When you sell your home, there are a lot of costs to consider. Closing costs can be expensive, and it’s important to know what to expect before you sell. In this blog post, we will go over all the closing costs that sellers can expect. We will discuss the various fees and taxes that need to be paid, as well as when they are due. By understanding these costs, you can plan ahead and make sure you have everything ready when it comes time to sell your home!
What are Closing Costs?
Closing costs are the various expenses that are incurred when a property is sold. But what are closing costs exactly? These costs can include attorney fees, title fees, and real estate commissions. In addition, buyers and sellers often have to pay taxes and transfer fees.
The amount of money that a buyer or seller spends on closing costs can vary depending on the state in which they live. In some states, buyers are required to pay a transfer tax, while in other states, sellers are responsible for this cost.
Closing costs can be a significant expense, so it is important to know what to expect before signing a contract to purchase or sell a home. It is also important to be aware of any specials or rebates that may be available to reduce the amount of money that needs to be paid at closing.
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Buyers should ask their real estate agent about the closing costs associated with a particular property and how these costs can be lowered. Sellers should discuss the closing costs with their listing agent and ask about any potential discounts that may be available. By being knowledgeable about closing costs, buyers and sellers can minimize the amount of money they spend on this important transaction.
How Much are Closing Costs?
When you sell a home, there are various costs you need to pay in order to finalize the sale. These costs are known as closing costs, and they can amount to a significant sum of money. In most cases, the buyer and seller will share these costs equally.
So what exactly are closing costs? They include a variety of items such as the following:
-Real Estate Agent Commissions
-Attorney’s fees
-Transfer taxes
-Prepaid interest
-Escrow or title fees
-Document preparation fees
-Home inspection fees
-Credit check fees
-Prorated property taxes
-Prorated HOA dues
-Any outstanding bills or liens on the property
Average closing costs for the seller run between about 8% and 10% of the sale price. That means, on a $300,000 home sale, you would pay from $24,000 to $30,000 in closing costs.
There are some ways to reduce or eliminate your closing costs. For example, you can ask the buyer to pay for some or all of your closing costs. Or, if you have an attorney represent you during the sale, you may be able to negotiate a lower rate. However, it’s important to remember that these costs are typically non-negotiable, so it’s best not to rely on them too heavily in your negotiations.
If you’re wondering how much you’ll need to budget for closing costs, it’s best to speak with a real estate professional or mortgage lender. They can give you a more accurate estimate based on your specific situation.
What are the Typical Closing Costs and Closing Fees Associated with Them?
Closing costs and fees can vary depending on the state in which you reside. However, there are some common costs that are associated with most closings. The following is a list of the most typical closing costs and fees:
- Agent commission
- Transfer tax
- Title insurance
- Escrow and closing fees
- Prorated property taxes
- HOA fees
- Credits toward closing costs
- Attorney’s fees
Real estate agent commission
Real estate agent commissions typically amount to 4-6% of the final sale, but this number is not set in stone. The total commission can be negotiated between the seller and their listing agent.
Out of the total commission amount, the seller usually pays the buyer’s agent commission as well. This is generally 2-3% of what is offered and goes to the agent working with the person who buys your home.
Consequently, the 4-6% commission makes a large dent in your closing costs for any sale.
Negotiating real estate commission
Real estate commissions are negotiable, as mentioned earlier. If you’re looking to hire an agent, be sure to bring this up and have the percentage agreed upon in writing.
- Asking your agent to take a reduced commission: You have the best chance of persuading a full-service agent to lower their commission if they’re representing you in two home transactions simultaneously, both the sale of your current home and the purchase of a new one.
- For sale by owner: No, you don’t need a realtor to sell your house. Homeowners can save money by listing their homes on their own, a process known as FSBO, or for sale by the owner. You would be able to save about 3%, but instead, all of the work will fall on you if you list it yourself. However, keep in mind that you’ll still have to pay buyers’ agents’ commission fees.
- Discount agents: In every real estate market, you’ll find agents who advertise that their commission rates are lower. But keep in mind, that means they also probably offer less assistance and fewer services than a traditional, full-service agent. For example, they may get the home listed on the local MLS, but marketing the property will be up to you.
- Sell to a cash home buyer in TN: You could also sell your house to one of the cash buyers in Tennessee, which would eliminate the need to pay an agent commission altogether. These types of buyers are typically investment firms that buy properties in as-is condition, require no home repairs, and pay in cash. They don’t charge agent commissions to buy your home and will even help pay closing costs.
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Transfer tax
A transfer tax, also called a government transfer tax or title fee, is the amount you’ll pay to the government when you officially hand over your home’s ownership to the new buyer.
The cost of this tax greatly varies from state to state, which makes it difficult to find an accurate estimate of closing costs. Now, to show you how much this number varies depending on the location, let’s take a look at the top 10 real estate markets. (These figures come from a 6% agent commission of each area’s median home value.)
Metro area Transfer tax amount, based on median-valued home
- Seattle, WA $8,654
- Washington, DC $4,212
- Boston, MA $1,932
- New York, NY $1,725
- San Jose, CA $1,085
- San Francisco, CA $928
- Los Angeles, CA $662
- San Diego, CA $585
- Sacramento, CA $397
- Denver, CO $36
Owner’s title insurance
Title insurance protects the new owner from any future claim to the ownership of your home. This could be because of a dispute or due to liens from contractors, creditors, or even taxation agencies.
