If you’re monitoring the value of your home so you can sell it and reap a worthwhile profit, don’t forget to factor in the closing costs for sellers into the sale price. Selling a house is time-consuming and expensive — often much more than sellers might expect. When you’re thinking about selling, it’s easy to get excited about how much your home value has increased over the years, but it’s important to be prepared for the hidden, and sometimes overlooked, costs of selling a home. Before you start counting your dollars and debating the size of the down payment for your next home, you need to calculate the closing cost for the seller. You can expect to pay anywhere from 6% to 10% of the home’s sales price in the closing cost according to the area where you live. This amount will be deducted from the profit on your home.
One of the largest cost is to the real estate agents at the time of settlement for all of their work selling your home. A typical commission is 6% of the sales price of the home. For a $350,000 selling price, the real estate agent’s commission would be about $21,000. The seller pays this full amount.
Loan Payoff Cost
Hopefully the sale of your home will pay off your mortgage and satisfy your lenders. That mortgage payoff may be a little higher because of the lenders prorated interest on the mortgage. In some cases, there may also be a prepayment penalty for paying off the mortgage loan before the end of the loan. If you have a line of credit or equity loan added to your mortgage, the lender will require this to paid in full. Be sure and talk to your lender about what will be required to pay off the mortgage so you will have an accurate picture of closing costs.
The fee charged by a government agency for registering or recording a real estate purchase or sale, so that it becomes a matter of public record. Recording fees are generally charged by the county since it maintains records of all property purchases and sales. Recording fee varies from county to county.
Title Insurance Fees
Title insurance comes in two forms: lender’s title insurance policies and owner’s title insurance policies. The owner’s policy protects you, while the lender’s policy protects your mortgage lender. Mortgage servicers require lender’s policies because they don’t want you to stop making your mortgage payments if a problem arises with the title on the home. Sellers typically pay the buyer’s title insurance premium. Title insurance protects buyers and lenders in case there are problems with the title in a real estate deal.
Market traditions vary, so while in some areas both the buyers and sellers have their own attorney. In other states, it is more common to have one settlement attorney for the real estate transaction. In Kentucky the seller pays but you can negotiate with the buyer to pay some of the closing costs. In Ohio you are not required to have an attorney for the sale to go through. In some areas, the buyer pays the attorney fees, while in others the seller pays. Depending on what you state you live in, you may be required to hire an attorney. There are 15 states in all that require an attorney for some part of real estate transactions. But even if you are not selling a home in one of these states, there are occasions when you will want a real estate attorney.
Miscellaneous Costs to the Seller That May Apply
In addition to the preparing to sell such as repairs and improvements to make your home more attractive the following closing costs should be noted:
- Unpaid HOA dues
- Prorated property taxes
- Escrow fees
- Termite inspection
- Repairs from the home inspection
- Home warranty premium
All of these fees can consume up to 10 percent of the sale price of the home. Some expenses are negotiable and fluctuate with the real estate market. But sellers should expect to foot all or part of the bill for numerous costs to sell a house.
Tom has 20+ years experience in helping his clients buy and sell properties. Tom is also great resource for trusted vendors that can help assess and fix a property before buying or selling it.
About Tom Reese
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