In every real estate transaction there is a buyer and a seller, and both sides have closing costs they have to worry about. While the buyer tends to have the higher closing costs because they have to pay for the property, the seller also accrues closing costs that can force them to come up with a few thousand dollars to sell their home.
Most states allow sellers to take their closing costs out of the selling price provided the mortgage is satisfied first and there is enough left over to cover all of the closing costs. Closing costs can differ from state to state, but there are a few types of closing costs that are part of most real estate transactions throughout the country.
Real Estate Commission
The seller has to pay the real estate commission for the agent who sold their home at closing. The most common commission percentage is six to seven percent, but there are situations where that can be lower or higher. As long as both parties agree to the commission, it is usually acceptable to set it at whatever the parties want. Most states allow the real estate commission to be taken out of the selling price at closing.
Calculating interest is like trying to hit a moving target, so the initial estimates given might be off by the time closing happens. Some mortgages have a penalty built-in that is triggered when the mortgage is paid off early, and there might be some insurance premium for part of a month that would need to be paid. All of these items are calculated just prior to closing and could be the responsibility of the seller.
Most state impose a fee on a real estate transaction to record the deed as being transferred from one party to another. In most cases, the seller is the one who pays these recording fees directly to the state. The seller’s attorney will usually make all of the arrangements in advance and take these costs out of the selling price.
In many states, the seller will pay the owner’s title insurance premium when the property is sold. This is usually not a very large amount, and it can be paid in advance by the seller through their attorney, or taken from the final selling price.
In some parts of the country the buyer and seller have their own attorneys, while in other parts one attorney handles the entire transaction for both sides. In either case, the attorney collects their fees, in full, at closing.
Sometimes buyers and sellers negotiate special arrangements that are completed at closing. For example, the seller might agree to pay the first year’s premium on the buyer’s homeowner’s insurance as a way to entice the buyer to sign the agreement. These special arrangements are completed at closing.
When you accept a buyer’s offer on your home, your attorney will usually give you a closing cost estimate based on the closing date. Do not be surprised if that estimate is a little off and you owe a little more at closing. If all goes well, you can have all of those closing costs taken out of the selling price and walk away with whatever is left over after paying the mortgage.