When individuals sell their homes, they are not typically aware of the expenses they are going to incur in the process. Yes, they often understand that they will be responsible for paying an agent, but generally speaking, home sellers are surprised when their homes enter into escrow, and they learn about the additional expenses their buyer is asking them to cover related to closing costs.
To get started, let’s address the question, “What Are Closing Costs?”
Closing costs are fees associated with selling/buying a home – they are generally paid at the closing of a real estate transaction. Closing costs are primarily fees that must be paid to third parties in order to complete the to-do list of the lender; however, the closing costs can vary depending on the lender an individual party is working with.
The most common closing costs include an application fee, escrow fee, credit report, appraisal, and additional inspections; inspections required by the lender can include flood determination, home inspection, lead based paint inspection, and pest inspection. Escrow fees can additionally extend to recording and survey fees, courier fees, and transfer fees. Additional costs outside of those required by a lender can also be incurred, including attorney fees to cover the costs of an attorney reviewing all documents associated with the sale.
Needless to say, closing costs can add up – they typically fall between 2% – 5% of the home’s purchase price. Therefore, if a seller is selling his or her home for $1,000,000, closing fees would typically be between $20,000 – $50,000.
Who Covers Closing Costs?
There is no clear answer to this question. The buyer and seller are both looking to save money and therefore hoping that the other will cover the costs. Although the fees are assigned to the buyer, this does not mean that the buyer must necessarily always cover the fees. For example, if the buyer is on a budget or looking for a discounted rate, they will generally propose terms that require the seller to assist with the closing costs – usually at 50%. The seller always has the ability to opt out of assisting with these costs, but they are running the risk of losing a buyer and extending the sale process.
The seller also has the option of requesting that the buyer negotiate the closing costs with their lender, but this can’t happen without willingness on the buyer’s behalf.
So, let’s take a closer look at the numbers… the closing costs plus the agent fees will equal, on average, 9% of the home’s selling price. Therefore, if a home sells for $1,000,000, there will be $90,000 in accrued fees – this equation estimates that the seller will be responsible for $45,000 at close.
A major factor that affects who pays these fees is the current state of the market – is it a buyer’s market or a seller’s market? If the seller has multiple offers and can afford to decline any potential buyers who ask for assistance covering the closing costs, the seller has an advantage. However, in many markets, buyers are limited – therefore, the seller must consider the option of covering the costs in order to facilitate a swift close.
Tips to The Seller
If a seller is questioning how they should proceed with covering closing costs, they should ask themselves the following questions:
● Do I need to sell quickly?
● Am I selling my home below, at, or above my listed price?
● What is my market like?
● Can I afford to say no to assisting in covering the fees?
● Do I want to invest the time to allow for all inspections to be completed for the lender?
Many sellers either do not want the hassle of meeting requirements for closing with a buyer’s lender, or they do not want the responsibility of covering the fees. One way they can avoid this hassle is by selling to a qualified investor who is willing to pay all cash – specifically one who is willing to cover all closing costs on the home.
We here at Gulf State Homebuyers have provided that solution for you. We purchase homes as-is with all cash offers. What does this mean for you? No additional fees must be paid to agents or on closing costs. No additional time is spent on the home – we buy the home “as-is.” Finally, you can count on a quick close – we can close in as quickly as five days.
If you are interested in learning more about what closing costs are or are interested in selling your home quickly with no inconvenience to you, just contact us and we can help you make that next step towards your future.