Whether you’re the seller or the buyer, there are fees attached to the closing of a home sale. As a seller, you may be unprepared for the costs associated on your end that are detracted from your overall profit, especially since the closing costs are often higher for sellers. Overall, the closing costs for sellers can range from 6% to 10% share of the earnings of the home sale. A few days before the closing, all parties will receive a closing disclosure that will itemize the different costs. Here are a few things that contribute to a seller’s closing costs.
1. Agent Commissions
If you work with an agent, their commission gets taken out during the closing costs. For a seller, it is deducted from the total sale of their home. The seller is usually responsible for covering the commission for their listing agent, as well as the buyer’s agent. This can range from 4-6% of the total sale.
The commission helps cover the agent’s time spent helping with everything from open houses to showings, as well as the hours spent on paperwork and price negotiation. While some may see FSBO as a route to help save money, you run the risk of not earning the highest possible value for your home, as well as getting bogged down by complex paperwork that, if done wrong, can lead to penalties or legal fees.
2. Title Insurance
Title insurance is a protection for the new owner of your home, ensuring they have rights to the property (physically or financially in the worst case scenario) if someone else claims to have rights to the property from a time prior to the sale. While this is not often an issue, claims can be made from previous creditors or the government. The seller is often expected to pay for the insurance.
3. Taxes and Fees
As with any other purchase, there are taxes tied to the sale of your property. The first tax fee is the government transfer tax, which covers the cost of transferring the title from one party to another. The cost can vary by city and state. For example, costs in California are much higher than in Iowa.
Another thing to be aware of is the prorated property taxes and HOA fees. Your property taxes will be prorated up to the day of the closing and are often paid on closing day to ensure they get covered. The buyer will then cover the property taxes starting the day of the closing. Any HOA transfer fees depend on the neighborhood’s rules, however, if you have any outstanding fees, those will need to be covered before closing.
4. Additional Costs
A few other costs to consider when closing the sale of your house. Depending on the inspection, you may have to pay for certain repairs or offer the buyer a credit. This can range from minor to major costs. While you can always reject the deal, whatever is discovered, will have to be disclosed to the next buyers and can lead to the value of your home decreasing while prolonging the sale of your home.
Speaking of repairs, even though this isn’t associated with closing costs, do consider the cost that goes into any updates your home may need before selling. While this can help the total price earned, you want to ensure you actually receive a return on the investment you make through repairs. I often encourage prospective clients to consult with an agent (like me) to help make suggestions for high-impact fixes.