Planning To Sell This Year? Don't Forget To Factor in These Closing Costs

 

 

Let’s take a closer look at closing costs and an overview of the fees that will be deducted from your overall profit.

 

 

“Closing costs” is a catchall term for the various fees and expenses you must pay upon closing or completing a real estate transaction. These can include various fees, expenses, and charges, which are split between the home's buyer and seller.

 

These fees do not include realtor commissions. The exact fees can vary depending on your location and the house’s cost. But in total, closing fees can add up to around 2 to 5 percent of the home’s sale price, according to Freddie Mac.

 

Sellers usually take these costs out of their sale proceeds (unless you specifically ask to pay them separately), while buyers need to pay them upfront.

 

 

Most states or local governments charge some form of transfer tax. According to Bankrate, a real estate transfer tax, also sometimes called a deed transfer tax or documentary stamp tax, is a one-time tax or fee imposed by a state or local jurisdiction upon the transfer of real property.

 

In other words, it's a fee that you’ll pay when the title for the home passes from you to your buyer upon closing. The cost varies widely by location but is typically dependent on the home’s sale price. Also, take note that not every state has this tax.

 

In most markets, it is the seller who pays for the owner’s title insurance, which protects against potential ownership issues.

 

It’s a one-time payment that protects the future owner from the financial burden of sorting out title issues in court, whether they arise at closing or years down the road. Costs can vary from a few hundred dollars to $1,500 or more.

 

In some states, home sellers are required to have a real estate attorney to help them with the transaction. The transaction cannot legally close without one.

 

Even when it isn’t mandatory, many choose to hire one to ensure their interests are protected—especially when dealing with complex transactions, distressed properties, or inherited homes.

 

Since markets vary, in some areas both buyers and sellers have their own attorneys, while in others it’s common to have one settlement attorney for the real estate transaction. Fees range significantly, anywhere from $150 to $350 per hour, or a flat fee depending on the services provided.

 

Funds are usually held in escrow during the course of a real estate transaction, which means there will likely be fees owed to cover the services of the escrow company.

 

This independent third party handles the money exchanged between the seller and buyer and manages the signing and recording of closing documents. Fees vary by state but typically range from $300 to $700 or more. This can also include documentation and wire transfer fees.

 

Property taxes must be up to date before you hand over the keys to the buyer. When you sell your house, you'll be responsible for prorated property taxes due up to the date of the sale, after which the buyer assumes responsibility.

 

Depending on timing, you may need to pay money at closing to bring taxes current.

 

If you still have a mortgage on the property, the remaining balance must be paid off before the sale is finalized. Some lenders may also require a prepayment penalty for early payoff.

 

To get an accurate picture of this closing cost, speak directly with your lender.

 

If your home is part of a homeowner’s association, HOA fees must be paid up to date as of closing day. Some HOAs also charge a transfer fee to move ownership to the buyer.

 

Review your HOA’s rules and regulations to avoid surprises.

 

In a buyer’s market or to help close the deal, sellers may offer to pay some of the buyer’s closing costs—also known as seller contributions or credits.

 

One common concession is agreeing to cover the cost of necessary repairs after a home inspection. Seller concessions may be limited depending on the buyer’s loan type. For example, FHA loans have caps on allowable concessions.

 

If you’ve agreed to seller concessions, those amounts will also be due at closing.

 

 

Closing costs are literally due when you close on the sale of your home—after meeting with the closing agent, title company, and/or attorneys to disburse funds and sign documents.

 

All of the costs outlined above are typically deducted from your sale proceeds, meaning you won’t need to bring cash to closing unless you request to pay separately or your property is underwater (owing more than it’s worth).

 

You generally won’t know your exact closing costs until about three business days before closing, when you receive a closing or settlement statement outlining all fees.

 

If you have a trusted agent, they may also prepare a seller’s net sheet—an unofficial estimate showing closing costs and projected net proceeds after the purchase contract is finalized.