Buying and selling a home costs money. There are transfer taxes, appraisal fees, attorney fees, and lender fees. Many of the closing fees fall on the buyer’s shoulders, but sellers pay their fair share too. Before you sell a house, understand what closing costs you may owe.
What Are Closing Costs?
Closing costs are the fees you or the buyer pay on the closing day. They typically cost 3% – 6% of the loan amount but it varies by lender, location, and loan type. Closing costs are all the fees accrued during the loan processing and/or getting the property ready to transfer from one person to another.
In most areas, buyers and sellers split the costs, but buyers pay more than sellers.
Closing Costs Sellers Pay
Sellers don’t have as many closing costs as buyers, but sellers do pay closing costs. Sellers pay the following fees:
- Real estate commission – This is a seller’s largest expense. It’s typically 6% of the sales price, but it varies by real estate agent. If you need to keep the commission down, you can select a la carte services and do some of the work yourself.
- Owner’s title insurance – If the buyer wants title insurance (recommended), the seller pays it. This covers the owner from any claims of ownership or liens after the title search.
- Real estate taxes – Sellers must cover their portion of real estate taxes from when they owned the home since real estate taxes are paid in arrears.
- Transfer taxes – Most counties and localities charge a tax to transfer the property from one person to another.
- Recording fees – Sellers cover their portion of the recording fees regarding any documents that must be recorded.
Seller Concessions – An Additional Seller Fee
If a buyer asks a seller to help with their portion of the closing fees, sellers can agree. If you pay the buyer’s costs, you are giving sellers concessions or a credit at the closing. Sellers can help pay various closing costs up to a certain percentage of the sales price.
If you agree to help your buyer (sometimes it helps sell the house), you’ll set up the specifics in your contract. Make sure you cover all your bases before signing the contract so you know what you’re agreeing to and what you’ll pay/owe at the closing.
Closing Costs Buyers Pay
Buyers have a whole list of closing costs they typically pay including:
- Financing costs – Buyers pay fees to get financing. The fees typically including underwriting costs, credit report fees, loan origination fees, processing, and document fees. The exact fees vary by lender and situation – the better a buyer’s qualifications, the fewer fees he/she may pay.
- Inspection fees – Buyers can choose to have an inspection on the property at their cost. Most lenders don’t require it, but it’s a smart idea to protect your investment and know that you aren’t getting in over your head in a property that needs a lot of work.
- Appraisal fees – Buyers cover the cost of the appraisal. Lenders require it to determine the amount of collateral in the property to make sure the loan makes sense.
- Lender’s title insurance – Buyers cover the cost of title insurance for the lender (not themselves). This insurance protects lenders against any claims of ownership or liens after the title search.
- Title fees – Buyers pay the cost to do a title search and any research required to clear up any liens or miscommunication in the chain of title.
- Recording fees – If your county charges a recording fee to record the new mortgage, buyers cover the fee.
- Escrow deposit – If you’ll escrow your taxes and insurance (have the mortgage company pay them), you’ll need to make your deposit at the closing.
Buyers and sellers have their fair share of closing costs. Knowing the approximate costs can help you plan accordingly when buying a house. While closing costs are a must, they are negotiable, especially when you’re paying for things like title insurance or a home inspection.
Don’t forget, the closing costs are in addition to any seller concessions you agree to pay. Make sure you’re aware of the closing costs and how they’ll affect your bottom line – the costs themselves come right out of the proceeds of the sale so you don’t have to come up with the money yourself, but it will leave you with less money in your pocket.