Common Closing Costs for Home Sellers

Dave,

We are currently in the process of selling our home and it just went under contract—yay! We want to know what to expect financially from this point forward. What are common closing expenses for sellers?

Thanks!

Cheryl, Palisade

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Cheryl,

Oh my gosh, this is such a great question and one that I get ALL the time! As a seller you have the privilege of paying the sales commission you agreed to with your listing agent, assuming your home is listed with a Realtor. The other costs associated with selling your home (outside of the real estate commission) that are the seller’s responsibility are varied, but you can almost always calculate an additional 1% if your sales price is UNDER $300,000 and about .7% if your home is over $300,000. If you calculate it that way you will, almost always, come up with a slight over estimate of your closing costs. 

The most common cost that is overlooked is your property tax. What most people don’t fully realize, as I did not prior to becoming a real estate agent, is that our property taxes are paid in arrears. It’s probably something most folks just don’t think much about and it often times is a bit of a surprise. How it works is, the title company will pro-rate the current taxes from January 1 to the day of closing and you will have that amount debited on your settlement sheet. The two largest debits you will see (outside of real estate commissions and your mortgage payoff) will be the taxes and the title insurance policy. Title insurance simply indemnifies that the title to the property will be passed from you to the new owner in good standing and free of any liens. For a $250,000 home you can expect this expense to be in the $900-$1000 range, these costs are on a sliding scale based on purchase price.

“The most discussed fee on the seller’s settlement statement is often the charge for water & sewer. The bills for water and sewer, if left unpaid, can be held as a lien against the property and thus MUST be settled at the time of close to ensure the passing of a clean title.”

The most discussed fee on the seller’s settlement statement is often the charge for water & sewer. The bills for water and sewer, if left unpaid, can be held as a lien against the property and thus MUST be settled at the time of close to ensure the passing of a clean title (as discussed above). In order to ensure that the amount that is owed is covered, the title companies always hold out an amount significantly over (generally around $200) your typical water and sewer bill. This ensures there is enough to pay it off and they will refund the difference back to you shortly after close. This one always creates a fair amount of discussion about how you never have had a bill that high, but believe me they will refund you the difference in short order. Always remember that your other services like gas, electric, telephone, television, etc. are your responsibility and you should call 24–48 hours prior to close and let them know you will be moving and the service will be transferring to a new owner on the date of close.

One last tip. Your mortgage statement always provides a payoff for you to reference, however the day it is printed you start accruing interest so your payoff is always higher than what is printed on your statement. I always tell our sellers to just add one extra payment to the amount on the settlement statement and that will provide a safe payoff amount. In my experience when closing day comes people are happy they overestimated and get a little money back, rather than under estimate and have to go digging for that little extra! I hope this help and by following these guidelines you should have a safe estimate of your closing costs.  Congratulations on getting your home under contract and best of luck on your new journey!

Dave Kimbrough
The Kimbrough Team

Have a Question? Ask Dave!

What are common closing expenses for sellers?

Dave,

We are currently in the process of selling our home and it just went under contract—yay! We want to know what to expect financially from this point forward. What are common closing expenses for sellers?

Thanks!
Cheryl, Palisade

---

Oh my gosh, this is such a great question and one that I get ALL the time! As a seller you have the privilege of paying the sales commission you agreed to with your listing agent, assuming your home is listed with a Realtor. Costs associated with selling your home that are the seller's responsibility are varied, but you can almost always calculate an additional 1% if your sales price is UNDER $300,000 and .7% if your home is over $300,000. If you calculate it that way you will, almost always, come up with a slight overestimate of your closing costs. 

The most common cost that is overlooked is your property tax. What most people don’t fully realize, as I did not prior to becoming a real estate agent, is that our property taxes are paid in arrears. It’s probably something most folks just don’t think much about and it often times is a bit of a surprise. How it works is, the title company will pro-rate the current taxes from January 1 to the day of closing and you will have that amount debited on your settlement sheet. The two largest debits you will see (outside of real estate commissions and your mortgage payoff) will be the taxes and the title insurance policy. Title insurance simply indemnifies that the title to the property will be passed from you to the new owner in good standing and free of any liens. For a $250,000 home you can expect this expense to be in the $900-$1000 range. These costs are on a sliding scale based on purchase price.

