Description

Everyone has heard the term "closing costs".  But what are they?  What do they include?  How much do they cost?  The good news is they are not as complicated as they seem.  There are some fees you can negotiate while others are not part of the contract between buyer and seller.  This lesson will help you sort out the confusion and be prepared.

Key Points

  • Sales commissions go to the seller
  • Loan fees go to the buyer
  • There are other fees that are negotiable
  • Ordinary and customary = county by county basis

Lesson Files

  • Closing Costs

    So what should you expect for closing costs? Well, closing costs are typically different for buyers and sellers. There are different fees that each are going to incur and should plan for.

    To The Seller

    Sellers are usually responsible for sales commissions. That would be the commission that is paid to the listing agent (agent representing the seller) as well as the buyer’s agent. The buyer doesn’t see that cost. That is typically arranged when a property owner lists their property for sale. That cost is negotiated at that point in time. As well, it’s transparent to a buyer when they are purchasing a property and the transaction is going through escrow.

    To The Buyer

    Buyers are responsible for their own loan fees. The amount of money that is involved when you finance a property is going to include quite a few different fees that’s associated with getting a loan. That can include getting an appraisal, fees to the lender, or mortgage insurance – there’s quite a few costs associated with the loan. Neither of those fees – the commissions nor the loan related fees – actually appear on a purchase contract.

    Negotiate the Middle Ground

    For instance, if you’re a buyer and you’re writing an offer, you’re going to identify the fees that are typically negotiated between buyer and seller and not include the others that are not included in the contract. That is going to include fees like an escrow fee because there is going to be a neutral third party escrow company that’s going to manage the transaction. Another fee is title insurance. Title insurance is going to protect the owner from challenges to who is the owner of the property. That is protecting the title of the property – meaning the buyer is protected from claims of ownership against the property that could surface in the future – as does the lender.

    So the most common expenses – once you take out loan related expenses that don’t appear in the contract that are pre-negotiated and also don’t appear in the contract – there will be the following:

    ~Escrow fee

    ~Title insurance

    ~Home warranty

    ~Transfer tax (similar to sales tax)

    These fees get to be arranged as to who will pay what when a buyer is presenting an offer. So the offer will ultimately become a contract if the offer is accepted or there will be counter offers. But when a buyer is writing an offer – they are going to identify who pays what. But when you are dealing with closing costs there is what is considered “ordinary and customary”. That is usually a county by county tradition. In fact, in one county or another, it would be something like the following:

    ~Escrow fees would be split

    ~Title insurance for the buyer would be paid by the seller

    ~Title insurance for the lender would be paid by the buyer/borrower

    ~County transfer tax is commonly paid by the seller

    ~Home warranty is always negotiable. The buyer may simply ask to have it included.

  • Lesson File 2