Imagine if buying a gallon of milk was the same as buying a house. Can you imagine going to the check-out counter with your half-gallon of 2% chocolate milk and saying, “I’m going to pay you 25 cents less than the asking price for this milk, but I will pay you in cash right now for it.” Or “There is a lot of milk on the market right now, so I will buy this milk from you, but you have to pay for the gas that I used to get to the store.”
As ridiculous as it sounds, this is how the home buying process works. Depending on whether it is a buyer’s or seller’s market, there can be a lot of wiggle room in the price of homes. Part of the negotiation process involves which party pays for the closing costs.
If you are a homeowner who is selling your property, you may be asked to pay for most of the closing costs because your buyer may be tapped out after gathering up enough cash for a down payment, inspections, and moving expenses.
Here are some of the closing costs you as a home seller may be asked to pay.
Real Estate Transfer Tax
Most states have this fun little tax that is incurred when a property changes ownership. In some states, this real estate transfer tax is split between the buyer and the seller, but in some states, the seller is the one stuck with the tax bill.
Your buyer’s mortgage company will require that your buyer have title insurance for the property. This one-time fee is used to research the title to see if it has liens against it. Some of the most common issues that come up during title searches are unpaid taxes or ownership complications due to divorce or death.
It takes a village for a piece of property to change hands. One person who plays an integral part in the process is the third-party escrow representative who holds the money while the transaction takes place. This person needs to be paid, and the seller may be the one writing that check as well.
Real Estate Commissions
Typically, homeowners pay 3% of the purchase price to their listing agent and 3% to their buyer’s agent. To see how working with a reduced-commission agent can help save the seller money during the closing, check out this home selling calculator.
There are other expenses that the homeowner needs to be aware of that come due at closing. You may have had to hire an attorney to walk you through the home selling process, and he or she will need to be paid.
You also may need to pay prorated property taxes or home association dues before the property switches hands to the new owner.
If you are a seller, you need to be prepared to pay between 8 and 10 percent of the negotiated price of the house in closing costs. And believe me, that total will cost a lot more than a half-gallon of chocolate milk.