When you sell your house, there are many hidden closing costs that can eat into your profits. This article highlights what those common closing costs are. From agent commissions to transfer taxes, it’s important to be aware of all the potential expenses. One of the biggest costs you can expect is the real estate commission. This is a fee paid to the agent who represents the buyer. The commission is typically a percentage of the sale price, so it can add up to a significant amount of money. Fortunately, many closing costs are tax-deductible, and they can be offset against the proceeds of the sale. However, it’s important to be aware of all the potential costs involved so you can budget accordingly. Below are some of the most common closing costs and how you can budget accordingly:
Agent commissions:
Realtor commissions are the fees real estate agents charge for their services. The fee is typically a percentage of the total sale price of the home, and it is paid at closing. While realtor commissions can vary depending on the agent and the market, they are typically around 5-6% of the sale price. For example, on a $200,000 home, the realtor commission would be $10,000-$12,000.
Realtor commissions are negotiable, and some sellers may negotiate a lower rate. However, it is important to remember that the real estate agent is providing a valuable service and is entitled to fair compensation. It is important to understand realtor commissions so you can factor it into your budget.
Appraisal fee:
A home appraisal is an important part of the closing process on your home purchase. The appraiser will visit the property and assess the value of the home, taking into account factors such as the location, condition of the property, and recent comparable sales in the area. This appraisal will be used to determine the amount of closing costs that the buyer will need to pay. In some cases, the appraised value of the home may be lower than the purchase price, in which case the buyer may need to negotiate with the seller to bring the price down to match the appraisal. In other cases, the appraised value may be higher than the asking price, giving the buyer some negotiating power when it comes to closing costs. Either way, it is important to have a clear understanding of your home’s value before heading into closing.
Legal fees:
You may need to hire a lawyer to handle the legal aspects of your sale, or if you are selling directly to a buyer.. Their fees will vary depending on the complexity of the transaction and the location of the property. In some cases, the seller is responsible for paying all the legal fees associated with the sale, this includes any fees associated with the transfer of ownership of the property.
Title insurance:
This is a type of insurance that protects the seller against any claims made on the title to your property. It is typically required by the lender if you have a mortgage.
The exact amount you will pay as a seller will depend on the specifics of your title insurance policy. However, knowing the typical closing costs can help make sure you’re not caught off guard.
Mortgage discharge fee:
If you have a mortgage on the property, you will need to pay a fee to have it discharged. This fee is typically around $200-$300. These fees are a common closing cost associated with refinancing your home. Discharge fees are paid to the lender to cancel an existing mortgage and create a new one. The fee is typically a percentage of the total loan amount but can vary depending on the lender.
Be sure to ask about the fee and get an estimate from your lender before making any decisions about refinancing.
Property taxes:
One often forgotten potential closing cost is property taxes. Depending on the location of the property and the value of the home, property taxes can be quite expensive. In some cases, they can even exceed the mortgage payments! As a result, it’s important to be aware of the property tax situation before you purchase a property because they must be paid in full before the sale can be completed.
Credit report:
One cost that is often overlooked is the cost of ordering a credit report. A credit report is necessary because lenders use credit report scores to determine if buyers qualify for a loan and what interest rate they receive. While the cost of ordering a credit report may seem insignificant, it can add up – especially if you’re closing on multiple properties. For example, if you’re closing on a home and an investment property, you’ll need to order two credit reports. The cost of ordering two credit reports can range from $30-$50, depending on the provider.
Pest inspection:
A pest inspection can help identify any potential problem areas like termites and dry rot from pests, which could lead to costly repairs down the road. This will help uncover any hidden issues and help you with negotiating repairs or treatment prior to closing.
Recording fees:
To finalize the sale, you will need to pay recording fees. This amount is charged by your local government for registering the deed to your new home.
Utility bills:
Any outstanding utility bills will need to be paid before the property changes hands.
These are the fees associated with finalizing the purchase, and they can add up quickly. utility bills are one of the most common closing costs. If you’re buying a home that is already occupied, you’ll need to pay for the utilities that have been used, through the date of closing. This can include things like electricity, gas, water, and trash service. In some cases, you may also be responsible for paying the seller’s utility bills if they haven’t been paid up to date to ensure you can have services turned on in your name.
As you can see, there are a number of different closing costs that can add up when selling your house. It’s important to be aware of all of them so that you can budget accordingly and avoid any nasty surprises at the end of the process.
