How Much Does it Cost to Sell a House?
What are the costs to sell a home? Most homeowners are going to want to have at least a rough idea of the closing costs and associated expenses when selling their property.
As a home seller, you are going to have to pay a variety of closing costs when you finalize the sale of your home. These home selling expenses vary by region and can range from affordable to quite expensive – so it is important that you understand what your obligations are likely to be before you move forward with your sale.
There are quite a few costs in selling a home with the most significant being the real estate commission. There are, however, other charges involved with selling a house you may not know about.
It can be upsetting to be at the edge of transferring ownership of your property, only to be surprised by different fees. Avoid such surprises by learning about the common closing costs for sellers and by having a talk with your agent about what your specific closing expenses are likely to be.
Seller Closing Costs – What You Need to Know
Home sales are big financial transactions where a lot of money is at stake – which is why they are so carefully regulated and require so many steps to complete. You want to be as certain as possible that once you sell your home you can walk away without any more concerns. It is totally understandable that a seller would want to wrap their head around how much it costs to sell a home.
Let’s look at the basics of closing costs, including the common ones that you are likely to run into so that you can close your sale with confidence.
What exactly is “closing”?
When you close a home sale, you go through the process of transferring documents and money between the buyer and you so that you both fulfill your obligations as defined by your sales contract.
The process includes having you pay off all of the loans on your home so that the title is clear and having the buyer transfer you the money so that the balance owed on the property is paid off.
The buyer typically will have had earnest money held by either your real estate company, attorney or title company. The earnest money was security they would perform under the terms of your contract.
This whole closing process is handled by a title company or the buyer’s lender along with an attorney. These parties make sure that all the documents and money are exchanged properly.
What are closing costs?
You know about the commission you will be paying the agent you hire and the buyer’s agent – typically somewhere between 2%-3% for each of the agents. The other way the commission could vary is if you are selling as a for sale by owner and only pay a buyer’s agent or you went with a flat fee MLS entry only agency. Your selling expenses in these situations could be lowered.
Closing costs are all the other fees that are needed to finish up the sale, although depending on who you ask, some will tell you that closing costs include the agent commission.
For our purposes, we are going to consider closing costs all the fees that are incurred in addition to the commissions. In general, the total costs for closing a home sale after agent commissions range between 1% and 7%. However, you only pay around 1% to 3% as the seller.
There are a variety of different fees that you could wind up paying as the seller depending on where you are selling your home. Your particular situation could also vary if you are selling a condo vs a home or you are selling a home in a community with a homeowners association (HOA).
The most common closing costs for a seller include:
- Transfer tax
- Escrow fees
- HOA fees
- Attorney’s fees
- Prorated property taxes
- Credits towards closing costs
- The outstanding amount owed on the property
Title insurance and appraisal fees are potential closing costs for a seller buy it’s far more likely the buyer will be paying them.
Let’s review some of these more thoroughly.
Title Insurance – Around $1,000-$4000
The cots of title insurance vary from state to state and also based on the sales price of the property. First American Title offers a nifty title insurance calculator to help figure out the cost. For the buyer, finding out that there is a problem with the title of the home you sold them could be a huge headache.
There are two types of title insurance policies. One is called a lender’s insurance policy and the other is called the owner’s policy. Lender’s title insurance will be found in all transactions with a lending institution involved. The owner’s title insurance, on the other hand, is optional.
As a real estate agent, I always recommend buyers have title insurance. If there is something that goes wrong like if someone else can come in and claim that they own the home, the buyer will have an insurance policy to cover their legal costs.
Title insurance offers protection from someone else who can claim ownership over the property, either because of a dispute over the property or because of unpaid liens from contractors, credit institutions, or even the government.
Appraisal – $450 to $650
Most of the time, the buyer will be the one paying for the real estate appraisal. But there are times where you might wind up paying for the appraisal, such as if you are in a buyer’s market and you really need to get your home sold. If all it takes is paying for the appraisal, you might want to do it.
The appraisal determines the current market value of the home. The appraisal is extremely important because the buyer’s mortgage depends on it – if your home appraises for less than the amount the buyer offered you for the home, the lender won’t hand over the money. So you want an appraisal that hits somewhere near the buyer’s offer.
Sometimes fighting a low appraisal is necessary if there is a blatant mistake on the appraiser’s part. Most of the time, fighting an appraisal is not successful.
Transfer Tax – Highly variable cost
Sometimes called a title fee or government transfer tax, this is the tax amount that you will pay when the home’s title transfers from you to the buyer. The amount of the tax is determined by state law, so it depends on the laws of your state whether you will pay a little or a lot. The transfer tax for a median-priced home in Denver is $36, while it is $8,654 in Seattle.
