Exit strategy transaction costs: Expensive vs. Cheap areas.

[Jack B.]

If I sell just one of my properties in King County, WA, such as my latest house, I'm paying 42K just in realtors costs not to mention excise tax, which would bump it up to 56K. Again, that's just ONE house, and selling a year after purchase. The longer I hold the worse it is.

Contrast this to the people who are buying a house in cheap markets, then selling it and using the equity or cash flow savings to buy 2 more, etc. This strategy works great and you could even exit easily with little impact from depreciation recapture, etc. On typical houses in those low cost markets you'd be paying about 3-4K per transaction.

Yes, I could lower the cost of selling a house in King County, WA by becoming a realtor, but the fees are still heavy on the buyer and excise tax side.

Point? Exit strategies seem to work better in low cost markets where houses cost less than cars. They don't work so well in SF, NY, Seattle, LA, etc. from what I can tell. The fees alone eat up a huge chunk of profits. Add capital gains taxes and depreciation recapture and you basically gave most of your profits away to realtors, the state and the federal governments. Cash out refinancing isn't much of an exit strategy, so that leaves only selling FSBO, cutting the buyers agent out of the transaction, which of course makes it really hard to sell because of the way the system is set up.

[Russell Brazil]

The thing to consider in the high cost areas is that typically your appreciation is going to be so overwhelmingly higher compared to low cost areas. I am selling 2 of my properties right now,  (well one closed earlier in the week and one closes in early July). I think I am going to end up paying about $65,000 in commissions and transfer taxes between the 2.  That is a huge sum, however the hundreds of thousands of dollars Im walking away with from appreciation make it well worth it.

What would it matter if you pay 5-8% selling costs on a single $500,000 property in an expensive area versus paying 5-8% on 10 separate $50,000 houses in a cheap area. You just think you are paying more with he expensive house, but it is really just proportional.