Though every real estate transaction has closing costs, if you haven’t bought or sold a home, you might be unfamiliar with them.
Closing costs for sellers are more numerous, though, and represent a larger amount of money than what a buyer must pay in closing costs.
Let’s take a look at what closing costs are and what they entail for sellers.
What are Closing Costs?
Closing costs are the fees associated with the completion of a real estate transaction. It’s a broad term that refers to a wide range of expenses above and beyond the purchase price of the home.
Generally speaking, closing costs include taxes, lender fees, Realtor commissions, and various other fees. While closing costs can vary in terms of their amount, sellers can expect to pay between six percent and ten percent of the sale price of their home in closing costs.
When selling a home, closing costs are not usually paid with cash or a check. Instead, they are deducted from the profit of selling the home. If a seller is underwater with their home and owe more than what they have sold it for, then additional funds will be needed to satisfy the loan with the lender.
Typical Closing Costs for Sellers
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First and foremost, Realtor commissions are the biggest part of closing costs. The amount is negotiable and the commissions are split between the listing agent and the buyer’s agent.
Another large portion of closing costs are those associated with paying off the mortgage.
These expenses might include paying off a second mortgage or a home equity line of credit, paying prorated interest on the home loan, or paying prepayment penalties for paying off the mortgage before the payoff date.
A final component of closing costs is taxes and fees.
Property taxes must be paid as part of closing as well as transfer taxes, which are assessed to transfer the title from you to the new owner.
Likewise, various fees, like title search fees, title insurance fees, and recording fees are often part of the deal, and sometimes other agreed-upon costs. In our market, sometimes sellers find themselves contributing to the buyers’ closing costs as a means of making the sale more likely.
Less Common Closing Costs for Sellers
In some cases, repairs to a home might be requested by the buyer and negotiated to be completed by the seller. While the payment for these repairs might not be settled at closing, they are still considered part of the closing costs.
Additionally, inspections, like a termite inspection or a foundation inspection, might be negotiated as part of the sales price. Again, these fees might be paid prior to closing.
It’s important to remember that other expenditures might be needed in order to sell your home. Though the cost of new paint for the front door or the bill for a plumber to fix a leaky bathroom faucet aren’t technically considered closing costs, they are still expenses that you as the seller have to pay.
When selling your home, it’s critical that you understand what closing costs you can expect, that way you can work with your Realtor to determine a list price that is both supported by the current market and that maximizes your return on investment.