Disposition Costs

Disposition costs, in the context of real estate, refer to the costs associated with selling, or disposing of, a property. These costs are subtracted from the gross sales proceeds to determine the net sales proceeds.

Common disposition costs include:

Brokerage Commission: This is the fee paid to real estate brokers involved in the transaction. Typically, this fee ranges from 2% to 6% of the sale price, depending on the type of property and local market conditions.

Legal Fees: These are costs associated with the legal aspects of selling a property, including title searches, document preparation, and possibly attorney fees.

Closing Costs: These can include transfer taxes, recording fees, and other costs that are typically paid at the closing of a real estate transaction.

Prepayment Penalties: If the property has a mortgage that is being paid off before its term, the lender may charge a prepayment penalty.

Repair Costs: If the buyer and seller agree that certain repairs or improvements will be made before the sale, these costs would also be considered disposition costs.

In a real estate financial model, it's important to accurately estimate disposition costs to understand the net proceeds from the sale of a property and the overall return on the investment.