Real Estate Closing Costs
Whether you are buying or selling, first time buyer or seasoned real estate veteran, closing costs are some of the most complex and confusing aspects of real estate transactions.
The Closing Costs Basics
The simple fact of real estate is that there are many minor costs associated with buying or selling a home. Some of them can be surprising or confusing. If you are thinking about trying a sale-by-owner there are some factors to consider that might give you pause for thought. Saving that broker’s commission could actually be very expensive if you misjudge the price or fail to account for some obscure part of the cost.
If you are negotiating with a party who has much more experience in real estate you can never be sure of their intentions; it is essential that you have a professional on your side. You don’t want to have to come up with thousands of Dollars in additional costs at the last minute or find yourself renegotiating terms under extreme pressure, without professional support and advice.
Either A Buyer Or A Seller Be
As a seller, you should receive an estimate of proceeds as part of the listing agreement. As a buyer, you can expect to receive an estimate of your closing costs at the time that your agent writes the offer. The fees and costs that have to be covered during the closing of real estate transactions fall into three broad categories:
- Legal fees
- Financial fees
- Buyer/seller adjustments
In California the transfer of real estate assets is handled by disinterested third party entities that hold all of the elements of the transaction until everything is in place. In residential real estate, buyer and seller are usually required to bring some amount of cash to the close of escrow. When all of the necessary conditions have been met, the escrow is closed and funds are sent to every party that is meant to receive them.
The Breakdown For Closing Costs
The Legal Fees
The necessity of closing costs is justified by the safety and certainty of transfer that they provide to both sides. An owner’s title insurance policy, purchased by the seller, makes sure that there is no delayed crisis that results from a cloud on the title. If the buyer is financing they are required to purchase an ALTA insurance policy with their home loan provider as the beneficiary.
The seller usually pays for the escrow service, all of the documentation to put the transaction together and notary fees. The buyer will have to pay an escrow fee also, along with notary fees and fees for the recording of all deeds that they take on to finance the purchase.
The payment of transfer taxes and commissions are paid at closing. Basically everything that is to be paid by agreement has to be paid in by both parties before closing and all of these funds are distributed in the final act of closing. There is some flexibility in agreeing who pays what. That means that the parties can agree to pay whichever parts of the closing costs it takes to make the sale happen, as long as there is agreement and the escrow company receives clear instructions.
Financial Fees
For sellers, there will be appraisal fees, beneficiary statements, and any loan interest remainder will become due at closing. They can be taken from the proceeds of sale along with any home loan prepayment penalties that are in the terms of the seller’s loan.
For buyers, many of the fees revolve around the creation of new home loans: Fees for appraisal, assumption fees if the buyer is assuming the seller’s loan, fire insurance premium and a mortgage insurance premium for new FHA loans. Financing also means there will be loan origination fees, inspection fees, and appraisal and notary fees for the buyer too. If the Veterans Administration is providing financing, the seller will be responsible for the pest inspection fees; otherwise the buyer usually pays for it.
An Aligned Transfer Through Adjustments
In homeownership and real estate investment, there are periodic payment impounds of some sort, held all year round. For example, property taxes and insurance policies must be paid up to a year in advance. When the time comes to close, they usually have an overpaid balance. The buyer becomes responsible and reimburses the amount for the excess period to the seller. All financial liability and responsibility is stated and paid outright at the time of closing. The seller should be able to walk away without any further burden or expense.
The Plan Comes Together
There is an old saying that everything is negotiable. That is true but it is a little unconventional in residential real estate. The majority of transactions in real estate follow tried and true patterns. These are protocols that have been very successful in bringing buyers and sellers together over the years. However, sometimes it helps to get a little creative in the terms to make a great deal happen.
When you are dealing with maverick counter-parties, who want to do things differently, you need to make sure that you have the right professionals supporting you, advising you and doing the hard work of your negotiation. That is the only way to ensure that you receive a fair deal.
The transfer of high-end real estate can be extremely daunting and intimidating. It gets easier with experience but it must be done correctly every time. On a scale of complexity it is certainly more difficult to organize than eighteen holes of golf but generally easier than the average wedding. Like a wedding, it makes all of the difference if you have professional support and help to see that it goes without a hitch. The cost of closing in the buying and selling of real estate is a fact of life in La Quinta, Coachella Valley, and across the nation. Make sure you have the professional advice that will keep all of the costs aligned with your best interests.