Seller Closing Costs Updated

You can hate to pay them, but closing costs on the sale of a home are unavoidable. The list of closing cost fees is endless. They can really add up to an enormous sum and deprive sellers of their hard-earned home equity when they sell a home. High closing costs and fees can cut into the profit a seller is expecting to pocket from the sale of his or her home or increase the amount of money the seller needs to come to the closing if the seller owes more money on his mortgages than the amount he or she will net from the sale of the home.

A buyer’s closing costs might typically range from 2 to 7 percent of the sales price, or $2,000 to $7,000 on the purchase of a $100,000 home.

But a seller’s closing costs often go way beyond that, simply because most sellers use a full-service agent to sell their home, which can add an additional 4 to 7 percent to the closing cost total.

The list of closing costs can add up to several dozen items. Here is a list of some of the items you can expect to pay as a home seller:

Seller Closing Costs

* Broker’s commission. If you’re using a full-service brokerage firm, expect to pay anywhere from 4 to 7 percent of the sales price. If you’re using a discount broker, or if you’ve sold by-owner, your cost may range from a few hundred dollars to 3 percent of the sales price.

* Broker’s processing fee. In some markets some full service brokers are now charging a fee to process the paperwork relating to the sale of the home. This fee can be range from $95 to $295.

* Cost of the survey. Sellers in some states are responsible for giving the prospective buyer a plat of survey of the property. The price for a plat of survey can range from $150 to $600. While not all states have the custom of having the seller deliver a plat of survey to the buyer, some states have increased surveying standards and survey fees have increased.

* Recorded release of mortgage. As a home seller, you need to pay off your old mortgage, home equity line of credit (HELOC) and other liens that affect your property. To release each one of those liens, you may have to file a lien release document and the cost to record that document can range from $20 to $150.

* Interest on loans to be paid off. Home sellers often forget that the interest owed on most home mortgages and home equity line of credits (HELOC) are paid in arrears. That means that you pay the interest on that loan not in advance but for the month that just ended. Your June 1st payment to your lender paid interest on that loan through the end of May. So a closing on June 15, will require you to pay up interest at the closing through June 15 or the date the lender actually receives the loan payment. A seller thinking his loan balance is $111,111 will be surprised to find out that his actual payoff to his lender at closing will be more than that amount.

* Lender fees. Most lenders now charge a fee to fax the demand statement or payoff statement to you or the closing agent. When you go to sell your home, you need an official statement from your lender itemizing to a specific date the amount of money needed to pay off your debt.

* Prepayment penalties. If you obtained your mortgage during the last several years, you might be surprised to find out that your loan has a prepayment penalty. This prepayment penalty can be quite high. In some cases, the penalty can be as much as 3% to 5% of the amount of the loan. In other cases, the penalty can be an amount equal to six months’ interest payments. While prepayment penalties can decline during the time you have a loan, you should know if your loan has a penalty and what it is. You don’t want to put yourself in the position of having to close on the sale of your home one month too early and having to pay the penalty where the penalty would have ended a month later.

* Courier fee to pay off loan. Most closing agents now charge a fee to send the loan payoff to each lender. In some cases these fees are much more than what their actual cost is to pay the courier company. This fee is typically between $30 to $50 or more per loan payoff.

* Title insurance. In some states the seller must provide a policy of title insurance for the buyer. The cost of the policy depends on the sales price of the home and its cost can vary from a couple hundred dollars to several thousand dollars. Some title companies have added additional charges to the basic title charge. These fees go by the name of “update fees,” “policy issuance fee,” “endorsement fees” and the like. Some fees are as low as a couple of dollars and others up to $200.

* Local city, town or village property transfer tax; county transfer tax, state transfer tax, state capital gains tax. The tax man cometh, and it could cost you, although the charges vary from municipality to municipality. In Illinois, the seller picks up the county tax ($.50 per $1,000 of sales price) and the state tax ($1 per $1,000 of sales price), and in some local municipalities, the seller also pays for a local transfer tax. In general, property transfer taxes can range from nothing to $10 per $1,000 of the sales price or more, or you may be assessed a flat fee. In some places, you have to pay a tax on the capital gains generated by the sale of your home.

