https://www.workforce-resource.com/dpr/pmt/MARIS/KRISTEN_HICKS

Seller Closing Costs: What to Expect When Selling a House

What to Expect When Selling a House

As we write this, real estate is experiencing a strong seller’s market. Not only is it easy to find a buyer in almost every part of the country, but bidding wars are also common. But before sellers get too excited about their profits, they need to remember that they won’t simply walk away with the sale price minus the balance left to pay on their mortgage. They must also consider seller closing costs. 

Buyers and sellers share the responsibilities for closing costs, but not equally. Sellers take on the bulk of the expenses. First-time sellers and those who have not sold a house in several years will benefit from a review of what is included in seller closing costs.

Closing Costs Not Covered by the Seller

Seller closing costs add up to an average of 8% to 10% of the sale price of a home. They do not, however, need to come to the meeting prepared to pay for them. Instead the amount is deducted from the proceeds of the sale.

Some costs are covered by the buyers, and those typically total about 2% to 5% of the sale price of the home. The expenses owed by buyers are mostly related to securing the mortgage. They are responsible for having the house appraised and inspected. As part of shopping for a lender, they will need to pay for mortgage application fees and credit report fees. These are sometimes lumped together as “lender’s administrative fees” along with other incidental fees for bank processing, recording, and notary services. Title insurance to protect the lender from legal issues with clearing the title, along with property taxes and mortgage insurance (two month’s worth of each are sometimes required) are payable at the closing meeting.

Fees to administer the escrow account are split equally between the buyer and seller. This is a third-party account set up to safely hold the money while the transfer of the property from one owner to another is in progress.

Adding Up Seller Closing Costs

Man using an iPhone calculator to add up seller closing costs

Buyer and seller closing costs vary from state to state. They are also negotiable between the parties. Buyers’ and sellers’ willingness to negotiate can depend on if it is a buyer’s or seller’s market or simply how eager one or the other is to complete the deal. 

For example, in a buyer’s market when homes for sale are plentiful and buyers are hard to find, a seller might “sweeten the deal” by offering to pay some of the buyer’s closing costs. Likewise, in a seller’s market, a buyer might take on some of the seller’s expenses as an extra incentive to choose their offer over others. Any such agreements should be put in writing and paid at the closing meeting. 

In the absence of any negotiations about who will pay what, these are the items that normally make up seller closing costs:

Real estate agents’ commissions. Commissions account for the difference in closing costs for buyers vs. sellers. The seller pays their own agent’s fees but also those of the buyer’s agent. These average about 3% of the house’s sales price to each agent, totalling about 6%.

Escrow fees. Administrative and office expenses for the escrow account are the only closing costs that are shared equally by the buyer and seller. This might be collected as a flat fee or a percentage of the sales price—usually about 1%.

Transfer tax or title fees. This is an administrative fee charged in some states to pass the title from one owner to the other. Missouri does not require a real estate transfer tax or fee. Illinois, on the other hand, charges a tax with varying rates for different parts of the state. Our Select Properties agents serve the Metro East region in the southwestern part of the state where the transfer tax rate is 0.10% of the final selling price.

Buyer’s title insurance. The buyer pays insurance to protect their lender in case there are disputes about the title. The seller pays insurance to protect the buyer’s interest. This is a single payment rather than an ongoing insurance premium as the name might suggest.

Penalty for prepayment. Some mortgages contain clauses that charge a fee to pay the loan off early. The fee is added to the amount of the mortgage payoff and both are due at closing.

Prorated property taxes. The seller needs to pay taxes for each day they live in the house. This means their payment at closing will depend on the timing of the sale and when they made their most recent tax payment. For example, if the seller owns the house for exactly one one month after their last tax bill, and that payment covered the previous six months, they will owe one-sixth of that amount as prorated property tax.

Homeowners Association Fees. If the house is part of a Homeowners Association, the seller pays prorated dues just like prorated property taxes for each day they occupied the home. In addition, they may have to pay a transfer fee. These are sometimes charged by HOAs, switching membership with each change of homeownership.

Preparing for Seller Closing Costs and Other Expenses

Money in a jar to be used for seller closing costs

Unless a homeowner plans to sell a house as-is, there are expenses besides closing costs to consider too. Getting the best offer involves some prep work to get the house ready to go on the market and finding the best real estate agent

While sellers might be tempted to save some closing costs by not hiring a seller’s agent, it can make a stressful situation even worse. An experienced agent like the ones at Berkshire Hathaway HomeServices Select Properties will help find qualified buyers and assist with all of the complicated contracts and documentation. 

Seller closing costs add up to a significant amount: 10% of a $200,000 home amounts to $20,000 out of the seller’s profits. This is another reason why finding a real estate agent is important. Agents will help determine a reasonable asking price for the house that maximizes the seller’s profit. This will ultimately make the seller closing costs much easier to swallow.

Previous PostNext Post

Subscribe

Search

Follow