In Massachusetts, this fee is what’s referred to as a tax stamp. It amounts to 4.56 for every thousand in the sale price. So, if you sell a $400,000 home you will pay $1824 for the privilege of selling your home. It is one of the most significant fees in transferring property.
This fee is one that you will definitely want to research now before you close the sale. As far as closing costs for a seller goes, this is one if often unexpected.
HOA Fees – Variable
Whatever fees you owe up to the closing date will need to be paid for you to transfer ownership of the property. You may also find that you need to pay a transfer fee to your HOA to transfer the property. One of the more common expenses for a person selling a condominium is what’s referred to as a 6D certificate. The 6D tells the buyer and their lender that you do not have any outstanding condo fees owed to the association.
In other states, the 6D may be called something else.
Attorney’s Fees – Variable
Depending on the state you are selling your home in, you may be required by law to hire an attorney to oversee the sale. Even if you are not required to hire an attorney, you may want to do so if you are making a complex transaction – like if you are purchasing a distressed property or dealing with inherited property. You can expect to pay somewhere between $400 and $1200 for an attorney to review documents and attend the closing on your behalf.
Washington D.C. and 21 states typically see an attorney handling a real estate sale. These include:
- New Hampshire
- New Jersey
- New York
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
Some sellers will try to save money by not using an attorney. A big mistake! An attorney is the best insurance policy for protecting your best interests in a real estate transaction.
Prorated Property Taxes
As a property owner, you are required to pay property taxes each year. How much you pay will vary widely depending on the location of your home. When you sell your home, you will be expected to pay the property taxes that have accrued up to the closing date. The property taxes after the closing date will be the responsibility of the buyer.
Quite often buyers will find their assessed value being adjusted after the sale. More often than not the taxes will go up in the calendar year after your purchase. Sometimes the increase in taxes is not justified. You may find yourself in a position that you’ll need to challenge the high tax bill.
Credits Towards Closing Costs
If you are selling in a market where buyers have the upper hand, you may have to offer them something extra to encourage a sale. Many sellers decide to offer to pay some of the buyer’s closing costs in this situation. They are often referred to as closing cost credits. If you are going to pay a portion of the buyer’s closing costs you will do so at the closing.
Outstanding Amount Owed on the Property
You could have any number of costs associated with the ownership of your house, such as dues for your HOA, utility bills, homeowners insurance, and other fees. You will be required to take care of all of these obligations before you transfer the property to the buyer.
If you are uncertain about which fees apply in this situation, just ask your real estate agent. They can help you figure out all your applicable costs and determine what your final bill will probably look like.
Escrow Fees – $500 to $2,000 or 1% of sale price
In some states, escrow accounts are held by a third party that protects the buyer and seller – keeping either from escaping with the other’s money. The escrow account for your home’s sale will hold the money from you and the seller related to the transaction. Once the legal documents have all been squared away, the money will be used to pay for fees and other costs. Escrow and earnest money should not be confused with a buyer’s down payment.
The fees for escrow are split between you and the buyer, usually 50-50.
Other Home Seller Costs
There are other house selling expenses you will need to remember as well that will take place outside of your closing. Keeping tabs on these will be especially important to make sure you get your house tax deductions come April. These additional expenses include the following:
- Moving expenses – Anyone who has moved before knows just how expensive it can be, especially if you are moving across the country. You will be paying a moving company thousands of dollars along with a moving tip if they perform up to your expectations. Even when you try to save on costs and rent your own moving truck, it can still be expensive.
- Home improvements – did you make any significant improvements to your home? Make sure you figure out what they are as they can potentially contribute to bringing down your tax bill. Even if there are no deductions, you’ll want to have a handle on the expenses that were necessary to get your property ready to sell.
- Home inspections – sometimes sellers will decide to do a home inspection of their property before putting it on the market. Doing so prevents any surprises and allows for a seller to make necessary repairs to avoid scaring a buyer away from purchasing. You can expect to pay somewhere between $400 and $1000 depending on your location and size of the house.
- Pre-payment loan penalty – while not all that common in today’s mortgages, you need to make sure there are no pre-payment penalties with your mortgage.
Talk to Your Agent Now About Closing Costs
There is no reason to go into the closing without knowing what your closing costs are going to be. Your agent can help you out here. Just tell them that you want to estimate your closing costs and they can take you through the process. Any real estate agent worth their salt should be answering how much it costs to sell a home upfront.
About the author: The above Real Estate information on how much are closing costs for a seller was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 33+ years.
Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.