Guide about Closing Costs in a Real Estate Transaction
The closing fees of selling a property can be stressful, but they can also be quite rewarding. Seller closing fees are estimated by real estate professionals to be between 8% and 10% of the sales price.
Closing expenses are often a percentage of the loan amount plus extra fees such as a recording fee, appraisal fees, and taxes.
The closing process will go more smoothly if you know what to expect financially and how to plan beforehand.
Here, we’ll tell you how much are closing costs and everything else you need to know regarding closing costs.
What Are Closing Costs?
Additional fees incurred by the buyer and seller above the purchase price of a property are known as “closing costs” and are a necessary evil of any real estate transaction.
House inspection costs, brokers’ commissions, utility bills, mortgage payments, and a lot more come under closing costs.
A loan assessment detailing closing cost fees must be sent by the lender to the borrower no later than three days after the loan application has been submitted.
Even if a property is a gift to a family member or close friend at a price lower than the current market value, that also adds up as closing expenses.
Who Pays Closing Costs?
Buyer and seller divide closing costs. Some closing costs, including those levied by your state or local government, aren’t negotiable.
A seller’s closing expenses are more than a buyer’s, however, both must pay fees. How much are closing costs?
It is anywhere from 2 to 6% of the purchase price. In commissions to buyers and seller’s agents, sellers may pay 8-10% of the transaction price.
Closing fees diminish the seller’s net proceeds. The seller should have enough equity to cover the charges.
In most circumstances, a real estate agent knows the local market’s conventions and who pays which closing costs.
List of Costs during Closing You Have TO Pay As a Seller
Following is the detailed list of costs you can expect to pay as a seller during the time of closing. Do keep in mind that while this list is an overview, different states and counties will not have all of the ones listed below.
Mortgage Payment
One of the most expensive things you’ll have to do is pay off your mortgage. At closing, you must use the funds from the sale of your house to pay down the mortgage, if there is one.
Interest accumulated from the final payment date up to the day of closing will be added to the principal, as will any prepayment penalty assessed by the lender.
Get the full breakdown of your closing fees by getting in touch with your mortgage lender. If you want to know if there’s a prepayment penalty on your mortgage, you need to look into the loan documentation.
Broker’s Commission
The commission paid to the agent is the single largest expense. But it’s flexible and usually comes out of the money you make from selling your house.
Also, don’t forget to get in touch with your agent to discuss a charge reduction. The real estate agent will ask for a fee of 4-6% of the sale price.
This sum accounts for the 2% to 3% in buyer’s agent commission on top of the 6% to 8% listing agency commission.
Legal Fees
If no real estate agents are engaged or if there are legal difficulties with the property, sellers will often have an attorney analyze the sales contract.
A real estate attorney might be useful even if your situation isn’t, particularly out of the ordinary. To protect their own interests, sellers and purchasers typically retain separate legal counsel.
If both you and the purchaser share a real estate attorney, however, you will both pay half of the attorney’s fee.
Home Inspection Fees
To find out whether there are any severe problems with the house, such as leaks, water damage, mold, broken appliances, etc., that need fixing before you can sell it, you may arrange for a home inspection.
Either before listing the property (pre-inspection) or right before closing, you should get it checked out.
Disclosure of existing property faults is required by law in some jurisdictions. Some jurisdictions further require documentation of repairs to structural elements.
A house inspection is an option for the buyer. However, if they uncover hidden flaws, it might offer them leverage in negotiations or cause them to pull out of the purchase altogether.
As a seller, you can expect to shell out anywhere from $279 – $400 as house inspection costs.
Closing Costs Credits
If you reside in a region with little market competition, you might increase interest in your property by offering to help purchasers with closing expenses.
Closing credits or seller discounts are the funds given to the buyer at the closing table to cover these charges.
Settlement Fee
Settlement agents demand fees for closing services. A settlement agent facilitates a successful closing between you and the buyer.
They sell the house, transfer the title to the buyer, and give you the money. Depending on local requirements, the settlement agent may be an attorney, title company, or escrow agency.
In 21 states and D.C., a commercial transaction must be closed by an attorney.
Document Stamp Duty
Documents used to legally transfer ownership of a property from one party to another are subject to an excise tax known as documentary stamps. In effect, it is the same as if you were to pay tax on a property deed or other legal document.
HOA Estoppel Fee
After closing, the buyer will have a financial commitment to the HOA, such as a monthly fee, and this letter (the HOA Estoppel letter) is legally enforceable and contains all the relevant information concerning this obligation.
It also provides details about any outstanding bills. To complete the procedure, you must pay the HOA Estoppel charge. The price tag might be anywhere from $200 to $500.
Escrow Fees
A neutral third party, or “escrow,” keeps cash or property until the terms of a contract are fulfilled.
This safeguards the financial interests of both parties by preventing one from unilaterally withdrawing from the transaction.
Since the escrow service benefits both you and the buyer, the charge is often shared 50/50.
Home Warranty Fee
For a set period of time, often months or years, a home warranty will pay for any necessary repairs to be made to the home’s appliances and other mechanical components. Adding a home warranty to the property’s appeal might help you sell it faster.
Owner’s Title Insurance
The state sets the rate for title insurance according to the market value of the property.
To safeguard the buyer against ownership disputes or forgeries, it is customary for the seller to front the cost of the owner’s title insurance.
Moreover, the title insurance covers unpaid taxes, liens, ownership restrictions, etc. One or both parties may agree to pay for the owner’s title insurance.
Homeowner Association (HOA) Fee
As a member of the Homeowners Association (HOA), you’ll need to settle any outstanding payments through the closing date.
You will most likely be unable to close on the home until the fees have been paid. If the problem remains after closing, the HOA may file a claim against your home and begin the foreclosure process.
Municipal Lien Search
They reveal unpaid taxes, liens, code offenses, utility bills, and permits. Municipal lien checks can reveal facts about active or expired permits, which many sellers overlook.
Open or expired permits can raise fees and delay the transaction for you and the buyer. Municipal lien searches cost $200.
HOA Transfer Fees
At the moment of closing, the buyer’s name should be recorded as the homeowner in the HOA’s official records if you are a member of the HOA.
The HOA requires a one-time, non-negotiable “transfer fee” to be paid in order to amend their records of the sale.
Utility Bills
Until you close on the house, you are responsible for all utility costs. Unpaid debts and utility liens are often checked for by the title firm. At closing, you’ll need to pay off any outstanding obligations.
Property Taxes
The homeowner must fork over 1.1% of the home’s worth in property taxes to the government. Both yearly and lump-sum payments are acceptable. At closing, you’ll need to pay a prorated amount of property tax based on the closing date.
Should You Use A Closing Cost Calculator Instead?
A closing cost calculator is something you should utilize. It’s important to remember that mortgage rates and geographical location have a major impact on closing expenses.
To assist vendors and purchasers estimate their closing costs companies like Houzeo provide a free closing cost calculator that takes these variables into account.
An itemized cost breakdown is shown, with unnecessary items highlighted.
Houzeo’s closing cost calculator is regularly fine-tuned to provide sellers with the most accurate possible estimate, taking into account current market trends.
Final Word
As a seller, closing expenses might affect your earnings. It also affects a home’s listing price. Houzeo can help you get started in real estate. Houzeo.com combines optimum discounts, best-in-class technology, and 5-star customer service.
It is a 100% virtual service that enables home sellers to market their property without fuss from home and allows house buyers to browse listings and make offers online.
Check out Houzeo reviews for a better understanding of how Houzeo works.
Houzeo’s client-first approach, groundbreaking infrastructure, and flat fee bundles make it perfect for avoiding commissions and closing fees.
