Let’s Talk about Closing Costs

What Costs are Associated with Buying/Selling Real Estate?

There are different fees associated with each side of a real estate transaction (Buying Side & Seller Side). Fees are very location-based – even within the same state, fee standards can be different. And, across America, each state has different types of fees that are applied. For example, in Florida there are state taxes associated with a sale – in Texas, there aren’t. 

Understanding closing costs is a crucial first step when entering into a real estate transaction regardless of what side you are on. 

Seller Closing Costs

When considering the sale of a home, the net proceeds from the sale are likely the determining factor. Understanding the amount of money a sale will procure or, in a worse case, the amount of money a sale will require (if upside down) is crucial to the entire process.

 

The BIG 3

In Central Florida, it is standard for the Seller to pay three big-ticket items: brokerage fees, document stamps on the deed (state tax), and owner’s title policy. The amounts required for the BIG 3 are percentage based and determined by the sales price of the property. Exclusions apply that include some foreclosure sales and new construction sales – in these instances, the Builder and/or Bank may be exempt from paying two of these fees (doc stamps & title policy) which automatically passes them on to the buyer because *Somebody is going to pay them*.

Rough Estimate of Seller Closing Costs

Brokerage fees are not set by law and can be negotiated. Choosing an Agent who accepts a reduced commission is not always the smart answer even though it may look good on paper. Successful Agents who invest in the type of marketing that sells homes will likely stick to their offered commissions. Sometimes, as we all know, you get what you pay for. For this example, we will use a common brokerage fee of 6%. A Title Policy tends to run about .0051% – .0054% of the sales price and Document Stamps run .007% of the sales price. Add these together along with other miscellaneous fees and you come to a rough estimate of 10% to sell a home. 

Take a look at this example Net Sheet

Copy of Sellers_Proceeds_Worksheet_rev_6

When a Seller meets with a Real Estate Professional, they should expect a breakdown of fees like this one. These fee sheets should be updated when any price alteration takes place or when an offer is presented with numbers reflecting the offer amount. In the example provided above – the Seller expenses (before mortgage payoff) run 15% of the gross sales price. An important note to consider: the prorated taxes reflect an amount that is likely in the Seller’s escrow account with their lender (if, in fact, they have an escrow account) and will be refunded to the Seller after final payoff of the mortgage. 

Buyer Closing Costs

Regardless of the type of loan, a Buyer will have closing costs. Closing costs vary widely for buyers as many of the fees are associated with the loan and can vary from lender to lender. Having a professional Real Estate Agent to guide through the process will help in identifying standard loan fees versus inflated loan fees for a particular market. Sometimes, loan fees are inflated because of the type of program. For example, when using a ‘First Time Home Buyer’ bond, or when implementing a ‘Renovation Loan’ there will be higher loan fees. 

The BIG 3

For Buyers, the BIG 3 isn’t as BIG as the Seller’s BIG 3. The largest fee tends to be the Loan Origination Fee applied by many lenders and this tends to be about 1% of the loan amount. In some cases, a lender may not charge a loan origination fee and instead charge several different fees like Document Preparation Fees, Underwriting Fees, etc. Outside of the loan fees, a buyer has some Title fees and State Taxes they must pay. The secondary impact comes from monies required to set up a buyer’s escrow account. These monies include Homeowner’s Insurance, Pre-Paid Insurance, and Property Tax Reserves. Depending on how many months of taxes a lender requires in reserved, these ‘Pre-Paids’ can be in the thousands of dollars. 

What’s the Good News?

The best news for Buyers is that Professional Buyer’s Agency Representation is typically free outside of any transaction fees charged by a Buyer Agent (if applicable, these tend to be between $200 – $400). This equates to a Buyer being fully represented while able to concentrate monies on closing costs instead of agent fees. 

Here is a sample Net sheet for a buyer

CONV-FHA-USDA

Moreso for a Buyer, a net sheet will differ dramatically depending on the home (CDD FEES, HOA FEES, Homestead Status, etc.) and the loan costs. It is crucial that a buyer utilize their Lender and their Real Estate Agent to understand the full impact of fees on any potential purchase. 

The Value of a Qualified Real Estate Professional

Financial surprises in real estate are never a welcomed thing. A deal can fall apart if a buyer must bring more money to closing than expected and, even though a real estate agent is never the ‘final word’ on buying expenses, a good Agent can successfully estimate and monitor the actual charges. 

For sellers, it is crucial to know what the proposed net sale will be from any offer. It would be impossible for a seller to truly consider an offer if they could not reference an expense sheet showing the proposed net sale. A good Agent can help a seller to understand what the net sale would be on a list price and also, what the net sale is on an offer and/or counter-offer. 

What Does it Cost to Buy a House?

Property Tax and Homestead Exemptions on New Construction

About Toni Hedstrom

I am one half of Hedstrom & Stamm Home Solutions, a dynamic real estate team with emphasis on home marketing utilizing our exclusive Home Ready Program.