Closing Costs for the Seller

Closing costs for sellers of real estate vary according to where you live, but as the seller you can expect to pay anywhere from 6% to 10% of the home's sales price in closing costs at settlement. This won't be cash out of the seller's pocket; rather it will be deducted from the profit on your home—unless you are selling with very low equity on your mortgage. In this case, sellers may need to bring a little cash to the table to satisfy your lender—and some closing costs may be held in escrow.

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1. Realtor commissions

One of the larger closing costs for sellers at settlement is the commission for the real estate agents involved in the real estate transaction. Commissions on real estate are negotiable and vary somewhat by market, but a typical commission is 6% of the sales price of the home split between the listing real estate agent and the buyer's agent. For a $350,000 purchase price, the real estate agent's commission would come to $21,000. Buyers have the advantage of relying on sellers to pay real estate agent commissions.

 

2. Loan payoff costs

Most home sellers often seek out a sales price for their home that will pay off their mortgage and satisfy their lenders. Your mortgage payoff balance will often be a little higher than the remaining balance on your mortgage and even the buyer's purchase price. This is because of lenders' prorated interest on the mortgage.

In some cases, your lender may require you to pay a prepayment penalty for paying off your mortgage loan before the end of the term. If you have a home equity loan or line of credit, in addition to your mortgage, the lender will require this be paid in full at settlement as part of closing costs for the seller.

Be sure to talk to your lender about what will be required to pay off the mortgage so that you get an accurate picture of closing costs.

 

3. Transfer taxes and/or recording fees

Transfer taxes, recording fees, and property taxes are key parts of a seller's closing costs.

Transfer taxes are the taxes imposed by your state or local government to transfer the title from the seller to the buyer. Transfer taxes are part of the closing costs for sellers.

Along with transfer taxes and transfer feeds, property taxes must also be up to date for sellers before they hand over keys to the buyer.

 

3. Satisfy and existing liens or judgments on the property

No matter how small a problem it may be, any title issue will need to be resolved in order to offer a clear title to the buyer. The results of the search will be compiled into a preliminary title report that will be given to the buyer, seller, real estate agent, lender and attorney involved in the sale.  If the seller is not aware that a lien or other encumbrance is attached to the property, it can take days — or weeks — to resolve the problem. The seller may have inherited the property from a trust and be unaware that one of the beneficiaries or co-owners now lives overseas and cannot be found. The co-owner’s signature would be necessary to transfer the title, and if the owner can’t be located the legal steps to remedy the problem could take months.
 

Title companies do most of their remediation work behind the scenes. You may not even be aware that some title defects existed and were taken care of before the closing. Other times you may be asked to sign a document to remove or release the lien or title defect. Many title issues can be resolved by filing one of three common documents:
 

• A quit claim deed removes an heir and clears up title among co-owners or spouses.
• A release of lien/judgment removes a paid mortgage or spousal or child support lien.
• A deed of reconveyance records payment of a mortgage under a deed of trust.

 

4. Title insurance fees

Title insurance fees are another fee to keep in mind when you sell real estate. As part of closing costs, sellers typically pay the buyer's title insurance premium. Title insurance protects buyers and lenders in case there are problems with the title in a real estate deal. Mechanic’s liens are common. They are liens placed against a property that a general contractor — or anyone who provides services to improve the property — files before starting the work. It’s a way to ensure that they will get paid; the lien is supposed to be released when the job is done.

 

Additional closing costs for sellers

Additional closing costs for sellers of real estate include liens or judgments against the property; unpaid homeowners association dues; prorated property taxes; escrow fees; and homeowners association dues included up to the settlement date. These closing costs for a home sale are separate from what buyers pay at closing.

Depending on the real estate contract, closing costs may also include termite inspection and remediation, if necessary; home warranty premium for buyers; and repair bills or a credit to buyers for repairs for items found during a home inspection.

Also, don't forget to estimate some of the closing costs associated with preparing to sell, such as cosmetic repairs or improvements to make your home more attractive to buyers. Those closing costs may be returned with a higher sales price, but you should still include them in your calculations.