If you are selling or buying a house you probably have been wondering what the closing costs are on the sale of a home. People hear about “closing costs” all the time but what are they and how much are they? In this post, we will answer that question for the seller in the transaction. If there are any questions that we don’t answer here in this post, please contact us and we’ll be happy to answer any of your real estate questions.
What are Closing Costs – what’s included?
Closing costs are fees that surround the closing of a real estate transaction. These fees include every penny outside of the purchase price and the payoff that must be paid to any party for any service, tax or other responsibility of either the buyer or the seller in relation to the final transaction of changing title from one party to the other.
The seller, in addition to paying off any mortgages or other liens, must pay their real estate agent commission (according to Realtor.com on average that fee is around 6.0% of the price of the home, although it can vary), the seller must also pay their share of attorney fees and other related expenses. This is gone into further below.
The buyer also has closing costs that primarily surround obtaining a loan, assuming there is one. If there is no loan, then the buyer actually pays very little in closing costs. Without a loan the buyer will be responsible for paying their share of the attorney’s fees, any inspection fees, survey fees or anything else they have ordered for the closing. With a loan however they will be paying lender fees, interim interest, a year of homeowner’s insurance and will likely be paying to set up an escrow account.
Who Pays Closing Costs on a home?
Who pays the closing costs on a home? That’s a great question and one that we hear quite often. In general, both parties do. However, this answer can vary with every deal as many times closing costs are a part of the negotiations in the contract.
Do Home Sellers Pay Closing Costs?
The seller has their fees which include things like real estate agent commissions, their share of the taxes for the year, the pro-rated HOA dues for the year, any other necessary pro-rations, there is typically a transfer tax or revenue stamps paid to the county, recording fees to record the deed, their share of the attorney’s fees and any other fees or penalties that may be associated with the property or paying off their current mortgage.
As mentioned above, other than the fees the seller is responsible for, this is a negotiation between the buyer and seller as part of the contract. A buyer may need the seller to pay the closing costs or a portion thereof in order to be able to purchase the home. In this case, the seller may agree to do so and it is written into the contract that the seller will pay a specific portion or amount in “closing costs”. By doing so, whatever that agreed upon amount is according to the contract is what the seller will pay on the buyer’s behalf at the time of closing on the Closing Disclosure.
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How Much Does it Cost to Close on a House?
The amount it cost to close on a house varies from state to state and situation to situation. While it’s impossible to give a blanket answer that will work for all situations we hope the following will give you enough to go on.
For the seller, one can anticipate around 7-8% in total for the closing costs related to the sale of a home. That is assuming that the seller is in a state where it is customary for the seller to pay the entire real estate commission for both buyer and seller. There are a few states where it is customary for each party to pay their own real estate commission. As a seller, if you are in one of these states, you are likely to pay a total of around 4-5% in total for closing costs related to the sale of a home.
For the buyer who is obtaining a loan, most lender’s we have questioned on this say that the average closing costs is between 3-5% of the purchase price. This greatly varies from lender to lender and what their specific company charges to deliver a loan. A buyer should always shop lenders to see if they are getting the best deal they can. That figure is assuming you are in a state where it is customary for the seller to pay all real estate commissions. If you are in a state where it is customary for the buyer to pay their own commissions, then you should add an additional 2-4% on top of the before mentioned 3-5%, making your total closing costs between 5-9%.
How Much Does an Attorney Charge to do a Closing?
In most of the Southeastern states and some other states as well an attorney is required to perform the actual closing in a real estate transaction. The attorney researches the title, checks for any blemishes on title, checks to make sure the taxes on the property are current, checks both buyer’s and seller’s names to make sure they do not have outstanding liens against them, checks the current survey (if the buyer obtains one) for boundary issues, easements, etc. Once this is done, the attorney sends what is called a title policy commitment to the lender which the underwriter reviews to determine if they are comfortable going forward with the loan based on the commitment and any exemptions on it. After the lender makes their final decision to move forward, the “closing package” is sent to the attorney’s office to close the loan, this is also referred to as the “closing”. After the closing is performed, the attorney records the deeds, deposits all monies into their escrow account, sends the lender back their signed package and disburses the closing funds according to the Closing Disclosure which all parties signed at the closing.
In general, for their services, attorney’s fees can vary greatly from state to state and from area to area. In many areas it is a flat rate somewhere around $500-$1,000. In other areas, the attorney’s fees are determined by the purchase price and generally start at $500 and go up from there to around $1,500. In addition to this, there are other fees that the attorney’s office may charge that include overnight fees, courier fees, preparation fees, etc.
If you are the seller, attorney’s fees are not quite as much. You will likely being paying a deed and lien waiver preparation fee that could range anywhere from $200 to $600. You, as the seller, will also likely be charged a wire fee and/or overnight fee to send your payoff out and if you are having your funds wired into your account.
How Much Does it Cost to Sell Your Home?
Generally speaking, one can anticipate around 7-8% in total for the closing costs related to the sale of a home.
There are additional costs that are not typically counted as closing costs that a seller should consider, like costs to get the house ready to go on the market. Does the house need painting or other repairs prior to going on the market? Is the seller coming out of pocket for any of the marketing of the home other than commissions? A seller must also keep in mind that there may be repairs required after inspections and that could cost them as well.
What are the fees for a Mortgage?
Fees surrounding a mortgage vary greatly from lender to lender. Most of them include some type of origination fee, administrative fee, document prep fee, tax service fee, flood certification fee. These fees are all in addition to the required lender’s title insurance, homeowner’s insurance, interim interest and escrow account setup.
If you are thinking of selling your home and would like a detailed Seller Estimated Net Sheet which breaks down all the fees for you and shows you approximately what you should net should you decide to sell you home, give us a call at 704-408-2834. We’ll be glad to set up an appointment with you to go over that information and help you make an informed decision.