Closing Costs – Who Pays What? A Complete Breakdown
Congratulations on making the decision to buy or sell a home! It’s an exciting time. Whether you’re buying/selling for the first time or looking to flip one of countless properties that you’ve invested in, it’s good to remember who pays closing costs in this situation. It may seem like a minor part of the overall equation, but the people responsible for facilitating the sale of the property are bound by the laws and the traditions of real estate. Their services cost money that must be paid in the here and now once the time comes.
What are Closing Costs?
Knowing what the closing costs are when considering the sale of a property is
an important part of the process. They’re mostly costs related to the creation
of a mortgage, though if the property is being bought with cold hard cash, this
can de-complicate the process a bit. There are a lot of administrative tasks
that must be completed during this loan creation process. So every time someone
carries out a task that contributes to an ultimate loan agreement, there will
be a fee associated with its execution.
In addition to the first ‘origination fee,’ there
will also be fees associated with the loan ‘approval process.’ There’s also a
cost associated with mortgage underwriting. Mortgage underwriting is simply a process
the bank or lender uses to evaluate the risk associated with lending a
prospective buyer the money needed to buy a particular property. If the buyer
meets all the requirements for the type of mortgage being pursued, then they
will happily green-light the loan.
Who Pays What?
Real Estate Fees
These fees can be high or low depending on the realtors involved, their
reputation, and what your original agreement with them states. Usually the fee
a seller will pay to their real-estate agent will be anywhere between 5-6
percent of the final selling price, but sometimes these fees can be higher.
The buyer’s real estate also gets a commission for
helping facilitate that end of the deal.
Most of the time the buyer pays these fees, but depending on the terms of the agreement the seller could potentially pay this fee as well. In any and all instances where the seller pays for something that the buyer traditionally pays for, it is referred to in contracts as either ‘seller contribution’ or ‘seller concessions.’ So be sure to watch out for that when looking over contracts.
Appraisal
The seller must make sure their home is appraised properly. An appraisal is an
unbiased estimate of the ‘fair-market’ value of a given home. Lenders will
require this information during the loan approval process, so it helps if the
seller has already taken care of this in advance. Banks will be more likely to
approve a mortgage if they believe that the home’s final sale matches what the
market truly reflects.
But how is an appraisal made? There are a number of factors, and they all can affect who pays closing costs and who doesn’t. Most appraisals focus on these areas: location, the quality and condition of construction, and other amenities or special features the home offers. The person appraising the house remains as objective as possible throughout the process and must not be related in any way to either the buyer or the seller to prevent a conflict of interest.
Title
Transfer, Taxes, Utilities, and Moving Costs
These
costs essentially smooth the transition from the seller to the buyer based on
when the closing actually happens. Usually this means that the seller will pay
up until the end of the month any utilities, taxes, and the cost of the lawyer
that will actually legally transfer the title of property from one party to
another. These fees are relatively small when compared to the other costs
involved in a given sale.
Moving expenses, on the other hand, can be very costly and must be considered in advance of the final closing date. A common mistake that sellers make is not to account for these additional costs. Maybe storage units will be needed. The movers that you use will most likely charge more based on how far away they’re moving every material thing that you own. It’s very rare that a seller can get away with moving out and selling a property without hiring professionals, but sometimes it can be done if it’s a short distance. Don’t count on that option though.