If you’re selling a home, don’t expect that the final sale price is the amount of money you’ll actually receive.
That’s because home sellers pay the bulk of the transaction’s closing costs, which can be substantial. However, there are steps you can take to help reduce closing costs and minimize their impact on the profit from the sale of your home.
How closing costs work
Closing costs include all fees and charges associated with a home sale beyond the price of the property itself. These costs vary by region, lender and property type, but they typically include appraisal fees, inspection fees, loan origination fees, transfer fees, title search fees and real estate agent commissions.
While the buyer is required to cover their share of closing costs when the property closes, the seller’s share is deducted from the amount they received for the sale.
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Splitting the costs
Sharing closing costs between buyer and seller is subject to negotiation, but typically, the buyer pays the bulk of the fees while the seller pays real estate commissions. It’s also common for the seller to pay government transfer taxes and costs associated with title insurance.
Overall, the seller’s share of costs is usually larger, often more than 6 percent of the property’s selling price. Buyers pay an average of 2 percent to 4 percent of the property’s price in closing costs.
It’s nearly impossible to avoid all costs associated with the seller’s share, but there are a few strategies that can reduce or eliminate those that are most expensive.
Common closing costs
- Realtors’ commissions. One of the largest costs you’ll pay. The standard commission is 6 percent, split between your agent and the buyer’s agent.
- Recording fees or transfer taxes. There are state and local fees for the transfer of the title from one owner to another. They can vary dramatically from state to state, ranging from 0.1 percent to over 2 percent.
- Title insurance. This protects the lender and the buyer from claims against the property. Buyers usually pay the lender’s title insurance.
- Attorneys fees. In some markets, both buyers and sellers have their own attorneys. In others, one settlement attorney conducts the transaction.
- Prorated property taxes and HOA fees. Like mortgage interest, property taxes and homeowners association dues must be paid up to the settlement date.
Scaling back broker commissions
Hiring a real estate broker to handle the sale of your home is expensive. Commissions are often 6 percent of the sale price or more.
Some sellers who are confident in their ability to navigate the real estate selling process choose to list their homes themselves to avoid commissions. This route is not for everybody, however, and it usually works best in a seller’s market. Without a broker, your listing is likely to generate less interest, and you’ll be left with a heap of paperwork and other time-consuming tasks.
Rather than going it alone, you may be able to negotiate with a broker for a discounted commission rate in exchange for scaled back and less personalized services. Some real estate agents market themselves as “discount brokers” and specialize in offering minimal services for minimal costs.
Ask for a reissue date for title insurance
Title insurance protects a homeowner from events that challenge their ownership of the property—say, a forged deed from decades earlier or a previous title that was signed by a minor. It’s common for a seller to spend thousands of dollars providing title insurance for a buyer, but rates vary greatly and it’s worth shopping around.
If you bought the home you’re selling in the last ten years you might be able to get a discount called a “reissue rate.” This lower rate is often only offered upon request.
Ask the buyer to pay more
It’s possible to require buyers to pay for a greater share of closing costs than might be typical. You can stipulate this upfront when you list your home or you can make this part of your negotiations once you receive an offer.
Keep in mind, however, that asking buyers to shoulder more of the financial burden could discourage some from making offers—or it could scuttle a deal in the works.