There’s more to selling a home than just signing on the dotted line. Although you won’t have to deal with things like down payments and the interest rates as the seller, you still have various costs to take care of as you finalize the sale of your home. For many homeowners, closing costs are the final financial hurdle to surmount when it comes to selling a home.
Closing Costs Explained
In simple terms, closing costs are the final costs to be paid at the end or “closing” of the real estate transaction. These fees are often charged by a variety of third parties for various services prior to or during closing (such as an appraisal) as well as the lender itself. The following is a list of common closing costs for the average home purchase:
- Origination fee – Charged by your bank (although this can be waived)
- Discount points – Charged by your bank for delivering a lower interest rate
- Credit report fee
- Loan application fee
- Private mortgage insurance – Charged by your bank if the down payment is less than 20 percent
- Initial interest from the date of closing to the end of the first month
- Title insurance costs
- Pro-rata property taxes
- Appraisal performed on behalf of the lender
Other costs include homeowner’s insurance fees, government sale recording fees, accrued property taxes and attorney’s fees if one is used during the sale.
What Do Sellers Pay?
Although buyers are responsible for the majority of closing costs listed above, the seller is still responsible for the following:
- Loan payoff costs
- Real estate commissions – Paid to agents or brokerages
- Notary fees
- Transfer taxes and fees
- Title insurance fees
- Attorney’s fees if one is used during the sale
These costs are typically deducted from the proceeds of the sale. The seller also pays for the real estate attorney, if one was retained throughout the sale, out-of-pocket. The seller is also responsible for any annual property taxes that haven’t been paid yet, with the seller crediting the buyer for the number of days the home remained in the seller’s possession for that year.
A growing number of home sales have seen sellers assume all closing costs as a broad concession to buyers. This saves the buyer from having to come up with extra funds in addition to the down payment and other fees, thus making the home a more attractive buy to the buyer.
Calculating Closing Costs
Typical closing costs for sellers may vary thanks to the various fees and taxes involved in a typical sale. For instance, a real estate agent’s commission may be somewhere around six to seven-percent of the home’s sale price. For a $200,000 home, that may add up to $14,000 in commissions alone.
Other costs, such as title insurance fees, notary fees and various documentation and recording fees, may total up to $1,500 to $2,000 of your closing costs. If you have a mortgage, your loan payoff costs may depend on how much you owe on your home.
If you’re selling your home, it pays to be just as financially prepared for closing costs as the average buyer should be. The total costs of your real estate transaction should be factored into any sale.