Sometimes, it’s easy to get carried away with the math when you are about to sell a home.
Let’s say you own a home that you are selling for $250,000, and you still owe $80,000. That’s pretty exciting – you are about to make a $170,000 profit. You could be forgiven for starting to dream about the vacation you are going to take, the investment you are going to buy or the down payment you are going to make on the next house.
You don’t have to give up those dreams, but you may have to adjust your math slightly.
Closing Costs Sellers Frequently Pay
While buyers have closing costs, sellers also have financial obligations when the deal is signed. While it won’t make a huge dent in your profits, it’s best to be aware that you will be responsible for these items.
It is wise to check on the closing costs in your city and state, as the rules can vary with location. But generally, what follows are some of the frequent costs that sellers should prepare to shoulder.
Realtor fees. Hiring a realtor is usually the smart move. Now is the time they get paid for their services. Sellers typically handle these fees. Rates vary, but expect about a 6% fee, which is split between the agents for the seller and buyer. On the above example of a $250,000 sale, the realtor commission would be $15,000.
Paying off your loans. In the above example, the amount left on your home loan is $80,000. However, you will actually pay higher than that because interest for the current month will be prorated and you will have to pay it. Also, check your mortgage paperwork and see if there is a penalty for paying off the loan before the loan term (typically 30 years) ends – if so, you will be on the hook for that, too. Obviously you will also have to pay off any home loans you took out to, for example, make renovations on the house.
Transfer taxes. The government, of course, is going to take its bite of the pie! Transfer taxes are the cost to transfer the title of a home from one person to another. They vary state-by-state, but typically run somewhere between 0.5% to 2% of the sale price. According to the National Conference of State Legislatures, there are some states without this tax: Alaska, Idaho, Indiana, Louisiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and Wyoming.
Additional title fees. Sellers may also be responsible for a variety of title company fees, including document preparation, and escrow, recording and courier fees.
Home warranty. In some, but not all, locations, sellers also have to pick up the cost of the home warranty. This is not home insurance, but a contract – typically lasting about one year – that covers the costs of home repairs due to normal wear and tear.
Repair costs. You will have to pick up the cost of repairs that are found to be necessary during a pre-sale home inspection – although you might be able to negotiate at least some of these costs into the sale price. This could possibly also include termite inspection and remediation, if necessary.
Title insurance fees. Sellers typically handle the cost of the buyer’s title insurance premium.
Attorney fees. This one is a little tricky because many places now have the legal work for a home sale done by one attorney for both the buyer and seller. The costs are sometimes paid by the buyer and sometimes the seller. Obviously if you bring your own attorney in for the closing, you will be responsible for the cost.
Property Taxes and Homeowner’s Association Dues. Sellers must cover the cost of property taxes, and homeowner dues if applicable, on a prorated basis through the date of the sale.
While the list may seem daunting, the closing costs sellers frequently pay really only adds up to a relatively small percentage of the profit you will make. But a smart seller should be aware of these costs and factor them into future financial plans before the closing.