While a home buyer makes a considerable investment when purchasing a house, the seller’s part in the transaction does not come without some cost. Regardless of the sale price of their property, a seller will not pocket the full amount due to certain expenses, or closing costs paid at the end of the transaction. These include fees such as transfer taxes, real estate agent commissions, and title search fees.
Typically, the seller’s closing costs range between 6% to 10% of the sale price, reducing their profit accordingly. If you are looking to sell your house fast, with no fees, commission or other costs involved, slghomebuyer.ca may be able to help you.
To provide a clearer picture of the amount of equity a seller can expect to pocket, this article will list the main closing costs associated with selling a home.
A title search will confirm ownership of the property and who has the right to use it along with any potential issues. The seller is responsible for paying the fees of the company that conducts the search and verifies that there are no ownership disputes or any outstanding liens or encumbrances on the property. A real estate attorney may also be required to review the title in some states. If so, the seller will have to pay their fees.
The seller will also pay the lender’s title insurance which protects the lender against any unexpected claims that might arise on the property and potentially lead to a legal dispute. The title insurance fee is usually between 0.5% to 1% of the house sale price.
Transfer tax is a real estate tax paid at the end of a property transaction in order to transfer the deed from one party to another. The amount payable is usually calculated as a percentage of the property’s sale price which will depend on local and state laws. Transfer tax typically ranges from 0.01% to over 4%. Transfer tax is sometimes referred to by other names such as deed transfer tax, realty transfer tax, and conveyance tax.
Prorated Property Taxes
A seller will also have to pay a portion of the property taxes that have accrued on their home up to the date of sale. The seller will pay prorated property tax based on the amount of time they have lived in the property since the start of the tax year. After the closing date, the buyer will be responsible for the property taxes.
These are part of the mortgage closing costs and are paid to the title company or independent third party that collects and distributes all closing costs to the correct parties. The escrow fee is either a fixed fee or a percentage of the house sale price and covers matters such as paperwork, signing and recording of the deed and closing documents, as well as the holding and exchange of funds.
Real Estate Agent Fees
Real estate agent commission is one of the largest costs incurred by the seller when closing the transaction. The fee typically ranges from 6% to 10% of the sale price of the home and is split between the listing agent and the buyer’s agent.
Mortgage Pay-Off Costs
Most sellers will use the proceeds of sale to pay off their mortgage on the property, however, some lenders may also charge an additional fee known as a prepayment penalty when a mortgage loan is paid off before the end of its term. The amount charged can vary and may be a flat fee or a percentage of the balance remaining on the loan.
If a real estate attorney has been hired by the seller to advise on the transaction they will need to be paid for their services.
A lender will need to know the current market value of a property before lending on it. A home appraisal report will be undertaken before closing to estimate the value of the property and verify that it is worth the amount the seller is borrowing. The appraisal is often necessary for the sale to go through as the buyer depends on it to secure their mortgage.
In most cases the buyer will pay for a real estate appraisal, however, in some cases, the seller will agree to do so. This could be during a buyer’s market or when there is some urgency to sell their house. The appraisal will also become a closing cost for the seller in situations where it is being challenged.
Homeowner Association Fees
Homeowners living in certain properties such as condominiums and planned communities may be required to join a homeowner’s association (HOA). An HOA is a private association that oversees and maintains the properties in its community. At closing, the seller may have to pay any outstanding HOA fees in order to transfer their ownership of the property to the buyer and update the records.
For sellers of condominiums, a 6D certificate will need to be paid for by the seller. This document is required to provide evidence to the buyer and their lender that there are no outstanding amounts owed by the seller to the HOA. HOA fees typically cost between $100 and $400.
Outstanding Amounts on the Property
A seller may incur additional closing costs on the sale of their home which must be taken care of before ownership can be transferred. This can include such things as utility bills, remediation costs, pest inspection fees, homeowners insurance and a buyer’s home warranty premium.
Seller Concession Costs
The seller may also agree to pay all or part of the buyer’s closing costs. This is a concession made by the seller, as a sweetener to entice the buyer into agreeing to the deal. This could be contributing towards certain closing costs or agreeing to pay a fixed amount or percentage of the buyer’s total closing costs.
A buyer may also request certain concessions at the negotiation stage to cover specific costs such as repairs or any other issues which may arise as a result of the home inspection. These are the main closing costs to factor in when selling your home.