* Notary fees. As more and more fees get piled on, now even notary fees are coming into play. In some parts of the country, documents for a real estate closing must be notarized. You, as a seller, must sign the documents before a notary and the notary may charge a fee for this service. While this fee might have been free in the past, in some places, notaries may now charge up to $25 to notarize a document.

* Credit to the buyer of unpaid real estate taxes. Depending on how and when property taxes are billed in your state, it’s possible that you will have to credit the buyer for real estate taxes that were for the time period you owned the home but will be billed after the closing date of the sale of your home.

* Attorney’s fees. If you choose to use an attorney, you’ll either pay a flat fee starting around $500 or by the hour.

*FHA fees and costs. All FHA fees used to be the responsibility of the seller, but they are now negotiable. But if the buyer can’t pay the fees, and the seller refuses to kick in a few bucks, the lender may not fund the loan.

* Condo/co-op move-out fee. A building charge that can range from nothing to more than $400. Some cooperative buildings can charge a percentage of the sales price to permit the sale of the coop. In some instances these fees can be as much as three percent of the sales price.

* Association transfer fees. Often required for condominium and townhouse buyers. Sellers usually are stuck with some of these fees as well. Some of the fees are for processing the sales papers, move-out deposits, preparation of closing documents and even inspection fees.

* Paid utility bills. In many areas, local municipal officials will not let you close until you have proven that you are current on your utility bills. The charge for each copy of a paid utility bill, including water, sewer, garbage or electricity is $10 to $50. In some cases, companies can assist a seller in obtaining the proper documentation for the sale and can charge up to $150 to assist in obtaining the documents from the local governmental offices.

* Certificate of compliance with building and zoning codes. Your local municipality may charge for inspecting your home prior to the sale to insure that it meets up to date requirements. Such inspections can cost a nominal amount or run more than several hundred dollars plus the cost of fixing any items that are non-compliant. In addition, some municipalities charge a fee to verify the number of dwelling units permitted at a home being sold. The cost of such certificate can be nominal, but it may be a hassle to obtain the certificate.

* Home inspection fees. In some areas, local custom dictates that the seller pay for septic system, lead, pest, radon and fire and other inspections, which can range from $25 to $200 each. If there are problems with the home, you may have to fix the problems at a substantial cost.

* Home warranty. In California, most existing homes are sold with a home warranty, which guarantees to the buyer that all of the mechanical and electrical appliances are working on the day of closing and are guaranteed to work for the first year of ownership. The cost for a home warranty starts around $400 and can increase as additional option items are added. While your home may not be located in California, home warranties are becoming more popular in other states as well, so don’t be surprised if your buyer requests that you pay for one.

* Association reserves. In some areas, the reserves held by condominium or homeowner association are credited to the seller on the basis of the seller’s percentage of ownership in the association. Fortunately, for the seller, this is one of the few instances of money coming back to the seller rather than a payment by the seller.

* Special assessments to associations. In many associations, if a special assessment has been levied, even if it can be paid over many years, the association will require that the assessment be paid in full at the closing.

* Other credits to the buyer. In some cases, sellers give credits to the buyer for things that don’t work, or don’t look nice, in their home. For example, if the buyer’s inspector finds something wrong in the house, you may negotiate a credit to the buyer that will be paid at the closing. The cost of this will vary.

* Upside down loans and short sales. When you are upside down on your mortgage (that is, owe more on the mortgage than the house is worth), when you find a buyer for your home, and the amount being paid for the home will not entirely pay off your mortgage, home equity loan or line of credit, you’ll have to come to the table with cash in hand. If the lender “forgives” your loan in this short sale transaction – that is the lender agrees to take a sum that is less than the full amount required to pay off the loans, you will have successfully completed a short sale. Currently the IRS has allowed that phantom income – the amount of the debt that is being forgiven to you – to not be taxed as income. In the old days, that phantom income was taxed to you. Remember these rules are changing frequently and in some cases as a home seller the IRS rules may apply to primary residences but not other homes or investment properties. Talk to your tax preparer for more details.

It’s important to keep a list of your closing costs, as well as a copy of all your purchase and sales documents, so that you can accurately figure out your home’s cost basis. For more details, check out IRS Publication 523, “Selling Your Home.”

