Selling a home lets you move on to the next chapter of your life. You can buy a home knowing you have enough money to complete the transition. Before you cash in on selling your property, you’ll have to pay closing costs. Some sellers have the buyer cover some of these costs. During a seller’s market, you will have more leverage in negotiations. Regardless of the market, it’s good to know the closing costs for selling real estate. You can factor these expenses into your budget and calculate how much money you’ll walk away with after the deal.
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What Are Seller Closing Costs?
The closing is the last step of transferring ownership. A third-party escrow company holds onto the buyer’s funds. After both parties reach an agreement, the escrow transfers funds to the seller. Before you can close the deal, you’ll have to pay taxes, real estate agent commissions, and other expenses. The buyer has separate closing costs they have to cover.
What Usually Comprise Seller Closing Costs
Sellers incur several costs to facilitate a smooth real estate transaction. You can get around some of these expenses with Offerpad, but closing costs will add up regardless of how you sell real estate. These seller closing costs show up in most deals.
Real Estate Agent Commission
Real estate agents promote your listing to potential buyers. They show your property to prospects and take calls. Real estate agents don’t charge for their services until you close a deal. During the closing, real estate agents will ask for their payment. After that, agents charge commissions based on a predetermined percentage of the home’s purchase price.
You don’t want your transaction to become subject to a legal battle. The buyer may have missed property tax payments or have outstanding liens. Some states require the buyer to pay for this policy, while others push the responsibility to the seller. While costs vary by state, title insurance isn’t an expensive closing cost.
An escrow holds a buyer’s funds and only gives them to the seller after everyone reaches an agreement. This escrow prevents foul play and ensures the proper transfer of funds and ownership. Most escrow companies charge a fee plus a percentage of the purchase price. Each state has different rules on escrow fees, but they’re relatively affordable and usually get split between both parties.
Some states require an attorney to facilitate a closing. Even if not required, attorneys still provide a helpful perspective and can ensure the deal is legally sound. Attorneys read through legal documents and can review legal complications. Attorneys charge hundreds of dollars per hour.
Transfer Taxes or Recording Fees
These fees recognize the legal transfer of assets from the former owner to the new owner. These fees vary significantly depending on your state and county. Some properties have transfer taxes and recording fees below 0.5% of your home’s value. These fees can surpass 5% of your home’s purchase price. Local rules also determine who’s responsible for these closing costs. Some places peg these costs to the seller, while others put this responsibility on the buyer.
Loan Payoffs (Remaining Mortgage/Equity Loans)
Selling your home can free you from debt. However, you will have to pay back the debt with proceeds from the sale. The loan payoff varies substantially for each person. Some people sell their homes after paying off all of the debt. Other sellers may have refinanced several times or fallen behind payments. After loan payoffs, these sellers may have few funds remaining.
Some sellers agree to pay part of the buyer’s closing costs. Buyers gain more leverage in a buyer’s market, and some sellers want to move on to the next chapter of their lives. You may be in a better financial position than the buyer because of your cash windfall. You aren’t obligated to cover any of the buyer’s closing costs, but helping out can speed up the closing.
Home Transition Costs
After you sell your home, you’ll have to move to another location. Moving companies will have to transport furniture and other goods to your new home. These costs can add up, but Offerpad is happy to cover local moving costs if they buy your home.
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Additional Closing Costs For Sellers
We have covered the common closing costs, but each real estate transaction is complex. You may come across these additional costs:
- Required repairs: A home inspection may reveal issues. The seller may have to pay for repairs during a buyer’s market.
- Liens or judgments against the property: You may have to pay to get these removed before the buyer accepts your offer.
- Unpaid HOA dues: Homeowners’ associations hold a lot of power over what you can and can’t do with your home. They can block your deal if you don’t pay the fees. If an HOA does not manage your property, this issue will not affect you.
- Prorated property taxes: The seller will have to pay property taxes for the months they stayed on the premises. If you sell in June, you pay prorated property taxes for the first six months of the year.
Estimated Closing Cost Amounts For Sellers
Most closing costs revolve around the sales price. For our example, we’ll assume someone sells their home for $500,000. Here are the total costs for this example:
- Real estate agent: 4% commission = $20,000
- Title Search/Insurance: 0.2% of the property’s value = $1,000
- Escrow fees: $2,000
- Attorney fees: $700
- Transfer taxes and recording fees: 0.3% of the property’s value = $1,500
- Loan Payoffs: $150,000
- Seller Concessions: $3,000
Total Cost: $178,200
In this example, you walk away with $321,805 after paying closing costs. But of course, depending on your property’s status, you may have additional closing costs.
How To Reduce Seller Closing Costs
- Shop Around: Some buyers will cover some of your closing costs to secure the property. Don’t rush to accept a deal before considering your choices. You can also look for escrow services and attorneys that charge less money for their services.
- Get A Reissue On The Title Insurance Rate: You won’t save a lot of money with this strategy, but every extra dollar adds up. You can get a reissue on the title insurance rate if you’ve owned your home for under 10 years.
- Negotiate Seller Concessions: Ask the buyer for help with some of your closing costs. Some buyers will accommodate your request to avoid getting outbid. The buyer won’t pay for everything, but you can save thousands of dollars by negotiating seller concessions.
- For Sale By Owner (FSBO): Selling the property yourself comes with extra hassles, but you save on real estate agent commissions. In our example, these commissions cut into $20,000 of your home’s selling price. Doing the work yourself can save you more than $20,000, depending on the selling price.
How to Get More Value On Your Home Sale
Closing costs can take a large chunk out of your windfall. These costs can stall negotiations and lead to irreparable disagreements. Offerpad can help you save on closing costs and get a better deal on your home. OfferPad makes cash offers on homes using simple and transparent pricing. You won’t have to pay a real estate agent to promote your listing. This benefit alone can save you well over $10,000. The company helps you during the closing process with their Extended Stay and Free Local Move features.
Their quick cash offers also help you move out of your home sooner. Some sellers have an urgent need to sell. These sellers may have bought another home or need to downsize. You can get a free offer on your house within 24 hours, without any obligation. Visit Offerpad today and see how much you can get for your home.