One of the best parts of selling a home is closing time. The closing process is way less stressful for the seller than it is for the buyer. This is because there are fewer costs and responsibilities involved for the party giving up the property.
However, while the costs are significantly less, they are not at zero. The seller is still responsible for a piece of the pie at closing.
This can often be frustrating because your Realtor and the bank deduct these costs at the very end of the process, often leaving you with less money than you expected to pocket.
But this doesn't need to be the case.
How Much Are Closing Costs for the Seller
Here's everything you need to know about the closing process as a seller, including what the process will look like for you and how much you can expect to pay during it:
What Does “Closing” on a House Mean?
Closing on a house is the final part of the property transfer process. At closing, the money needed to purchase the home and the documents that signal its ownership officially change hands.
If a closing goes according to plan, both the buyer and the seller will arrive at closing with the promises they made in the contract completed. For the seller, this might be taking care of anyrepairs found during the home inspections. For the buyer, this might be securing a larger down payment.
What Happens at a Closing?
At the closing, the seller will need to pay off any loans he still has on the property in order to clear the home title and prepare it for transfer. The buyer (supported by his lender) will then ensure the full balance of the sales price is transferred to the seller.
There is always a third party present at the closing proceeding. The typical third party is a representative from an escrow company. This person makes sure all the money and documents needed for the complete transfer of property are exchanged properly, often by holding on to them for a period before the official transfer.
What are Closing Costs?
Closing costs are fees that both the buyer and the seller of a property have to pay to facilitate the closing process. Closing costs are usually higher for buyers than sellers.
What are the Closing Costs for Sellers?
Here's a comprehensive list of closing costs for sellers:
The biggest closing cost for sellers is the Realtor's commission. The sales price of the property provides the payment for both the buyer's and seller's agent. The current national average for real estate commissions is between 5% and 8%, with most sales clocking in at 6%.
Loan Payoff Costs
When you rent a property, you pay each month in advance. When you own a property, you pay each month towards what you already owe. Because of this, paying off a mortgage all at once is usually more expensive than just following the original payment schedule. This is because the bank charges prorated interest fees.
When you sell a home, you need to completely pay off its mortgage, as two different parties cannot have a mortgage out on the same property. A good rule of thumb for loan payoff costs is simply to budget for two months' mortgage payments at the end of your time in your current home.
A prepayment penalty is a fee your mortgage provider can charge you if you pay back your loan ahead of schedule. While this might seem counterintuitive (why wouldn't the lender want its money back sooner?), the lender will actually lose money if you pay faster because it collects less interest.
Luckily, since the passing of the Dodd-Frank Act in 2010, if there is a loan that even has a prepayment penalty attached to it, the maximum penalty period is three years. So if you purchased (or refinanced!) your home more than three years ago, you should be all set.
Title Insurance Fees
Purchasing title insurance lets the bank and the buyer know the home is truly yours to sell. This is because a title is an official document that says you legally own a home. When you ensure your title, you are protecting yourself, and everyone else in the property transfer process, just in case someone else says that they have a legal claim to the house.
The seller typically also pays for the new homeowner's title insurance. If you purchased the property within the last three to five years, you may be able to save on title insurance by requesting a “reissue rate” from your original sale.
Homeowners Association Dues and Transfer Fees
Your homeowner's association may charge a fee for transferring property to a new owner. These fees typically range from $100 to $400. Although your original purchase contract should outline most of the fees, you should reach out to your HOA during the closing process to get a better idea of what you will owe.
The closing costs for the seller also include any unpaid dues for the HOA.
In some states, a lawyer must be present at closing, while in others real estate agents will do just fine. If your state requires an attorney to be present, expect to pay anywhere from $150 to $350 an hour for his services.
Transfer Taxes or Recording Fees
Some states and counties levy a tax against property transfers. Each state (and counties within that state!) handles the tax differently, but the typical examples of taxation models can be described by these three states:
In Texas, there are no transfer taxes. Easy.
In Arizona, there is a flat fee of $2 to transfer property to another party.
The state transfer tax in Nevada is .26%. The transfer tax for countries varies based on how large the population is. If less than 700,000 people live in a county, the additional tax is .13% with an option to add an additional .1%. For counties with more than 700,000 people, the tax is .25%.
To discover your tax rate, all you need to do is add the county and state rates together. To find out more, you can visit the National Conference of State Legislatures website.
In some cases, the seller might agree to cover a portion of the closing costs that normally belong to the buyer. These are called buyer's credits. Whether or not you pay any buyer's credits, and how much they might be, depends entirely on your specific contract.