.
All right, next question. In 2014, Red Bull Energy Company settled a class action case by agreeing to pay out a maximum of $10 to every U.S. consumer who bought the drink since 2002. Why? Well, a judge agreed that Red Bull does not, in fact, what?
Anderson: Give you wings?
Southwick: Yeah, you're right!
Southwick: According to Business Insider, Benjamin Caruthers was one of the several consumers who brought the case against the Austrian company. He said he was a regular consumer of Red Bull for 10 years, but he had not developed wings or shown any signs of improved intellectual or physical abilities.
Anderson: Oh, my gosh! That upsets me so much at my core. That's deeply upsetting!
Southwick: All right. Broido has Olive Garden, I have Taco Bell, the restaurant I unapologetically love. I don't care what I'm eating -- a Mexican pizza is delicious. But rumors about what is actually in Taco Bell meat have circulated for a long time and in 2011 an Alabama law firm decided to do something about it. They insisted that Taco Bell change the name from "seasoned beef" to "taco meat filling," arguing that the "meat" was only about 36% actual beef. Boy, were they wrong! What percent of beef was actually beef? Let's do closest without going over.
Brokamp: 20%, and it was chihuahua.
Anderson: I'm a purist. I think it was 100% beef, because I stand behind Taco Bell.
Southwick: I love Taco Bell!
Anderson: I do, too!
Brokamp: People! They're using people!
Southwick: Not people. Do you have a guess, Rick?
Southwick: Yup, so the other 12% was spices, oats -- to be fillers...
Anderson: The spices count?
Southwick: Yeast extract, maltodextrin, soy lecithin, and cocoa for color.
Anderson: Sounds delicious!
Engdahl: Sounds a bit healthier!
Southwick: Probably a bunch of other stuff I also can't pronounce, but basically people are like, "Don't worry about it. It's fine." And there's no such thing as like Grade D beef, apparently, because that was another thing they used to say about it. All this bad talk about Taco Bell. Come on!
Anderson: Just let me be happy! You know?
Southwick: Right. Right! Next question. "Torches of Freedom" was a PR campaign devised by the father of PR, Edward Bernays, in 1929 to promote what action by associating it with the women's liberation movement?
Brokamp: What was it again -- that word?
Southwick: "Torches of Freedom."
Anderson: I have no idea!
Engdahl: Burning brassieres?
Southwick: Bro's in the ballpark.
Brokamp: S'mores. I don't know!
Southwick: Smoking! So when men smoked, it was manly. When women did it, they were probably floozies. The head of the American Tobacco Company -- maker of Lucky Strikes -- was no feminist, but he did recognize that if he could convince women to smoke he'd make a ton of money. So in 1929, Bernays -- again, this is the PR guy he hired -- devised what someone called the first PR stunt. He hired a bunch of nice-enough looking women. He didn't want them to be too pretty -- he wanted them to be relatably pretty -- to smoke their "Torches of Freedom" as they walked in the Easter Sunday Parade in New York.
It caused quite a to-do, including a The New York Times story: "Group of Girls Puff at Cigarettes as a Gesture of Freedom." The share of cigarettes purchased by women took off after this campaign. Bernays, who was actually a nephew of Sigmund Freud, retired in the sixties but he continued to work, in his retirement, on behalf of the anti-smoking lobby Action on Smoking and Health. Isn't that funny?
Anderson: Hired gun!
Brokamp: That's right!
Southwick: And then he was like, "Ugh. I just made a lot of ladies miserable by convincing them to smoke." But anyway, there you go.
Anderson: Times have changed.
Brokamp: Thank, goodness!
Southwick: Well, then you think about the Virginia Slims. Remember? It still continued into when we were kids. The Virginia Slims ads and like...you're a sassy woman who smokes. Yay! Like that wasn't the exact copy but it was essentially it.
Anderson: Nailed it!
Southwick: Thanks! Look at you with your shoulder pads and your large hair. Go get it, girl! I don't know. It was the '80s, baby!
All right, well that's the show! Thanks again, Ross, for joining! And remember, listeners, you can head to FoolWealth.com/radio for more episodes in this series and to book a no-obligation appointment to chat with a Motley Fool Wealth Management planner.
The show is edited liberatingly by Rick Engdahl. For Robert Brokamp and Ross Anderson, I'm Alison Southwick. Stay Foolish, everybody!