Before handing over the house keys, you need to prepare for the stressful yet rewarding process in home selling—the so-called closing costs. According to real estate experts, the usual cost for sellers could amount to a range between 6% to 10% of the property’s sale price. While the estimated closing costs for the buyer can range between 2% and 5% of the loan rate. However, you need to remember that most closing costs vary depending on the property’s final price, local and state rate taxes, recording fees, type of loan, and other customary charges.
Unlike buyers, sellers are expected to pay more, which includes the real estate agent commissions and as well as title insurance. With a few other expenses, you need an experienced agent or a real estate attorney to assist you in every possible way. In the U.S. alone, homebuyers typically pay on an average of $5,794 for closing costs, according to ClosingCorp, a leading provider of real estate closing cost data and technology.
Knowing what your closing costs cover and how to budget them will help make the process seems easier and smoother. Here, we help you with what standard fees you have to expect and other ways to lower your closing costs.
What Are the Closing Costs?
Closing costs are a list of expenses that buyers and sellers have to pay to close the real estate transaction. These fees could include the broker’s commission, real estate attorney, title insurance, taxes, lender costs, the title search, the HOA, transfer or recording taxes, and other miscellaneous fees such as the lender’s fee.
Typically, the closing process is managed by an escrow company, a third party company, whose goal is to assist all fees, documents, and other vital items to properly close the sale. It’s also worth noting that closing costs largely vary from each municipality and state because there are different fees and statute requirements you have to consider.
A custom package Flat Fee MLS service offers an affordable option for the closing costs for seller. See what’s the best plan that suits your home-selling real estate needs.
Who Pays Closing Costs?
Both the buyer and seller pay the closing costs. Some are negotiable but others are non-negotiable like taxes charged by your state or local jurisdiction. Although a buyer has to pay 2% to 5% of the property’s purchase price, sellers have to pay more on several fees. The estimated closing costs for sellers could reach up to 8% to 10% of the final sale price of the home—included are the commission of listing and homebuyer’s agent.
Nevertheless, most of the seller’s closing costs are deducted from the proceeds they get from the property. As such, the seller needs enough equity to cover some of the expenses.
Most real estate agents know who typically pays what for the closing costs in your local area. So, it’s important to seek professional advice. Hiring an experienced agent can help reduce your closing costs. Remember, some of the fees are negotiable and that’s what your agent can discuss to you.
Here are the typical closing costs for seller you have to expect.
Real Estate Broker Commission
The agent’s commission is the biggest chunk of the cost you need to pay. However, it’s negotiable and typically paid from the proceeds of your house sale. Likewise, don’t forget to contact your agent to negotiate the fees. In total, you are expected to pay the real estate agent commission that ranges from 4% to 6% (which included fee from the buyer’s agent commission which costs 2% to 3% of the total sales price).
If you want to avoid paying hefty commissions, you can list your property for a flat fee or with no commission at all! Choosing FSBO (For Sale by Owner) and listing your home in Flat Fee MLS Service can save you more. And you can actually pay zero on commissions if your buyer has no agent.
» How to Sell a House by Owner: A Comprehensive Guide
You’ll have to pay off your mortgage with the proceeds of your home sale. It’s any remaining balance, or prepayment penalty, on your property at closing. And one of the most likely biggest items on your list of fees. This includes the recording fee, principal balance, interest accrued from the last payment to the day of closing, and any penalty that the lender might charge you.
Contact your lender and talk about the requirements to pay off the mortgage to get the overall details of your closing costs. And check for the loan documents if there’s any prepayment penalty with your mortgage.
Recording Fees and Transfer Tax
Transfer tax or also called as title fee varies by the state your property is located. It’s a fee for the title transfer from you as a home seller to the new homeowner at the time of closing the transaction. Moreover, this includes the prorated property taxes, utility bills, or homeowner’s insurance that are all tied into your property. You may need to pay the buyer a prorated amount of property taxes, or the buyer may need to credit you (although this depends on every home sale).
Title Insurance and Home Insurance Fees
The title insurance serves as protection from any pending or future title issues such as forged documents and undisclosed liens. That also means the new homeowner is protected from anyone who can claim ownership over the title—and that includes every property dispute or any outstanding liens.
Besides, there are two different title insurances on the closing transaction. First, the one mentioned, the owner’s title insurance and the other one is the lender’s title insurance. Typically, the former is paid by the seller, while the latter also serves as a protection to the lender (and the new homeowner) against ownership claims that could lead to legal disputes. This fee is usually paid by the buyer.
HOA Homeowners Association Fees, Document Fees
(Varies on the neighborhood the HOA oversees, the fee could cost between $300). If the property falls under a Homeowners Association, you may be subject to various other charges. These include HOA dues, a document fee at the beginning of Escrow, and a transfer fee at the end of Escrow.
