A ‘for sale’ sign and a ‘pending sale’ sign are pictured in Salt Lake City on Monday, Oct. 18, 2021. Salt Lake City ranks second in the nation for the highest increase in home sale prices according to a recent RE/ MAX National Housing Report. (Kristin Murphy, Deseret News)
Estimated reading time: 5-6 minutes
WASHINGTON – With the current seller’s market, along with high demand and low inventory, many homeowners are considering putting their homes up for sale.
But beware – if you’re ready to find an agent and put your home up for sale, there are many hidden costs involved in selling a home that you’ll want to be prepared for in advance.
You want to avoid surprises in the home selling process and understand the ins and outs of closing costs for sellers – from what’s included to how to negotiate a better deal.
For starters, closing costs are the various fees paid, some by the buyer, some by the seller, in order to complete the home buying transaction. Many people are aware of closing costs for buyers, but may not realize what closing costs entail for sellers.
Here are some fees that landlords should be aware of when preparing to make a deal.
The most significant cost that home sellers are responsible for is agent commission fees. Commission rates are typically around 5-6% of the final sale price, split between the buyer’s and seller’s agents. So, on a $300,000 house, the commission fees could total $18,000.
Once you have officially transferred ownership of a home, the state, county and/or city where the property is located will charge taxes and fees. Although sometimes these costs are shared, it is quite common for the seller to cover these costs. These taxes are usually represented as a percentage of the final sale price and vary by state and location.
A title insurance policy protects its owner against disputes concerning home ownership.
There are two types of title insurance: lender’s (which protects the lender) and owner’s (which protects the owner). Buyers are required to pay the lender’s title policy, which is normally required for anyone receiving a mortgage. However, who pays for homeowner’s title insurance depends on the state the property is located in.
The escrow process begins when a buyer makes an offer on a home. The ‘good faith deposit’ or ‘earnest money’ amount shows that they are serious about buying the property and are deposited in an escrow account controlled by an impartial third party.
This unbiased third party (aka the escrow company) charges a fee for its services in setting up escrow. Typically, these costs are split 50-50 between buyer and seller and vary depending on the location of the property.
Real estate transactions are complicated, and a seller’s lawyer will help them go through the paperwork and make sure they don’t fall victim to any loopholes.
Although buyers and sellers are not required to hire an attorney in some states, it is always a good idea to hire one to review the final contract. Make sure, however, that you are willing to pay for their time. Lawyer fees can vary between $150 and $500 per hour for a good lawyer.
Unpaid Effects and Liens
It is the seller’s responsibility to pay pro-rated items such as property tax and utilities. The seller must generally pay them until the date of sale, at which time the buyer bears the costs. Sellers will also be responsible for outstanding judgment or liens on the property before proceeding with the transaction.
How to Calculate Closing Costs
Average closing costs for sellers range between 8% and 10% of the final sale price once all is said and done, so it’s important to factor these funds into your overall moving budget. Additionally, these costs vary depending on the state the seller lives in and are heavily influenced by local laws and regulations.
For example, in Florida, it is customary for the seller to pay most of the closing costs to finalize the transaction and bear most of the financial burden in doing so. However, sellers generally receive a larger payment in Florida because real estate prices are higher. On the other hand, in Alabama, for example, closing costs are traditionally split more evenly between buyer and seller.
Sellers should also consider additional costs, such as home repairs and mortgage payments, when calculating how much they will pay to sell their home. Sellers will often make cosmetic or even structural improvements to a property before listing it for sale to attract buyers quickly. And they will also have to pay off the rest of their mortgage and accrued interest to officially move out.
All of these costs can add up quickly, so it’s important to track your expenses and try to stick to a budget.
How to lower your closing costs
There are several ways for home sellers to save money on their closing costs, especially in a seller’s market. When inventory is low and demand is high, owners have more leverage in the negotiation process and may even ask the buyer to cover some costs. In fact, sellers can refuse to pay closing costs if they think they can get a better deal from another buyer.
However, covering some of your buyer’s closing costs doesn’t have to be a bad thing. Under the right circumstances, this could help a seller save money in the long run if a buyer’s overall offer is strong enough. Some things to consider when deciding whether to pay closing costs include:
As this seller’s market continues to grow, some experts are predicting a real estate crash. All the more reason to be aware of things and ready to sell your house quickly if the opportunity arises.