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The costs involved in buying and selling a home are often negotiable as part of the real estate deal. For example, a buyer may be willing to offer the full asking price, as long as the seller is willing to cover the cost of a home inspection and deed transfer tax.
Who pays certain fees? Depends on location – states have different real estate laws, and counties or cities may have their own standard practices for real estate transactions.
Here’s a breakdown of what buyers and sellers can expect to pay when closing on a home sale.
- Deed transfer tax.
- Recording fee.
- Title search and title insurance.
- Settlement fee.
- Loan application fee.
- Loan origination fee.
- Points.
- Home inspection.
- Appraisal.
- Survey.
- Building or homeowners association fees.
- Existing liens.
- Real estate brokerage commissions.
- Attorney’s fees.
- Mortgage payoff penalty.
Transfer Tax
Who typically pays? Seller, buyer or both.
Often referred to as the deed transfer tax or real estate transfer tax, this is a required fee that’s separate from property tax. The transfer tax is levied for the transfer of the deed to new ownership, and the buyer and seller may negotiate who covers the total cost.
Recording Fee
Who typically pays? The seller, buyer or both.
The recording fee can be levied by the state or local government to cover the cost of filing the deed and mortgage information in the public record. In many state and local governments throughout the U.S., the transfer tax and recording fee are one and the same, while others keep the two required payments separate. While the transfer tax is a percentage of the sale price, the recording fee is typically a flat amount.
Title Search and Title Insurance
Who typically pays? The buyer.
Before you take ownership of a property, it’s important to make sure there aren’t any existing liens or other claims of ownership. Title insurance protects you from future claims to the property and often includes the cost of the title search. Homebuyers can purchase title insurance for their own protection at the same time they pay for title insurance for their lender, which is often a required step in getting a mortgage and similarly protects the lender from claims to the property.
The cost of title insurance varies based on the value of the property, but many homebuyers pay between $1,000 and $2,000. Lenders and real estate agents often have title insurance companies they work with regularly.
Settlement Fee
Who typically pays? The buyer or seller.
A title insurance company, escrow agent or attorney may handle the transfer of funds in the sale of a property and charge an additional fee for the work done at closing. The settlement fee could be directed at the buyer, seller or both. However, this fee, which may be included in title charges or attorney’s fees and is often at least a few hundred dollars, This also can be negotiated between the buyer or seller to sweeten the deal beyond the sale price.
Loan Application Fee
Who typically pays? The buyer.
Some lenders levy a fee upon formal application for a mortgage, primarily to ensure the buyer is serious. This is a flat fee, often as small as $25.
Loan Origination Fee
Who typically pays? The buyer.
Loan origination typically covers the underwriting process – when the lender determines whether you are worthy of a mortgage. Your lender may charge separately for various costs that would otherwise fall under loan origination – namely, the credit check to determine your creditworthiness for a mortgage. Other lenders keep the credit check “fully lumped into one fee. Loan origination fees are around 1% of the total mortgage amount.
Points
Who typically pays? The buyer.
At closing, a homebuyer getting a mortgage may pay additional fees to the lender to reduce the interest rate for the loan. One point is the equivalent of 1% of the loan, so if you’d like to pay down 2 points of a $300,000 mortgage, for example, you would pay $6,000 for your interest rate to drop from 4.5% to 4%, though how much the interest rate drops depends on you and your lender. Paying down the interest rate with points isn’t required, however. It’s solely based on cash the buyer has available and is willing to pay at the time of closing. Paying points can be a valuable tool for reducing the total cost of the loan, although it does increase what you pay at closing.
Home Inspection
Who typically pays? The buyer.
During the due diligence period before closing, a certified professional often conducts a home inspection to check the condition of the home and point out maintenance issues, necessary repairs or possible code violations. Some lenders require an inspection to check for defects that may not be apparent in an appraisal, but buyers often opt for an inspection to learn what repairs will be needed after they get the keys. While the cost of inspection typically falls to the buyer, this expense is negotiable. A home seller may also choose to have a prelisting inspection, which the buyer can accept or opt for additional inspection during the due diligence process. Reports the typical price range for a home inspection is between $278 and $390, but it varies depending on the inspector and size of the home.
Appraisal
Who typically pays? The buyer.
Many lenders require an appraisal to determine the property’s value before approving a purchase loan and to ensure it matches or exceeds the agreed-upon sale price. An appraisal helps reduce the lender’s losses in a the scenario where the borrower defaults on the loan.
Survey
Who typically pays? The buyer.
If there’s any confusion about where the property starts and ends, a property survey may be necessary. To determine the definitive boundaries of a property, it’s typically best to contact a professional surveyor who can follow the precise measurements of the property’s legal description. Also, a survey may be required by the lender, which naturally falls to the buyer to pay. However, this expense may be negotiated to become the seller’s responsibility.
Building or Homeowners Association Fees
Who typically pays? The buyer.
If the home you purchase is part of a community managed by a homeowners association, you may be required to join an HOA and pay the associated fees at closing in addition to monthly or annual dues. These fees differ by state, community and building, buyers should keep them in mind when making an offer. A seller may be willing to cover a hefty HOA fee in exchange for a slightly higher sale price.
Existing Liens
Who typically pays? The seller.
If a lien is discovered during the title search, the issue must be resolved before the deed can be transferred to new ownership. In some cases where the seller is unaware of the lien or now has the funds to right the issue, the seller is responsible for working with the lien holder to resolve the issue. In cases where the seller is unable to pay, however, the buyer can decide if he or she wants to try to resolve the lien or walk away from the deal.
Real Estate Brokerage Commissions
Who typically pays? The seller.
No doubt that real estate agents get paid once a deal closes. Traditionally, the seller pays the commission to the real estate brokerages that represented both the buyer and seller from the proceeds of the sale, which typically runs between 5% and 6%, split between the two brokerages. The real estate agents then receive their share of the commission.
Mortgage Payoff Penalty
Who typically pays? The seller.
Before you sell your home, check your existing mortgage agreement to see if there are any penalties associated with paying off your mortgage before the end of its term. The penalty may vary based on a percentage of the loan – 3%, for example – or a certain number of months’ worth of interest payments. The Consumer Financial Protection Bureau notes that any prepayment penalty must be included as a clause in your original mortgage statement.
Blog Post by Chasity Rodriguez
Social Media Director
