As a Real Estate professional… as Michelangelo once stated… “I am still learning” Here is a very good article from Rick Hazeltine with Move Inc. I thought I should share with you. Don’t hesitate to give me a call at 340-690-9177 or shoot me an email at [email protected] if you would like more information about Real Estate from one our professionals here at RE/MAX St. Croix in Americas Secret Paradise.
Responsibility for closing costs vary across nation
After signing the paperwork to sell their home, sellers usually subtract their loan and commission from the sales price and figures that’s how much they will get. Few sellers give much thought to closing costs. But they are an important and usually unavoidable part of the transaction.
Closing costs refer to all of the taxes, fees and costs required to close a real estate transaction. Who pays what in closing costs not only varies from state to state but can also differ within a state.
Ask your agent for the traditional breakdown of what you are expected to pay in closing costs and what portion the buyer pays when you list your home. You’ll want this information handy when you consider an offer so you can calculate your net proceeds.
In most states the buyer and seller split closing costs and in many others the buyer is responsible or they are negotiated. But in Kentucky, the seller pays closing costs. Then there are lenders’ and owners’ title insurance premiums, except in Iowa, the only state that does not authorize them. Depending on the state, there are can be city, county or state transfer taxes, mortgage taxes and documentary taxes. The buyer, seller or even lender can be responsible depending on the state or sometimes county. Some states require transactions go through escrow, which requires its own fees.
Many times who pays for what depends on the market. If the transaction is in a hot market, the seller has the upper hand and may require the buyer to pay a greater portion than usual. In a down market, the buyer usually negotiates to have the seller pay a bigger portion or sometimes all of their closing costs. It’s also not uncommon to even have the buyer’s offer include all of the closing costs, taxes and fees added into the price so they don’t have to come up with cash to pay them.
Following are definitions of typical closing costs faced by sellers:
- Escrow/attorney fees: Some states require third-party escrow companies handle real estate closings, while others dictate attorneys perform the function. Title companies, title agents, lenders, brokers and even real estate agents are allowed to handle closings and/or escrows depending on the state. These fees are usually split between the buyer and seller.
- Title insurance: There are usually two types of title insurance that must be purchased – the lenders’ policy and the owners’ policy. Usually either a title company or in some states a lawyer will research the title to make sure there are no liens against the property or unidentified owners. These policies protect the lender and new owner for the full value of the property. Usually, the seller pays for the owner’s policy and the buyer pays for the lender’s policy. This is often referred to as clearing title.
- Transfer or documentary taxes: These are paid either to the state, county, city or a combination depending on the state. This is where the government agency gets their share of the transaction. This is also known as a reconveyance tax.
- Recording fee: Usually paid to the county for recording the deed, which shows ownership of the property.
- Mortgage tax: This is an additional tax collected by some states. Alabama, Florida, Georgia, Hawaii, Kansas, Maryland, Minnesota, New York, Oklahoma, Tennessee and Virginia are the states that collect this tax.
- Settlement or closing fee: This is usually split between the seller and buyer and covers the costs charged by the escrow company, lawyer or whoever handles the transaction’s financial transfers.
- Brokerage commission: The fee you contractually agreed to pay for the selling of your home.
- Pest inspection: Most lenders will require a pest report to make sure the property is in good condition. This is usually paid for by the seller. Sometimes the seller will be responsible for repairing areas damaged by termites, carpenter ants, dry rot, fungus, among other pests. Generally, these repairs can be negotiated and may depend on whether the market favors buyers or sellers. This can also usually be paid for directly between the seller and the pest company.
- Septic inspection: If you have a septic tank, it will likely be required by the sales contract to have it inspected. This can also be paid for directly between the seller and the inspection company.
Buyers pay many more fees with most tied to their loans. The breakdown of these fees is not important to sellers even if they agree to pay some of them as part of the purchase price. Generally, the negotiation will result in a statement such as: “The seller agrees to pay up to $5,000 in buyer’s closing costs.” The amount of course will vary depending on what was negotiated.
Sellers will also be responsible for some “recurring” closing costs. These include mortgage interest on their loan, property taxes, homeowner association dues and hazard insurance. The seller is responsible for paying these up until the actual closing date and the buyer from the closing date forward.
If the seller has paid for any of these items beyond the closing date, he will be reimbursed at the closing. You could also be reimbursed for unused heating oil or natural gas if applicable.
Other items that will be deducted from the seller’s share include any home warranties you agreed to purchase for the buyer or credits you agreed to give buyer, such as for roof repairs.
Federal law requires that sellers and buyers receive a copy of a HUD-1 form outlining all charges in a real estate transaction.
© by Move, Inc.