Real estate transactions are subject to several taxes and fees at the time the deal is finalized, or closed. These are termed as “closing costs.” These taxes and fees vary widely based on the city, state and county where the property is located. Though usually less expensive for sellers than buyers, closing costs are often thousands of dollars. It’s important to understand the different fees that are paid by the buyer and the seller. This article focuses on the costs that sellers of property can expect to have deducted from their proceeds when the sale closes.
Here are some of the costs sellers are likely to be responsible for:
1. Real estate commission – Whatever fee you have negotiated with your real estate broker. This is a percentage of the sale price and is paid to the real estate agent. It is one of the biggest costs that will be deducted from the sales proceeds.
2. Title and lien search – This is a process to ensure that you, the seller, have the right to sell your property. It also discovers whether there are any restrictions or allowances attached to the land (such as an easement for power lines). Finally, it will find any liens on the property, including mortgages, back taxes, or construction liens.
3. Clearing title defects – If the title search turns up any liens on the property, the seller will need to pay these off to ensure a clear title for the buyer.
There are other charges that may be assessed against the seller or the buyer, or may even be split, depending on what is typical in each state. Following are some of those costs:
1. Document stamps (also called doc stamps) on the deed – This is a state tax assessed for the sale of the property, due at the time the deed is transferred into the name of the buyer. In Miami-Dade County, Florida, for example, it is $0.60 per $100 of the sales price. Thus, if you are selling a property in Miami for $200,000, doc stamps on the deed will cost $1200.
2. Document recording fees – Most counties require a per-page document recording fee for deeds as well. The new deed being recorded for the mortgage is conventionally charged to the buyer. However, there is a deed that transfers title out of the seller’s name, and this is typically a seller cost.
3. Preparation of sale documents – These include the deed, bill of sale, no lien affidavit, and 1099 tax form. In some areas, these documents are prepared by an attorney, while in other cases the title company takes care of this process. Either way, there is generally a fee assessed. This fee is usually called an escrow fee when the paperwork is handled by a title company. Paperwork prepared on behalf of the seller is charged to the seller.
4. Prorations of homeowner association fees and property taxes – the seller will need to pay the portion calculated for the percentage of the year that they owned the home.
Since costs associated with closing the sale of a home are often vastly different from state to state and even city to city, it is important to consult with a real estate professional about the closing costs you should expect in your area. Your real estate agent is required by law to disclose all possible fees to you, so they are a great resource for understanding the local regulations that apply for your transaction.