With the current seller's market, along with high demand and low inventory, many homeowners are dabbling with the idea of putting their house up for sale.
But beware — if you're ready to find an agent and list your home for sale, there are many hidden fees involved with selling a home that you will want to be prepared for ahead of time.
You want to avoid surprises in the home-selling process and understand the ins and outs of closing costs for sellers - from what's included to how to negotiate a better deal.
For starters, closing costs are the various fees paid —some by the buyer, some by the seller, in order to finalize the home buying transaction. Many people are aware of closing costs for buyers but may not realize what is entailed in sellers' closing costs.
Here are a few fees for homeowners to watch out for as they prepare to close on a deal.
The most significant cost that home sellers are responsible for is agent commission fees. Commission rates are usually around 5-6% of the final sale price, split between the buyer's and seller's agents. Therefore, on a $300,000 home, commission fees could total $18,000.
Once you officially transfer ownership of a home, the state, county, and/or city where the property is located will charge taxes and fees. Although sometimes these fees are split, it's pretty common for the seller to cover these costs. These taxes are usually represented as a percentage of the final sale price and vary by state and location.
A title insurance policy protects its owner from disputes about homeownership.
There are two types of title insurance — lender's (which protects the lender) and owner's (which protects the owner). Buyers are expected to pay the lender's title policy, which is normally required for anyone who is receiving a mortgage. However, the question of who pays the owner's title insurance depends on the state where the property is located.
The escrow process begins when a buyer makes an offer on a home. The "good faith deposit" or "earnest money" amount shows they are serious about purchasing the property and are deposited into an escrow account controlled by an impartial third-party.
This impartial third party (aka the escrow company) charges a fee for their services in setting up escrow. Typically, these fees are split 50-50 between buyer and seller and vary depending on where the property is located.
Real estate transactions are complicated, and a seller's attorney will help them wade through the paperwork and ensure they do not fall victim to any loopholes.
Although buyers and sellers are not required to hire an attorney in some states, it is still a good idea to hire one to look over the final contract. Please make sure you are ready to pay for their time, however. Attorney fees can range between $150 to $500 per hour for a good lawyer.
Outstanding bills and liens
It is up to the seller to pay for prorated items such as property tax and utilities. The seller usually must pay these up to the sale date, at which point the buyer takes over the costs. Sellers will also be responsible for outstanding judgment or liens on the property before moving forward with the deal.
How to calculate closing costs
The average closing costs for sellers range between 8% to 10% of the final sale price once all is said and done, so it's important to factor these funds into your overall moving budget. Moreover, these costs fluctuate depending on which state the seller lives in and are heavily influenced by local regulations and laws.
For instance, in Florida, it is custom for the seller to pay for the bulk of the closing costs to finalize the deal and bear most of the financial burden in this sense. Sellers usually receive a bigger payout in Florida, however, because property prices are higher. On the other hand, in Alabama, for example, the closing costs are traditionally split more evenly between the buyer and seller.
Sellers should also take additional costs, such as home repairs and mortgage payoffs, into account when calculating how much they will pay to sell their home. Sellers will often make cosmetic or even structural enhancements to a property before putting it up for sale to attract buyers quickly. And they will also have to pay off the remainder of their mortgage and accrued interest to move out officially.
All of these costs can add up quickly, so it's important to track your spending and try to stick to a budget.
How to lower your closing costs
Home sellers can take several avenues to save money on their closing costs, especially in a seller's market. When there are low inventory and high demand, homeowners have more leverage in the negotiation process and may even ask the buyer to cover certain costs. In fact, sellers can refuse to pay closing costs if they think they can get a better offer from another buyer.
However, covering a portion of your buyer's closing costs doesn't necessarily have to be a bad thing. Under the right circumstances, it could help save a seller money in the long run if a buyer's overall offer is strong enough. Some things to consider when deciding whether to pay closing costs include:
As this seller's market continues to build, some experts are predicting a housing market crash. All the more reason to be on top of things, and prepared to sell your home quickly if the opportunity arises.