When homeowners look to sell their home, they often forget to factor in closing costs when calculating how much they will make from the sale. Everything looks good on paper, and suddenly they are sucker-punched by unexpected fees. It’s hard not to feel cheated, especially when these fees come at the end of the sale, and it’s unclear what exactly is being covered.
In this article we will cover:
- What is a closing cost?
- What’s included in the closing costs?
- Who typically pays closing costs?
- How do you calculate closing costs?
- Paying the Buyer’s closing costs
- How can you avoid paying closing costs?
What is a closing cost?
Closing costs are fees – completely separate from agent commissions – that are typically paid by both buyers and sellers when closing a real estate transaction. These costs typically range from 1% to 7% of the overall sales price, but according to data provided by Realtor.com sellers typically pay anywhere from 1% to 3%.
Closing costs for sellers are deducted from the profit you make on your home, and can even force you to bring cash to the table if you have little to no equity in the property you are selling.
The range of these costs is due to the different legal requirements for each state and municipality, and the variance in fees charged by attorneys and other real estate professionals to ensure those requirements are satisfied.
Did you know you can avoid closing costs by Selling Directly to Duval Home Buyers? Find out what we can offer for your home.
What’s Included in the Closing Costs?
These are costs you can expect to pay when you close on the sale:
The title search ensures that the seller is the lawful owner and has the lawful right to sell the property, that there are no other parties who could claim ownership interest in the property, and that there are no outstanding liens, judgements, or claims against the property.
Title insurance policies are typically obtained by both the lender and buyer, and help protect them in the unlikely event that a title issue becomes apparent after the property has closed.
A report that verifies the value of the property, and helps the lender determine the maximum amount that a buyer can borrow to finance the property.
An inspection which documents any major issues with the home’s structure or systems. Required by many lenders and occasionally real estate brokerages.
A report which clearly marks the boundaries of the property. Required by many states and lenders.
A charge by the local Clerk of Courts for documentary stamps (as a percentage of the sales price) and the official recording of deed pages in the public registrar.
Loan Payoff Fee
Fees which include prepaid interest, loan origination costs, and depending on the lender, application and assumption costs.
Mortgage Payoff/Prepayment Penalty
A payoff of any outstanding mortgage the seller owes for the property being sold. Additionally, some lenders may require a prepayment penalty to be paid as a penalty for paying off a loan before the end of the loan term. Check with your lender to verify if there is a prepayment penalty, and to get a payoff letter to determine how much is still owed.
A fee charged by a settlement agent or attorney to transact the sale.
Municipal Lien Search
A report on outstanding municipal liens. These are liens issued against a property by the city for violating city ordinances and codes, often for nuisance, debris, yard waste, and deteriorating structures.
Outstanding Liens/Amounts Owed
Any city lien for code or nuisance violations, or any HOA or other periodic amount due typically needs to be paid in full before a property can be sold. These fees are often paid by the seller ahead of the sale, with any installments coming due after the sale being paid by the buyer.
What’s Included in the Closing Costs?
This is how much those fees will cost you when you sell.
|Recording Fee||Roughly .07% of sales price|
|Mortgage Payoff/Prepayment Penalty||Varies|
|Settlement / Attorney Fee||$300|
|Municipal Lien Search||$50|
|Outstanding Liens/Amounts Owed||Varies|
Who typically pays closing costs?
In most situations both the buyer and seller will pay closing costs, with the buyers paying a little bit more than the seller. In-fact, buyers closing costs can be as much as 6% of the purchase price.
Costs typically paid by the buyer:
- Loan fees
- Title Search
- Home inspection
- Settlement Fee
- Buyer’s Attorney fees
Costs typically paid by the seller:
- Title insurance policy
- Mortgage payoff
- Prepayment penalty
- Outstanding Liens
- Sellers Attorney Fees
- Transfer taxes
- Recording fees
For some loan types, and in many states, the buyer is allowed to ask the seller to pay for some of their closing costs, in extreme situations, the buyer may even ask the seller to cover ALL of the closing costs. This is more typical in a buyers market than a sellers market, but can have a significant effect on the final net proceeds of the sale.
Additionally, sellers also pay the real estate commission for both the buyer and sellers agents, which in Florida is 5-6% of the sales price depending on the brokerage.
As a seller, these costs can quickly add up, and in some rare situations you may even need to bring money to the table to sell your home.
How do you calculate closing costs?
Calculating closing costs when selling a house can be a headache, as the numerous factors that influence the final amount vary from city to city, state to state, title company to title company. Closing costs in Florida may be different than those in Georgia, closing costs in Jacksonville may be different than those in Tampa. However, there are numerous calculators available online to help you estimate your closing costs as a seller, or even a buyer when you are ready for your next home.
Paying the buyer’s closing costs.
Sometimes a buyer will ask the seller to pay their portion of the closing costs. This is more typical when the market is a buyers market than a sellers market, but it’s relatively common regardless. The question is, should you do it? In short, maybe. If the offer terms are still favorable, or if the home is having difficulty selling, it may be worth considering as a way to make your home more enticing. However, if you have received numerous showings and offers, you will likely want to ensure that your portion of the closing costs remains as low as possible, meaning that the buyer should remain responsible for their own portion.
How to avoid paying closing costs.
To some sellers, the very notion of paying to sell their home seems untenable, but it’s the unfortunate reality of any real estate transaction. However, sellers aren’t without options that can help them minimize or remove closing costs all together.
First, if the market conditions are right, and you are getting a great deal of activity on your home or listing, you may be able to ask the buyer to pay your portion of the closing costs.
Or, you can sell to a cash buyer who will pay your closing costs for you, and help you avoid real estate commissions and fees all together, meaning a bigger paycheck at the closing table.
This article is intended to be informational only, and is not intended as financial, tax, legal, real estate, or investment advice. Duval home Buyers LLC always encourages sellers to speak with advisors and industry professionals regarding their unique situations.