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Closing day. It’s the buyer’s reward for qualifying for financing. For the seller, it’s the day they see a return on the investment they’ve made in their home.
Three days before closing, the buyer receives the Closing Disclosure, which breaks down the costs of buying the home, including the monthly mortgage payment and interest. Both buyer and seller get the settlement statement—a summary of all fees associated with the real estate transaction.
Home seller closing costs often come as a shock. While most sellers know they’ll pay their real estate agent’s fees, the rest of the line items on the settlement statement can be confusing.
Before you turn the keys over to the new owner, learn more about the costs of selling a home.
Real Estate Agent’s Commission
Usually, the real estate agent’s commission represents the most substantial piece of the seller’s pie at the closing table. Commission fees average 5-6% of the home’s purchase price.
On paper, the commission comes out of the seller’s proceeds. However, the funds come from money the buyer pays to the seller. It’s not like the seller writes the real estate agent a check, but the fee reduces the amount of their check at closing.
There is a way to minimize the seller’s closing costs. Instead of hiring a real estate agent, you can list your home as an FSBO—for sale by owner. Most sellers who choose this route sell their house as-is.
Buyer’s Closing Costs
While it doesn’t happen with every home sale, it’s not uncommon for a buyer to ask the seller to pay all or a portion of their closings costs. The reason is that after coming up with the down payment, many buyers don’t have enough money left to cover closing costs.
The buyer’s closing costs average around 3% of the purchase price of the home.
Sometimes sellers balk at agreeing to pay the buyer’s costs, but for many buyers, without that help, they run the risk of not being approved for financing. If you agree to cover it, your settlement statement will reflect the amount.
Depending on the state where you own your home, you either pay property taxes in advance, or you pay in arrears. When you sell the house, you’re responsible for taxes due from the beginning of the tax year to closing.
The buyer assumes the tax amount due from the date of closing until the end of the tax year. If you’ve paid taxes in advance, the buyer will reimburse you for taxes paid from the sale date through the end of the tax year.
Home Warranty for Buyer
A home warranty offers a buyer peace of mind. Presenting it as part of the sales price of the house can make a home more attractive to the buyer.
If you haven’t included it in the asking price, the buyer may request you to pay for a warranty.
Either the seller’s real estate agent or the title company handles ordering the home warranty, using the seller’s funds.
Title Company Fees
The seller’s real estate agent lists, markets, and negotiates the sale of the home. The title company ensures you have a clear title and they put together all the legal documents need to complete the real estate transaction.
Sellers pay two fees to the title company, and they include:
Deed Prep Fee
The title company drafts the document, called a deed, that legally transfers the property from the seller to the buyer. In some cases, the buyer will pay this fee, but more often than not, it’s the seller’s responsibility.
Seller Settlement Fee
The title company charges a settlement fee to cover all the work they do to prepare for the closing. Seller and buyer each pay a portion of the cost.
There may be other title company fees, but these two are the most common covered by the seller.
Government Recording and Transfer Charges
Most states charge a fee when real estate changes hands. It’s in the form of a sales tax based on the property’s value. Who knew you’d have to pay a tax on selling your home?
The tax shows as a deed transfer tax or real estate transfer tax on your settlement statement. The county where you sell your home collects the transfer tax for your state. They then stamp the deed, making the tax a form of a stamp tax.
After the closing, the title company files documents at the county recording office. The seller or the buyer can pay recording costs.
Sellers may bear the responsibility to pay for title insurance. There are two types of title insurance:
- Buyer’s Title Insurance
- Lender’s Title Insurance
The lender’s policy protects the lender should the buyer default on their home loan. A buyer’s policy covers the buyer’s financial interest if title defects arise after the closing.
Buyers typically pay the lender’s policy, while often a seller will cover the cost of the buyer’s title insurance. In some states, it’s a given that the seller pays for the buyer’s policy.
Liens and Judgements
Before you can finalize the sale of your home, you must provide a clear title for your buyer. If you have outstanding tax or mechanic’s liens against the property, you’ll need to pay them off.
Usually, you’ll also have to pay off judgment liens. If you owe a creditor and they take you to court, the judge can enter a court order against you. This results in a judgment lien, which creates a cloud on the title to your home.
Feel More Confident About Home Seller Closing Costs?
Selling a home can make you feel relieved, excited, and sometimes overwhelmed and confused. We hope after reading today’s post, you’ll feel better prepared when you review your home seller closing costs.
If you’ve enjoyed reading this article, check out the archives on our blog. We’ve put together a collection of home selling tips and other posts designed to make homeownership more enjoyable.