What are the closing costs for home sellers?

A “For Sale” sign and a “Pending Sale” sign are photographed in Salt Lake City on Monday, October 18, 2021. Salt Lake City ranks second in the state with the largest increase in home sales prices according to RE/MAX National Housing Report. (Kristen Murphy, Desert News)

Estimated reading time: 5-6 minutes

WASHINGTON – With the current seller’s market, combined with high demand and low inventory, many homeowners are indulging in listing their homes.

But be warned: If you’re ready to find an agent and list your home, there are many hidden fees associated with selling a home that you’ll want to prepare for in advance.

You want to avoid surprises in the home-selling process and understand the ins and outs of closing costs for sellers, from the items listed to how to negotiate a better deal.

For starters, closing costs are the various fees a buyer pays, some of which are paid by the seller, to finalize a home purchase transaction. Many people are familiar with closing costs for buyers, but may not realize the closing costs involved with sellers.

Here are some fees that homeowners should be aware of as they prepare to close a deal.

commission agent

The most important cost for home sellers is the agent’s commission fee. Commission rates are typically around 5-6% of the final sale price, split between the selling and buying agents. So on a $300,000 home, the commission fee can total up to $18,000.

transfer tax

Once home ownership is formally transferred, taxes and fees will be imposed by the state, county, and/or city in which the property is located. Although these fees are sometimes split, it is very common for the seller to cover these costs. These taxes are usually represented as a percentage of the final sale price and vary by state and location.

property insurance

A homeowners insurance policy protects its owner from home ownership disputes.

There are two types of property insurance: lender (which protects the lender) and owner (which protects the owner). Buyers are expected to pay for the lender’s property policy, which is generally required for anyone receiving a mortgage. However, the question of who pays for homeowner’s title insurance depends on the state in which the property is located.

warranty costs

The escrow process begins when a buyer makes an offer to purchase a home. The amount of the “good faith deposit” or “serious money” shows that they are serious about buying the property and it is deposited in an escrow account controlled by a neutral third party.

This neutral third party (also known as the escrow company) charges a fee for their services in setting up the escrow. Typically, this fee is split 50-50 between the buyer and seller and varies depending on the location of the property.

lawyer position

Real estate transactions are complex, and the seller’s attorney will help you with the paperwork and make sure you don’t fall victim to any loopholes.

Although buyers and sellers are not required to hire an attorney in some states, it is still a good idea to hire an attorney to review the final contract. However, make sure you are willing to pay for your time. Attorney fees can range from $150 to $500 per hour for a good attorney.

Outstanding bills and liens

It is up to the seller to pay prorated items such as property tax and utilities. The seller generally must pay these amounts up to the date of the sale, at which time the buyer bears the costs. Sellers will also be responsible for any outstanding judgments or liens on the property before the transaction can proceed.

How to Calculate Closing Costs

Average closing costs for sellers range from 8% to 10% of the final sale price once all is said and done, so it’s important to factor this money into your overall moving budget. Furthermore, these costs fluctuate depending on the state in which the seller lives and are heavily influenced by local laws and regulations.

For example, in Florida, it is common for the seller to pay most of the closing costs to finalize the deal and bear most of the financial burden in doing so. Sellers generally receive higher payments in Florida because real estate prices are higher. On the other hand, in Alabama, for example, closing costs are typically split more evenly between the seller and the buyer.

Sellers must also take into account additional costs, such as home repairs and mortgage rebates, when calculating how much they will pay to sell their homes. Sellers often make cosmetic or even structural improvements to a property before it is listed for sale to attract buyers quickly. They will also have to pay off the rest of their mortgage and accrued interest to formally exit.

All of these costs can add up quickly, so it’s important to keep track of your spending and try to stick to a budget.

How to lower your closing costs

Home sellers can take several ways to save money on closing costs, especially at the seller’s market. When inventory is low and demand is high, owners have more leverage in the negotiation process and may ask the buyer to cover certain costs. In fact, sellers can refuse to pay closing costs if they think they can get a better deal from another buyer.

However, covering a portion of a buyer’s closing costs doesn’t necessarily have to be a bad thing. In the right circumstances, it can help save the seller money in the long run if the buyer’s overall offer is strong enough. Some things to consider when deciding to pay closing costs include:

As the market for this seller continues to grow, some experts are predicting a downturn in the housing market. All this more reason to be in the know and ready to sell your home fast if the opportunity arises.

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