Once you have accepted an offer on your home, you can expect a good profit. But then come all the closing costs that you are expected to pay. Closing costs for a seller can be around 6-10% of the selling price.
On the bright side, unless you have very little equity in your home, the closing costs will simply be deducted from the proceeds of the sale of the house. You’re still spending money, but since it never arrives in your bank account, losing it may hurt a little less.
You and the buyer will receive a closing disclosure three days before the actual closing. This will present all the details of the sale with actual numbers, so you’ll know what everything costs and have the ability to have any errors corrected.
Here’s an overview of common closing costs for sellers, along with tips on how to reduce them.
Commissions of real estate agents
Realtor commissions are the largest closing cost that the seller typically pays.
It is common for the seller to pay the commission for both the listing agent and the buyer’s agent. This typically represents a 6% impact on your bottom line, with 3% of the sale price of the home going to each agent involved in the transaction. On a $250,000 house sale, that would be $15,000.
To reduce this cost, you could decide to take the ‘for sale by owner’ approach, although you still have to pay the buyer’s agent. You can look for a discount agent, but be aware that their low commission may come with less service. If you are selling in a hot marketyour home has a particularly high value or your listing agent is also helping you buy your next home, you may be able to negotiate a lower commission.
Title insurance
The lender’s title insurance policy is another closing cost a seller can expect to pay.
Prior to a sale, a title search is conducted to verify ownership. In some states, a real estate lawyer is necessary to revise the title as well. A title policy protects the lender (and the new home buyer, if they choose to purchase their own policy) against unexpected title claims that may arise.
Although not common, a claim of ownership can trigger legal disputes – and the high attorney fees that come with them. You can’t reduce the cost of title insurance, but the price is probably worth the potential trouble it could save you.
Taxes and fees
Which party pays which tax may be negotiable, but the precise costs of many filing and recording fees or transfer taxes are determined by state or local jurisdiction. Sellers will often be required to pay the property or deed transfer tax.
Property taxesas good as owners association costs, will likely be shared with the buyer (unless you as the seller agree to cover them). These are normally calculated pro rata from the closing date. So, for example, if you were closing on the 15th of the month, as the seller you would be hooked from the 1st to the 14th. As the new owner of the house, the buyer would be footing the bill from the day of closing.
Taxes and fees are generally non-negotiable, although in particularly hot weather sellers market you may be able to get a buyer to bear more of the costs. But since the party paying them may be defined by local laws, you’re unlikely to get out of those the government considers the seller’s liability.
Seller’s concessions
In a buyer’s market, or just to get the deal done, you might agree to pay some of the closing costs. This is called a Seller Concession, Seller Contribution or Seller Credit – these terms all mean the same thing. Agree to cover the cost of necessary repairs noted during the home inspection is a joint seller concession.
If your buyer is not pay in cash, the seller’s total concessions may be limited by the type of home loan they use. For a classic loan on a single-family home that will be a principal residence, the seller’s concession limits range from 3% to 9% depending on the amount of the buyer’s down payment and whether they receive closing cost assistance from other sources. Loans guaranteed by government agencies, such as the Federal Housing Administration, have their own limits on seller concessions.
Other fees for door-to-door sellers
While this isn’t exactly a closing cost, it’s important to keep in mind that unless you own your home, a significant portion of your profits will likely go towards paying off your current mortgage loan. You could be hit with fees for prepaying your mortgage. Check your mortgage documents to see if you have a prepayment penalty.
If there are any liens or judgments against the property, you will need to pay them before you can sell it. These can be discovered in the title search.
Finally, if you have a second mortgagelike a home equity loan or one home equity line of credit, these will need to be paid in full before they can sell. (These may also be subject to prepayment penalties.) Since these loans are secured by the property, you cannot continue borrowing if you no longer own the home.
