Buying and selling real estate cost more than simply the exchange of how much the property cost and how much the seller receives. There are a lot of parties involved when it comes to selling and buying and transferring real estate and all of those costs are called "closing costs".
When you first have an accepted offer you open escrow, meaning your earnest money deposit goes into a separate escrow account handled by an escrow or title company and then went all of the documents are completed, everything checks out, everything is signed, then you close escrow, also called the closing and therefore incurs closing costs.
There are a lot of different fees included in closing costs such as courier fees, title search fees, escrow fees, commissions and more. They may include but are not limited to:
- Deed transfer tax
- Recording fees
- Title insurance, title search, and premiums
- Settlement fees
- Loan application and origination fees
- Points for the loan
- Appraisal fees
- Potential surveys
- Home inspection (this may or may not be included in closing costs but may be paid directly to the inspector)
- Homeowner association fees or prorated fees
- Pay off of existing liens
- Brokerage commissions
- Potential attorneys fees
- Mortgage payoff penalties if applicable
all of these fees may or may not be included in your closing costs to depending on the type of transaction. For VA loans, sellers pay the majority of the closing costs. In USDA loans, sellers may or may not agree to pay for closing costs but in most cases, for traditional, conventional, and FHA loans, both the buyer and the seller have their own closing cost fees.
Many times, these fees can be built into the purchase price of a home. For instance, if the home is listed at $300,000, a real estate agent may build in closing costs to the offer. They would submit an offer to the seller for $310,000. The extra $10,000 would cover closing costs and basically the buyer would finance their closing costs in with the home. However, the home must appraise for the inflated amount. If the home can appraise for $310,000, chances are the seller will accept the offer. If the appraisal does not come in at the requested amount, the buyer will then either need to come up with the difference or ask the seller to pay the difference.
- The seller, buyer, or sometimes both will pay a transfer tax, recording fees, settlement fees, and potentially any attorneys fees.
- The buyer will typically pay for any prorated building or homeowner association fees, surveys, the appraisal, home inspection, loan application and origination fees, and points. The buyer may also pay for a title search and title insurance.
- The seller will typically pay for any existing liens, real estate brokerage commissions such as buyers agent commissions and listing agent commissions, and their mortgage payoff penalty if it applies.
These closing costs will either be built into the purchase price of the home and finalized upon closing, when buyer and seller sign the final documents, or buyer and seller will need to bring money to the closing table. This can be in the form of a cashiers check, money order, or sometimes even a personal check.
If you have more questions on closing costs, who pays what, and any unusual fees you might see on your closing statement, feel free to leave us a comment below or contact our office and speak to an agent directly.