Without this one-time payment, the future owner would be financially responsible for any title issues that may come up in court, whether it’s at closing or years later. If they ever have to give up their interest in the property, this policy will also refund them for any money spent on the home (in a worst-case scenario).
The cost of this coverage is typically shouldered by the seller, but if you’re a buyer, it shouldn’t be too great of an expense for you. This policy can range in price from $1,000 – $4,000. If that sounds like a lot to you and you’ve owned your home for 10 years or less, there’s no need to worry. Inquire about the reissue rate – since the policy would only cover a shorter period of time than what you’ve already lived in the house, the rates are lower.
It’s important to remember that on closing day, you will more than likely see two different title insurance line items in the documents. The first is the owner’s title insurance which was mentioned earlier. The second is the lender’s title insurance; a policy that protects the new buyer’s lender’s interest in said property. This one is usually paid for by oftentimes being shouldered by the buyers themselves.
Escrow and closing fees
Escrow providers, who manage the closing of a transaction by signing and recording documents as well as holding purchase funds, usually charge either a flat fee or 1% of the home sale price. The amount charged usually falls between $500 and $2,000 depending on location. In addition to your deposit, there are usually some other associated costs — like office expenses, bank fees for transferring funds, the copying of documents, and notary charges. The escrow fee is generally split evenly between the seller and buyer.
Prorated property taxes
All 50 states in the US have some sort of property tax, which is a rate charged on any kind of property that you own. The amount can differ significantly from state to state.
You can usually pay your property taxes in two installments per year. These can be paid out of an escrow account that is connected to your mortgage, or you can pay them directly. If you sell your house, you are responsible for any prorated property taxes that come up before the sale date. Once the sale goes through, the new owner will take over that responsibility.
If you’re not caught up on payments, depending on when your closing date is, you may have to pay a sum of money.
HOA fees
Homeowners in communities with homeowner’s associations (HOAs) usually pay monthly, quarterly, or yearly dues. Just like property taxes, you must make sure you’ve paid up by the close date—which can result in paying extra cash during closing. Some HOAs might also charge a transfer fee to switch your property ownership to the new owner.
Credit towards closing costs
In a buyer’s market, where buyers have abundant options to choose from, you may make your home more attractive by offering the buyer credit toward closing costs – this is also known as a seller concession or seller assist.
The credit you offer helps to pay for some of their closing costs, which reduces the amount of money they need at closing. If this was part of your negotiations, it would be listed as an item on your final bill.
Attorney fees
In some U.S. states, it is legally required to have a real estate attorney present during the purchase or sale of a property transaction. In the majority of the country including Tennessee, it’s not required, but people do choose to have an attorney help them with the transaction, especially if dealing with complex transactions, distressed properties, or real estate holdings that have been inherited. If you do hire a lawyer, he or she will often be paid at closing, out of the proceeds from the sale.
These are just some of the common closing costs and fees that you may encounter. Be sure to discuss all potential costs with your real estate agent or lender before you sell your home. By being aware of these expenses, you can plan ahead and make sure you have everything ready when it comes time to close your home.
Why are Closing Fees Necessary?
In a nutshell, closing fees are necessary to help cover the costs of the transaction. They can include services like title search, appraisal, and credit check. By paying closing fees, home sellers can help ensure that the sale goes through smoothly.
Who Pays Closing Fees? The Buyer or The Seller?
The closing fees for buyers and sellers can vary depending on the state in which the property is located. In most cases, the buyer pays the closing costs, but in some cases, the seller may be required to pay a portion of the costs.
The types of fees that are typically paid by the buyer include loan origination fees, underwriting fees, appraisal fees, credit report fees, and title examination fees. The seller typically pays for the title insurance policy and any taxes or recording fees associated with the sale.
>> Hidden Costs Home Sellers Face In Knoxville
Ultimately, closing costs are negotiated between the buyer and seller prior to the sale. However, to sweeten the deal, some sellers may be willing to pay a larger portion of the buyer’s closing costs.
Final Takeaways
Selling a home can be expensive, especially when it comes to closing costs. Sellers can expect to pay for services like title search, appraisal, and credit check. In most cases, the buyer pays the closing costs, but in some cases, the seller may be required to pay a portion of the costs. It’s important for sellers to be aware of these expenses so they can plan ahead and make sure they have everything ready when it comes time to close their homes.
After reading this article, if you were surprised to find out how many closing costs there are for sellers, you’re not alone. If you need to sell your home but can’t afford the costs, working with a local home buying company in Knoxville, Chattanooga or Nashville buyer may be the right move for you!
Contact Nexus Homebuyers today if you need to sell a house fast in Nashville, Knoxville, or Chattanooga and would like to avoid the extra costs associated with selling a home the traditional way! We are all-cash home buyers who can help you sell your house fast, regardless of its condition or your situation. We can close in as little as 7 days, and there are no real estate commission fees or closing costs! To learn more, give us a call at (865) 999-0025 or fill out our online form to get started!