The most discussed fee on the seller's settlement statement is often the charge for water & sewer. The bills for water and sewer, if left unpaid, can be held as a lien against the property and thus MUST be settled at the time of close to ensure the passing of a clean title (as discussed above). In order to ensure that the amount that is owed is covered, the title companies always hold out an amount significantly over (generally around $200) your typical water and sewer bill. This ensures there is enough to pay it off and they will refund the difference back to you shortly after close. This one always creates a fair amount of discussion about how you never have had a bill that high etc., but believe me they will refund you the difference in short order. Always remember that your other services like gas, electric, telephone, television etc. are your responsibility and you should call 24 – 48 hours prior to close and let them know you will be moving and the service will be transferring to a new owner on the date of close.

One last tip. Your mortgage statement always provides a payoff for you to reference, however, the day it is printed you start accruing interest so your payoff is always higher than what is printed on your statement. I always tell our sellers to just add one extra payment to the amount on the settlement statement and that will provide a safe payoff amount. In my experience when closing day comes people are happy they overestimated and get a little money back, rather than under estimate and have to go digging for that little extra! I hope this helps and by following these guidelines you should have a safe estimate of your closing costs. Congratulations on getting your home under contract and best of luck on your new journey!

Dave Kimbrough
The Kimbrough Team

Have a Question? Ask Dave!

Is it appropriate for buyers to ask sellers to pay their closing costs?

Dave,

We just listed our home for sale and our agent informed us that buyers in our price range are going to ask US to pay THEIR closing costs....I was floored. I have never asked anyone to pay my closing costs when I have purchased any of our homes and certainly do not have much interest in paying them on a buyers’ behalf. I am going to have my own costs to pay, without paying theirs too. We do not feel like we should pay someone to purchase our home. The whole thing just does not make sense to us and when we asked her why, she just said, “it is the way it works now-a-days.” I agreed and just moved on, but it still does not sit well with us. Could you please give us a better explanation of why we will be required to pay the buyers’ closing costs?

Les and Joanna, Grand Junction

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Les and Joanna,

I can assure you, you are not the only sellers I have heard this from, “if they can’t afford to pay their own closing costs, they certainly can’t afford to buy my home.” Seller paid closing costs must be somewhat of a newer trend, as it is my sellers who are generally over the age of 50 that have a real disdain for seller paid closing costs. They are fundamentally opposed to it. I really believe most of the time it is not the costs involved, it is the lack of understanding and the generational gap of a time when you just did not ask for help. Remember, you are not required to pay the closing costs, but let me see if I can make a case for why you should!

There are a few reasons why this has become quite the trend in home buying. First, the lenders will generally allow a seller to pay up to 3.5% of the homes purchase price towards the buyers’ closing costs.  If the seller agrees to participate by paying the buyers’ closing costs, this lessens the buyers’ “cash burden” at close and thus allows them to purchase the property with less money out of their own pocket. This leads us to our second reason this practice has become so vogue, many buyers in today’s market are “cash poor.”

“It really is quite simple, you are paying their closing costs to lessen their cash requirements at close and thus increasing the size of the overall buyer pool.”

Lets face it, as a society we largely live hand to mouth and save very little, although our saving habits have become somewhat better since the fiscal crisis of the past several years. Statisticbrain.com reports (numbers verified 12-26-2013) the average American family has a savings account balance of $3,800 and 25% of American families have no savings at all and 40% of families have no plan or savings for retirement! I think it is safe to say that we are a “cash poor” society and the more cash it takes to purchase a home, the fewer buyers there will be who will be able to buy. It really is quite simple, you are paying their closing costs to lessen their cash requirements at close and thus increasing the size of the overall buyer pool. By saving the upfront cash expense of closing costs, the buyer may also be wanting to make some improvements or updates to the home after closing and keeping some cash in reserve will allow them to do just that. Keep in mind that it is by no means, “every buyer” who “needs” the closing costs paid on their behalf. Many buyers choose to have their closing costs paid by the seller, as this allows them to “roll” their closing costs into their loan.

