Did you know your closing-day check affect the rest of your life? Here’s a story of how…

Don and Clara, 37 years old, just found out they’re having a surprise 4th baby! Yay!

They live in a 1925 bungalow in Saint Paul. 1,200 square feet, valued at $200k. They have 40k in equity.

It’s a cozy home. However, adding a 4th child will make space tight. So they decide to sell.

Thankfully, the market is good for sellers. From what they’ve heard they think they can sell for at least the market value of the home they see on Zillow.

Don and Clara obviously want a big closing day check to help with the downpayment of their next home. That’s because they only have about $10k in savings. 

So, they go with an old high-school friend who just became a Realtor. They plan some low cost DIY projects to make the home look tidy.

They repaint the house. Do some landscaping. And clean out (most) of the junk.

It comes time to go live on the market. The fresh paint attracts multiple buyers and they accept an offer for $210k! $10k over list price!

However, in the end close for only $185K… $15k under list price and the value on Zillow.

Why? 

You see, in the negotiation the buyers asked them for some unexpected fixes. Like hazardous trees taken down, a very slumping retaining wall into the neighbors yard, and other overlooked details that came up during inspection. 

After negotiations Don and Clara agreed to comp those fixes and pay closing costs instead of doing any renovations. 

Because they didn’t have that kind of cash on hand.

After paying closing costs and agent fees they walked away with a check in hand for $10,000.

They had expected at least $20k-$30k minimum. Because this was a “seller’s market” their agent told them it would for sure be a home run. This is the false “seller’s confidence” trap many homeowners fall into.

Regardless, Don and Clara put that and their savings towards their new home. But because the downpayment was low, their interest rate was higher. And they have a PMI to pay off. (PMI is Private Mortgage Insurance. An additional fee on mortgages with less than 20% of value put into downpayment)

They’re now happy in their new home, but their finances aren’t in any better shape. And they still have a child on the way to budget for.

What’s the lesson?

If Don and Clara could wave a magic wand and have $20,000-$50,000 liquid cash on hand to update their home before selling, they might have been able to make major renovations to their older home. Renovations tend to attract many more buyers, create bidding wars, have a high return after selling.

Generally, (the right) renovations can be big payoffs for home sellers.

But the plain fact is many homeowners don’t have tens of thousands of dollars to pay for renovations. And you definitely don’t want to take out a bank loan right before selling, which affects your credit.

If only that kind of cash was available to them, Don and Clara possibly could have been holding a check for double, triple, or quadruple the size at closing day.

Which would mean a larger downpayment. A more affordable mortgage. And their finances would better be able to support that new little one.