While this list includes many of the closing fees that seller’s will see, it does not include all of them. Closing fees vary from state to state, county to county, city to city and even within a city. When planning your sale, talk to your real estate agent or real estate attorney to get a better idea of what closing fees might affect you when you sell your home.

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14 Responses to Seller Closing Costs Updated

  1. Jenny R says:

    Question: Is it smarter to pay to replace carpet and repainting, adding the cost to the asking price or to offer that money as cash back incentive? What is the best bet?

    • Deborah says:

      Most lenders will not allow cash incentives to the buyers which are not used to pay closing costs and prepaid expenses (taxesm=, insurance and interest) and will deduct it from the purchase price before calculating the loan to value. It provides no true benefit to the buyer. One way that the buyer’s choices can be accounted for is to have these items completed prior to closing and the seller pay the invoices through escrow with the sale proceeds. This way no money is credited to the buyer and no adjustment is required.

  2. 320me says:

    does the seller have to pay for all for the pest fumigation at closing

  3. Katherine says:

    Yes, all fumigation is paid by the seller. You could have orkin or another fumigator come prior to closing and bring your receipt that is was completed. But inform your realtor that you are doing this so they can communicate with the buyers and the buyers will be more at ease about purchasing your property. Communication is the key to keeping buyers from backing out.

  4. Linda says:

    First, is an Estimate of Sellers Expense ONLY an ESTIMATE? i.e. the costs are not true costs, correct??
    Second, If the buyer is paying cash for the sale, (no mortgage is being procurred).. why do the seller have a ‘closing cost’. (above the expected – title insurance and search, RE fees, well/septic inspection, settlement of RE taxes up to closing).

  5. ST says:

    Linda, due to different customs and fees in different parts of the country, these seller closing costs are estimates of what you might expect to pay. In a cash sale, you still might have closing costs and it would depend on the custom where the property is located. A buyer won’t hand over the money for the home if he or she is not assured to receive good title. So as a seller you might have to pay a closing agent to handle the transaction or even split it with the buyer. In some states, sellers have to pay fees to sell their properties including the ones you mentioned. Unfortunately, like taxes and death, even the sale of real estate now has costs associated with it.

  6. Seller says:

    If you are paying out of pocket at closing when selling your home, are you still taxed on capital gains when you file tax returns?

  7. Tia says:

    when i sold my home the agent didnot list my home for the amount that i wanted she said it was not the compairison price , she sold it for 180.000 and made 10.000 comission and i payed 5000.00 closing cost. was tht fair

  8. Tim says:

    I have a question. I’m closing on my house tomorrow and the seller is refusing to pay for an assessment on the house, his road was redone 2 years ago and he has to pay $800 dollars a year for this assessment until 2019. Is it legal for him to decline payment. The title company is allowing me to takeover payments but I don’t feel like I should have to take on this burden.

    • Samuel J. Tamkin says:

      You have to look at your contract and see if the seller is responsible for the payment of the road assessment. If he is responsible and doesn’t pay, you should have your rights under the contract to go after the seller for his default under the contract. However, if the contract does not require the seller to payoff the tax assessment and that burden falls to you under the contract, you’re stuck and will have to buy the home subject to the assessment. For more information talk to a real estate attorney.

  9. ashley says:

    Can the seller use a credit card for closing costs?

  10. Tammy says:

    We are selling our house and in our contract it says we will be paying 6120 towards closing. If the closing cost is not that much what happens to the money? Let’s just say closing is only 5000 does the 1120 come back to us or does it go to some other expense?

  11. Peter says:

    We are conducting a cash sale of land with a cash buyer and no inspections, surveys, etc… My realtor has informed me that we are going to be charged $7,000.00 in fees to the broker, for title, and transfer taxes in Michigan where property is located. That’s 12% of our proceeds deducted from the sale with no mortgage on the property and a cash buyer. This seems outrageously high.
    We only knew the real estate commission was 7%
    But now we have to pay Attila of 12% on a simple land sale with no banks involved.
    Why so much?

  12. Hal Holiday says:

    Closing Costs are negotiable …Sellers Don’t get ripped off.. unless otherwise stated in your sales contract you are only responsible for the commission stated in the listing.

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