Jay Paul Kahle - Attorney at Law

Real Estate Closing Costs Made Simple

Found on another attorney's home page", According to one humorist, a real estate closing is a ritual in which you go into a small room and write large checks to total strangers", a description with which many can identify.

Real Estate experts estimate that the buyer and seller may pay approximately 5% to 8% of the price of a home in closing costs. These are commonly referred to as "settlement costs". Add in the broker's commission that usually is paid by the seller at closing, and the total cost to buyer and seller can easily amount to 10% to 15% - between $20,000 and $30,000 on a $200,000 home. While closing costs vary throughout the United States, a buyer or seller who is knowledgeable about costs may well be able to reduce his closing costs by prior planning.

Closing Costs

Closing costs are various expenses that must be paid at the time of the closing. They include the costs of the financial, governmental, and other services required to conclude the sale. Brokers' commissions are usually a percentage of the sales price. Although customarily a percentage between 6% and 7% is commonly charged on residential property, a seller may be able to save money by shopping around and negotiating a lower commission. Unfortunately, many sellers believe the customary commission rate is set by law. It is not.

Other costs, including attorney's fees, depend on the circumstances of the particular transaction. These fees are generally charged on a percentage basis, beginning at one (1%) per cent of the cost of the transaction and reducing as the total price of the transaction increases. However, in some transactions a flat rate fee may apply, such as the cost of preparing an agreement of sale, a deed or other document. You should feel free to discuss these fees with your lawyer.

A federal law ("The Real Estate Settlement Procedures Act" ) requires that the parties to the real estate transaction be given an opportunity before the closing to see a closing or settlement statement that details the figures available at that time for closing costs the buyer and the seller will be required to pay. However, these are preliminary, and final figures might very well differ.

There are generally no fixed rules about which party pays which fees. Local custom will play a role, but so will negotiation - buyer and seller often allocate some settlement costs in the sales contract on the property. Other costs might be negotiable between the buyer and lender. That means the time to negotiate about allocating settlement costs - and the time to negotiate about allocating settlement costs - and the time to involve your real estate attorney - is early in the process. You should involve your real estate attorney before the listing agreement, sales contract, and financing applications are signed. An experienced real estate attorney can often save a client the cost of their legal fees, if brought in to negotiate early in the process. The day of the closing will almost surely be too late.

Plan Ahead: Know Your Costs

Loan Fees.

These cover a variety of charges in connection with the loan. They're usually paid by the buyer (since it is the buyer who is borrowing the money), but sometimes they may be shifted by negotiation. Comparison shopping should identify lenders charging reduced points and fewer fees (though be aware that cost isn't the only consideration - check out the lender's general reputation and reliability). Loan costs may include:

Loan origination fee - charge for the lender's administrative costs in processing the loan. It may be stated as a fixed sum or a percentage of the loan.

Loan discount fee (points) - the lender's charge to the buyer to obtain the mortgage; the buyer may have paid some of this fee in advance to secure the loan.

Appraisal fee - required by the lender to pay for an appraisal to make sure the property is worth more than enough to repay the loan.

Credit report fee - cost of a report from a credit bureau showing the buyer's credit history

Survey fee - cost of any surveys of the property required by the lender.

Title Charges.

These include a variety of fees relating to the transfer of title. They may be paid by either the buyer or the seller. Examples include:

Closing fee - payable to the closing agent title fee - may vary by jurisdiction; often includes the cost of title insurance or title search and attorney's title opinion; may cover premiums for the lender's policy (insuring that its mortgage is a first lien on the property) and a separate policy insuring the buyer's title.

Document preparation fee - charge for preparing final legal papers, such as the mortgage and deed.

Recording fees - These fees, which may also be paid by either the buyer or seller, cover the cost of legally recording the new deed, mortgage, or other documents such as a plat or survey. The seller generally pays the costs of recording releases and other documents required to give good title.

Transfer taxes - These are presently two percent (2%) of the purchase price of the property levied on the transaction by the State of Pennsylvania (other states may vary) and the local municipality. Every Deed is marked or "stamped" to reflect the amount of transfer tax paid

Other fees - These cover inspections of plumbing and electrical systems; pest inspections; or inspections for structural soundness. These costs can also be negotiated between the buyer and seller (although sometimes buyers prefer to pay for these inspections, so they know the inspectors will be working for them).

Discuss all of these costs with your attorney to be sure that you fully understand them before you enter into a contract to purchase or sell a home or other property.

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