How Much Does it Cost to Sell a House?
What are the costs to sell a home? What are the sellers closing costs? Most homeowners will want to have at least a rough idea of the closing costs and associated expenses when selling their property.
One of the questions that real estate agents often get is who pays what in closing costs.
As a home seller, you will 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 you must understand what your obligations are likely to be before you move forward with your sale.
There are quite a few seller closing costs, 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 your property ownership, only to be surprised by different fees.
Avoid such surprises by learning about the common closing costs for sellers and talking with your agent about what your specific seller closing costs are likely to be.
Understanding who pays specific closing costs is worth knowing as it will likely be some serious money to overlook.
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.
Selling closing costs are not something you’ll want to be surprised about.
You want to be as certain as possible that you can walk away without any more concerns once you sell your home. Understandably, a seller would want to wrap their head around how much it costs to sell a home.
In fact, both buyers and sellers want to know who pays what in closing costs.
Let’s look at the basics of selling 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 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 agent.
Your selling closing expenses in these situations could be lowered.
Closing costs are all the other fees 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 will 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 various fees that you could wind up paying as the seller, depending on where you are selling your home. Selling closing costs 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 but it’s far more likely the buyer will be paying them. Again, who pays the closing costs could vary slightly from state to state.
Let’s review some of these seller’s closing costs more thoroughly.
Title Insurance – Around $1,000-$4000
The cost of title insurance varies from state to state and based on the property’s sales price. 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 something 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. Again, title insurance is not a common sellers closing cost.
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 critical 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.
It is possible if you need to challenge the appraisal, it could become a sellers closing cost that is transferred to your side of the ledger. Paying the fee will certainly be worth it if you hope to keep the buyer in the sale.
Transfer Tax – Highly Variable Cost
One of the most significant sellers closing costs besides a commission is transfer taxes.
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 your state’s laws 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 go, this is one if often unexpected. Quite often, homeowners find out about this seller closing cost at the last minute and are very disappointed.
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
Another common closing cost for a seller is lawyer fees. 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. A selling closing cost that is well worth it to protect your interests.
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.
Having been in the real estate industry for the past thirty-four years, I would never recommend to a seller to try to avoid this sellers closing cost. Using an attorney to protect your interests in the sale is the best money you could ever spend.
Prorated Property Taxes
Another sellers closing cost is paying a portion of the 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 accrued 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. Ensure you don’t forget about this closing cost because it probably won’t be a small amount of money.
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 transferring 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 them 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 escrow fees are split between you and the buyer, usually 50-50.
Part of a real estate agent’s job description is to calculate closing costs for a seller. This is known as a net sheet. Preparing this for an owner helps them better understand their selling closing costs.
Other Home Seller Costs
While there are numerous sellers closing costs, there are also other house selling expenses you will need to remember that will take place outside of your closing.
Keeping tabs on these will be especially important to ensure 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? Ensure 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 necessary expenses 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 the house’s size.
- 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 will 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.
Hopefully, you have found this guide to sellers closing costs to be useful.
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 34+ 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.