The real estate market provides huge profit potential for sellers, as long as the seller takes the right approach. According to the 2016 National Association of REALTORS Profile of Home Buyers and Sellers, 51% of homebuyers will use the Internet to find their ideal home, whereas 34% will use the services of a real estate agent. The remaining percentage of buyers will make an investment move after seeing a yard sign, hearing about the real estate listing from a family/neighbor/relative, or will know the seller directly.
No matter how you intend on attracting a buyer (if you are a seller) or searching for the ideal home (if you are a buyer), it is important that you are aware of the fees involved once a selling price has been determined. Unless you understand what the typical closing cost includes, there is a chance you may be left surprised with unexpected costs.
Familiarize yourself with the process of closing a real estate transaction to eliminate surprise once the home ownership is shifted from the seller to the buyer.
Typical Buyer’s Closing Costs
- The Down Payment - This is the initial payment a buyer will make to reserve the home. A larger down payment means reduced loan interest, so aim to put down as much as possible.
- Loan Fees – A lender will assess your credit score and charge a fee to process the loan application.
- Prepaid Interest - When daily interest builds on your loan, this must be paid at the time of closing. Once again, the amount depends on your credit report and financial situation.
- Inspection Fees – A property inspector will charge this fee to assess the condition of the property. This service is valuable since it aids the buyer in making a final decision.
- Appraisal - The fee charged by a qualified appraiser to determine a property’s market value.
- Mortgage Insurance – Should a mortgage loan default, mortgage insurance will cover it.
- Hazard Insurance – Damage caused by Mother Nature, vandalism, theft, or unintentional circumstances can be repaired, with costs covered by this insurance policy.
- Title Insurance – A kind of indemnity insurance that shields a buyer and lender if the seller is unable to transfer home ownership.
- Documentary Stamps - Documents that transfer real estate interest must be stamped, so that the excise tax can be imposed properly.
Typical Seller’s Closing Costs
- Broker’s Commission – Every realtor will charge a different percentage of commission on the final property sale value. This will be deducted at the time of purchase.
- Transfer Taxes – Consider this a transaction fee for transferring home ownership from you to the buyer.
- Documentary Stamps on the Deed - This is a tax on documents detailing the transfer, sale, acceptance, or loan agreement for a property.
- Title insurance – Indemnity insurance is equally as important for the seller to pay, as it is for the buyer.
- Property Taxes – Property expenses must be divided fairly to ensure the buyer is only paying from the moment he/she claims home ownership. This is guaranteed when property taxes (a proration) are paid.
Calculating the closing costs prior to making a property purchase or agreeing to a sale will ensure you are satisfied with the outcome. Use the Internet to your advantage at this time, by estimating the costs with an online calculator. A few influential factors include the condition of the house, its size, and the features (interior and exterior).