When selling a home, educating yourself on closing costs can be an important step in completing a quick sale. As a seller, there are ways to negotiate closing costs into the purchase that will benefit both the seller and buyer. Using a real estate agent throughout this exchange is easier in order to facilitate negotiation, but primarily understanding the costs is of utmost importance. Let’s look at the basics of closing costs in this area.
What Are Closing Costs?
A buyer seeking a home mortgage or a seller working to close a sale will pay closing costs associated with the purchase. The lender requires certain costs as do other parties for services rendered during the process. Those purchasing the property generally pay the amounts, usually written into the purchase contract, at the time of the closing. Certain loans, such as VA loans, may require the seller to pay for specific costs.
General Charges at Closing:
The contract will accrue charges for such amounts as:
- Credit report fees
- Fees for appraisals, land surveys and termite or radon inspections
- Lawyer’s fees
- Title insurance, recording fees, underwriting fees and title search fees
- Escrow deposit for insurance and property taxes if required by lender
- Discount origination points paid in order to defray interest rates
The closing costs for a buyer will run between two and five percent of the total purchase price for a home. Based on a home that costs around $150,000 a buyer would pay costs of between $3,000 and $7,500. Before the actual closing occurs, lenders are required to provide the buyer with a good faith estimate so they will know what to expect at closing. This gives them additional opportunity to shop for a lender with lower closing costs. Closing costs can also be a negotiating factor between the seller and buyer.
Using Closing Costs to Your Advantage
Sellers can agree to pay all or parts of closing costs as an incentive for a quick sale. Usually the seller will raise the asking price with the option of allowing a certain amount for the cost of closing expenditures. Some buyers see this as a great way to buy without needing extra money at the closing. The appraisal, however, must be adequate to meet the amount the buyer requires to purchase the property. Another method used by buyers to avoid additional cash at closing is to allow the lender to add the closing costs into the loan. This may lead to a higher monthly payment though so it is always good to offer as a seller incentive.
By being aware of the different closing costs from the get go, you can prepare for the sale of your home before it even enters the market. Research is key in not only preparing, pricing and selling your home, but also the completion of the sale itself. Knowledge is priceless and when it comes to closing costs, taking the time to educate yourself as to what these extra closing costs are is time well spent. For more information on selling your home, please take a look at our “Definitive Guide to Selling Your Home,” our free Ebook detailing every step of the home sale process.