Closing costs include fees paid to third parties that facilitate the sale of the property and can include inspections, attorneys’ fees, and brokerage fees. Closing costs are typically paid once the sale is closed but some are paid before (i.e. home inspection fees). Closing costs range from two to seven percent of the purchase price. The method used to calculate closing costs dramatically changes the closing costs imposed because buyers and sellers respectively do not share in the costs equally.
Calculating Closing Costs
Closing costs are typically split by the buyer and seller but not equally. In general, the buyer will cover more of the closing costs (perhaps three to four percent of the purchase price) while sellers will pay between one and three percent of the purchase price. The total closing costs are also determined by how the buyer purchases the property. For example, if a buyer pays all or mostly cash, the closing costs are significantly less than if the buyer uses a mortgage. Some closing costs include:
- Credit report fees;
- Underwriter fees (who assess the buyer’s creditworthiness);
- Loan origination fees (processing fee for loan applications);
- Home inspections;
- Appraisals; and
- Taxes on the amount the buyer borrowed to purchase the home.
The closing costs can also include fees for a title. Title search refers to the process by which an attorney or broker traces the history of the deed for the property to confirm two things (1) that the buyer has a good title and (2) that there are no outstanding liens on the property which could cloud title. Survey fees are necessary for single and townhomes to confirm the property line.
Many of these are unavoidable because of the nature of the transaction. For example, if a buyer is purchasing a home with a mortgage, the seller and bank will need to confirm (1) the buyer has good credit and (2) can pay the price of the home.
Seller’s Closing Costs
The seller can also bear specific costs including taxes on the sale, fees for an attorney, and fees for transferring title to the buyer. The seller also pays closing fees to the title company or another office which facilitates the final sale of the property (i.e. the place where everyone meets to sign the paperwork).
