Whether you’ve bought or sold a home before or are a first-time homebuyer or seller, you know the financial details are much more complex than just the listing price. Between inspections and agent fees, both buyers and sellers hold financial responsibility for transactions and closing costs. However, it can be confusing knowing who pays for what. While details of closing costs may be negotiated into a contract between buyers and sellers, certain things are typically paid by one party or the other. Continue reading to find out what big bills you should be budgeting for as a buyer or seller.
Real Estate Commission
Real estate commissions are paid by sellers and are typically between 5-6% of the sale price. For example, a $200,000 home would cost the seller $10,000-$12,000 in closing costs. This amount is paid to the listing agent, who then splits this commission by roughly half with the buyer’s agent. So if the listing agent is paid $10,000-$12,000 in closing costs, each agent would receive approximately $5,000-$6,000.
To save on commission costs, some sellers choose to sell for sale by owner (FSBO), meaning they wouldn’t have to pay the 3% to their listing agent. However, it’s still recommended that the seller still offers a buyer’s agent commission when they sell FSBO. This is important to attracting potential buyers because some agents may be less inclined to show their buyers your property if they don’t receive a commission.
Title Insurance
Like real estate commissions, the buyer and the seller pay for title insurance. However, owner and lender title insurance is typically split in this market. The owner’s title insurance provides protection so no one else can claim property ownership from a prior dispute, a lien from a contractor, an attorney, or another third party. This is crucial for the homebuyer to have. Title insurance for the buyer protects them from legal or financial damages if another party tries to claim ownership of the property after they purchase the home. The lender’s title insurance protects the lender’s financial investment in the home. This is usually required for a buyer who is buying with a mortgage. This remains covered until the loan is refinanced or paid off.
Escrow Fees
Escrow fees are typically split 50/50 between the buyer and seller. This fee covers the services of an independent third party to direct the closing and manage funds during the transaction. Escrow fees typically cost 1% of the purchase price. Using the example of a $200,000 home, the seller and buyer would each pay around $500 in escrow fees. However, this does not include the actual money that is held in an escrow account for closing, it is just the fee for the escrow company’s services.
Home Inspection
It is their financial responsibility if a buyer chooses to have a home inspection. Inspections are conducted to protect the buyer from any hidden defects that could impact the home’s value, cost a lot of money to repair, or make the home unsafe to live in. However, some sellers decide to do a pre-inspection to give the buyer’s inspector an idea of what they will find and the chance to make repairs before listing. Home inspections typically cost between $250 and $700.
Land Survey
The buyer pays for a land survey if they request one. Like a home inspection, a land survey gives the buyer property details like the property boundaries, fencing, easements, and encroachments. The cost of a land survey varies by property size, shape, and location, but buyers can expect to pay around $550.
Appraisal
The buyer covers a home appraisal. If the buyer is taking out a mortgage, paying for the appraisal costs is usually required by the lender. However, even if it isn’t required, buyers tend to complete appraisals for peace of mind knowing they are making an intelligent investment.
Real Estate Transfer Taxes
Real estate transfer taxes are charged when the title of a home is transferred from the old homeowner to the new owner. The seller is responsible for making this payment. Transfer tax varies depending on where you live. In fact, the cost can be different from a city to its nearby suburbs. Rates can also fluctuate over time based on levies and tax rate changes. Ask your real estate agent or escrow company for the correct rate in your area.
Work with a title and escrow company you can trust. Trustworthy Title & Escrow offers services in the Metro area with the highest standard of customer service. When you work with Trustworthy Title, you can expect responsibility, reliability, and great communication. Our team of professionals is here when you need them. In addition, our team almost always handles requests within 24-48 hours. Have questions? Contact us today. We’d be happy to help!