Now that things in the housing market seem to be stabilizing and prices are on the rise, have you been thinking about selling your house? If so, understanding the costs involved in selling your home is important, as it will allow you understand what your bottom line net proceeds will be at closing. Whether you have equity in your home or you are a homeowner needing to break even, this article will help you understand what the costs are. It will also let you know which costs you may be able to split with a buyer and what costs the buyer or the buyer’s lender will want you to pay.
When you consider realtor commissions, property taxes, title insurance fees and other miscellaneous closing costs, it is important to know what percent of your home’s sale price will be spent on these costs.
Therefore, a big question is being able to answer what your net profit will be when you walk away from the closing table. What expenses will you have to pay when you close? While costs vary from state to state, there are general and customary fees that are typically paid by the seller. If you are considering selling your home, your real estate agent should be able to give you an Estimated Net Proceeds worksheet that will estimate your total costs. However, if you want to do some homework before listing your property, here is a list of some of the costs you can anticipate.
Mortgage payoffs: You will need to pay off all mortgages on your home. This includes your first mortgage and any second mortgage or home-equity line of credit. It is important to understand the costs in a payoff. While you may be getting a mortgage statement every month that tells you what your principal balance is, you need to understand the principal balance is not the total amount owed. The interest paid on a mortgage is paid in arrears. When you make your mortgage payment, the interest paid with that payment is for the preceding month. The payoff will include all interest through the actual date of closing. Additionally, if you have a negative escrow balance, that balance will be included in your payoff. If you did not have enough money in your escrow account to pay your property taxes and homeowner’s insurance in full when they were due, you will owe the shortage. There may also be additional fees added for a mortgage release fee, late fees, and a payoff statement fee. What this all means is the actual payoff of the mortgage loans is higher than the unpaid principal balance of the loan.
Prepayment Penalty: If you are unsure whether you will be charged a pre-payment penalty to pay off your loan prior to the loan’s maturity date, it is suggested you contact your lender to see if a pre-payment penalty will be charged. During the housing surge many loans were made that included a pre-payment penalty clause. This means that if you paid your loan off prior to a certain date, you could be charged a prepayment penalty fee for an early payoff. This might be a percentage of the remaining balance or a flat fee. Find out from your lender if you will be charged a pre-payment penalty.
Liens and Judgments: If you owe money to an HOA or a contractor for work done on your home, or if you have unpaid bills that have gone to collection, it is possible that liens or judgments will have been placed against your property. These liens will have to be satisfied prior to, or at closing. If amounts are owed, they will have to be paid from sales proceeds.
Real Estate Commissions: As the seller, you are responsible for paying the real estate commissions to the listing and selling agents who sold your home. The typical fee is six percent of the purchase price of the home and is split evenly between your listing agent and the buyer’s agent.
Escrow Fees: The title, or escrow company, who handles your closing, is hired to be the intermediary between you and the buyer. They ensure the real estate transaction is handled properly. This includes making sure the money is received from the buyer or their lender and the funds are properly disbursed to ensure your lender(s), and creditors if any, are paid in full so the liens will be released and the property will be transferred without encumbrances. You may be able to negotiate these fees with the buyer so the buyer pays half or some of these fees. This is something you should discuss with your Realtor.
Title Fees: Title insurance fees are paid to ensure you have the legal right to sell your home. Title companies search public records to ensure you are the legal owner of the property and to determine any encumbrances that are on the property. Once the search is complete, they issue a Title Commitment that says you are the legal owner of the property, details anything that might affect the title and outlines what must be cleared to transfer the title. This can include mortgages, liens, judgments, easements, covenants and restrictions, and any homeowner association declarations.
Seller Concessions: Buyers have closing costs too and seller concessions help buyers pay for their closing costs. Seller concessions are very common today because of the costs of obtaining a home mortgage. It is not uncommon for buyers to ask for three percent, or more, of their loan amount in seller concessions. If you agree to pay for the requested seller concessions, this amount is what you will give the buyer to pay some, or all, of their closing costs.
Property Taxes: In many states, property taxes are paid in arrears. Even if your property tax bill has been paid in full for the previous year, you will still be responsible for paying pro-rated property taxes for each day you own the property up until the day of the sale. If the current year’s taxes have not been fully paid, you will have to pay both the property taxes that are due for the preceding year and the pro-rated taxes for each day up to the date of the sale.
Repairs: A buyer may require you to pay for repairs that are needed on the property. This may be something you can negotiate or it may be something the buyer’s lender requires in order to provide financing to the buyer.
Home Warranty Fees: Many homebuyers want a home warranty that offers them a protection plan for their first year in the home to cover any unforeseen issues with the property. This is a negotiable fee and not always required.
Miscellaneous fees: Miscellaneous fees can include things like recording fees, notary fees and possibly a Termite Letter if this is required in your state or for your buyer’s lender.
Earnest Money: In each case, you will be asked to make a deposit on the purchase of your new home once your offer is accepted. This practice is to insure your serious intent to actually buy the property and acts as compensation to the seller for lost time on the market should you back out of the offer. For a $100,000 home the earnest money is around $1,000. For a $200,000 home the earnest money is around $2,000. The deposit of earnest money goes towards your down payment if any. If there is no down payment, then the earnest money may be returned back to you.
Appraisal: This cost can be wrapped in your seller concessions. The appraisal is a very important part of the lending process. It determines if the home is actually worth the price that you have agreed to pay. The appraisal protects you and the bank from overpaying. You may expect your appraisal to cost between $300 and $500.
Credit Report: Accessing your credit report costs money. This is a fee that your lender will pay for during your loan approval process.
Home Inspection: The Home Inspection is a voluntary process. You are not obligated to obtain a home inspection but it is very highly advised that you pay for this option. This will notify you of any damages or maintenance issues with the home. The home inspection report is often used to negotiate with the seller for some needed repairs. Inspection costs range depending on how many inspections you do. The average cost is $300 but can go as high as $2000 or more depending on what you do.
Loan Closing Costs: Loan fees and costs should be discussed with your lender. These fees are not paid up front but should be discussed. Depending on the type of market we are currently in, closing costs may be negotiated with the seller. If the seller does not pay your closing costs you can expect to pay $3500 or more on lender closing costs.
Termite Inspection: May be required for an FHA loan. Typical cost is $150.00