Other Seller Closing Costs
- Moving costs
- Home improvements
- Home inspection
- Real Estate Attorney
- Escrow Fees
- Credit Report fee
- Escrow Deposit
- FHA Mortgage Insurance Premium
- Private Mortgage Insurance (MPI)
- Rate Lock Fee
- Survey Fee
- Underwriting Fee
- VA Funding Fee
Check out this seller closing cost calculator to estimate your proceeds and closing costs amount. Disclaimer: This tool only provides an estimate of your closing fees and is subject to change as it varies from different factors.
How Should You Prepare Your Closing Costs?
Remember to contact your agent or attorney during the home closing. Your closing agent will schedule a date for your closing. By that time, you should have prepared the documents and legal paperwork needed.
Review your closing documents beforehand.
This is the last and crucial step of your transaction. So, it’s advisable to review and prepare your closing documents in advance. Read the documents and form carefully and thoroughly understand the regulations and provisions stated in the deed, record, or contract.
If your home is purchased with a mortgage, you’re required to get a closing disclosure that contains the overall costs in detail. However, for transactions paid in cash, you have to provide a HUD-1 (though it usually rare these days). Overall, these are crucial documents that record your fees, loan payoff if any, and the net process you’ll take to the bank.
On the closing date, you might be asked to provide a check (or send a wire) depending on how much proceeds on your final home sale. Double-check if there are typos in your name, address, property address, bank info, and other details. Also, review the amounts or inadvertent costs. You’ll be surprised how many times these documents have errors—this is one of the reasons our founder launched Houzeo.
Prepare two forms of official I.D.
Since there will be a notary involved to verify your identification, bring a valid driver’s license or a passport. Don’t forget to take with you a secondary I.D. as well, just in case. Here’s a quick checklist of important things you have to bring during closing.
- Government-issued photo identification (sellers on the home contract).
- Documentations and receipts of repairs or improvements you’ve made per the home inspection.
- The deed of your property (if you own it outright)
- Home access information—main keys, security codes, garage keys, etc.
- HUD-1 or Closing Disclosure Form for property purchase with a mortgage (issued three days before signing the mortgage documents).
- Your lucky pen for signing papers.
- Also, prepare a list of questions you want to ask.
Ask questions when in doubt
You need to set an appointment with your closing agent before the scheduled closing date. Ask all the questions that bother you (especially if you’re still new on how it works). Likewise, do some extra research about your state and municipality requirements.
State Specific Seller Closing Costs
We have compiled everything you need to know about seller closing costs, state-wise in the below table:
|Northeast||Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont|
|Midwest||Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin|
|South||Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, D.C., West Virginia|
|West||Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming|
Pro-Tips to Lower Your Closing Costs
It’s probably hard for you to pay all these fees on top of the broker’s commission and also the down payment, and home repairs yourself. But fortunately, there’s a way around to reduce the costs of your closing.
Give a solid offer.
Present an attractive deal to entice the other party to cover some of the closing costs. An irresistible offer, although it doesn’t mean more proceeds, can reduce expenses. The better the offer, the more they’ll want to accommodate the deal. Hence, there’s a great change the seller will pay the added cost to keep the transaction easier and quicker.
Minimize your requests.
Don’t ask for too many demands, it could only make the deal go troublesome and slower. Keep the demands at minimal so the seller will be more willing to cover some of the closing costs. Only make necessary demands—and that’s it. If there are too many inconveniences, the seller would think the deal would never happen.
Make it quick and hassle-free.
Most of the sellers aren’t happy dealing with the lengthy transaction. As much as possible, keep the transaction straightforward without running around the bushes. Moreover, try giving a simple offer as an appreciation of the seller reducing the costs.
Research and compare.
Save more cash on closing costs for seller, such as the pest inspector or homeowner’s insurance agent. You can also find an affordable title and escrow companies that can assist you well. Browse and ask some friends who have already hired one or experienced it before.
Ask to roll pay your closing costs into your loan.
Oftentimes, your lender could offer to pay your closing costs into your mortgage. However, it comes with a price. You may charge with higher interest on your loan—and such a case, on your closing costs.
Negotiate, negotiate, negotiate.
Negotiate some unnecessary fees or eliminate the “junk fees”. Some of the closing fees are negotiable. So, trying to negotiate with other fees won’t harm you. Ask for your agent on what fees are negotiable.
Choose for Sale By Owner or a flat fee realtor
If you’re planning on selling your house on the market and want to cut several costs to list your home, Houzeo has available services that not only put your property on the top of the market but also help you sell a property easier and smoother. You can save 3% of commission—or better, no commission charge at all! Choosing to sell as a For Sale By Owner is choosing an affordable option. You can immediately list your property with Flat Fee MLS Service and save big on commissions. Home-selling is not a picnic but with the smart way of selling it, you’re going to earn big cash.
Related Keywords: what are the closing costs for a seller, closing fees for seller, home seller closing costs, how much are closing costs for seller, closing costs on a house seller, how much are average closing costs for seller, how much do closing costs run for seller, real estate closing fees for seller, typical closing costs for seller.