By rolling their closing costs into their loan, a loan that they likely have at around 4%, it requires them to take less cash out of other investments that may be performing at a higher rate of return than the 4% they are borrowing at. If I have an investment at a 10% return, then why take money away from that investment to pay down a loan at 4%? As a society we have become obsessed with our “rate of return” on our investments. In today’s world if you tell someone to take money away from a 10% return investment to simply lessen their borrowed amount on a 4% loan, they would look at you like you were crazy and I must admit, there is some truth to that line of thinking. 

As you can see, there are several reasons why buyers will ask you to pay their closing costs and you can be assured that if you refuse, many buyers will move on to another property, especially in the under $300k price range. I always advise my sellers to pay the closing costs and negotiate from a bottom line sales price (their net), rather than getting caught up in who is paying what closing costs. Just ask your real estate agent to give you a net sheet so you can see what your walk away number will be and negotiate off your net amount, as this is the only number you should really be concerned about. I hope this helped.

Dave Kimbrough
The Kimbrough Team
RE/MAX 4000, Inc.

Common closing expenses for sellers

Dave,

We are currently in the process of selling our home and it just went under contract—yay! We want to know what to expect financially from this point forward. What are common closing expenses for sellers?

 Thanks!

Cheryl, Palisade

---

Cheryl,

Oh my gosh, this is such a great question and one that I get ALL the time! As a seller you have the privilege of paying the sales commission you agreed to with your listing agent, assuming your home is listed with a Realtor. Costs associated with selling your home that are the sellers responsibility are varied, but you can almost always calculate an additional 1% if your sales price is UNDER $300,000 and .7% if your home is over $300,000. If you calculate it that way you will, almost always, come up with a slight over estimate of your closing costs. 

The most common cost that is overlooked is your property tax. What most people don’t fully realize, as I did not prior to becoming a real estate agent, is that our property taxes are paid in arrears. It’s probably something most folks just don’t think much about and it often times is a bit of a surprise. How it works is, the title company will pro-rate the current taxes from January 1 to the day of closing and you will have that amount debited on your settlement sheet. The two largest debits you will see (outside of real estate commissions and your mortgage payoff) will be the taxes and the title insurance policy. Title insurance simply indemnifies that the title to the property will be passed from you to the new owner in good standing and free of any liens. For a $250,000 home you can expect this expense to be in the $900-$1000 range, these costs are on a sliding scale based on purchase price.

The most discussed fee on the sellers settlement statement is often the charge for water & sewer. The bills for water and sewer, if left unpaid, can be held as a lien against the property and thus MUST be settled at the time of close to ensure the passing of a clean title (as discussed above). In order to ensure that the amount that is owed is covered, the title companies always hold out an amount significantly over (generally around $200) your typical water and sewer bill. This ensures there is enough to pay it off and they will refund the difference back to you shortly after close. This one always creates a fair amount of discussion about how you never have had a bill that high etc…, but believe me they will refund you the difference in short order. Always remember that your other services like gas, electric, telephone, television etc. are your responsibility and you should call 2 –48 hours prior to close and let them know you will be moving and the service will be transferring to a new owner on the date of close.

One last tip. Your mortgage statement always provides a payoff for you to reference, however the day it is printed you start accruing interest so your payoff is always higher than what is printed on your statement. I always tell our sellers to just add one extra payment to the amount on the settlement statement and that will provide a safe payoff amount.  In my experience when closing day comes people are happy they overestimated and get a little money back, rather than under estimate and have to go digging for that little extra! I hope this help and by following these guidelines you should have a safe estimate of your closing costs. Congratulations on getting your home under contract and best of luck on your new journey!

Dave Kimbrough
The Kimbrough Team