Among the several costs involved in the buying real estate one of the most important is ‘Closing costs’. This is a term that is used to describe the collection of miscellaneous fees associated with a real estate sale, including attorney fees, title searches, and title insurance. The closing costs can be divided between the buyer and the seller or paid by one party in full. These costs are charged by the Title Company during the formal closing of the property on the day of the sale. Closing costs are a very typical item of negotiation during the striking of a deal because the fees can be quite high depending on the deal. Should you pay the closing costs?
Below are the typical components while estimating closing costs in real estate deals:
· The cost for title search services: It can be paid by either party as per the contract but generally the seller pays the majority of this cost for title search, title insurance etc.
· Lawyers Fees: Again, can be paid by the buyer or the seller for the preparation and recording of official documents.
· Recording Cost: This is the cost charged by a government entity for entering an official statement or record of the change of ownership of the property. Either buyer or seller can pay this.
· Fees for inspections: This is the fees paid charged by several inspectors for inspecting the property. It is typically paid by the buyer.
· Commission or brokerage: It is usually paid by the seller to a real estate agent involved in the deal for finding the finding a suitable buyer, and assisting in the negotiations.
· Appraisal Fees: This is a cost mainly charged by a licensed professional Appraiser for the property evaluation done.
There are number of other costs such as mortgage application fees, fees for documentation, stamps & tax, pro-rata interest and taxes, home warranties, private mortgage insurance costs etc among several others, that are used while calculating the correct estimates for ‘closing costs’.
Closing costs can either be incurred by the buyer or the seller. Usually title companies will pre-divide the costs between the two parties according to local custom. However, if you are not familiar with local customs (ie. Moving into the area, never bought a house before, etc.) you can get stuck with the short straw if you are not diligent. You and your Realtor should devise a plan of negotiation to split costs more evenly between parties. This way you don't have to burden all of the transfer costs.
Since these costs can get pretty high, it's extremely attractive when the other party is offering to pay them, as you get to keep more money in your pocket. If you are a seller, take offers with closing costs included seriously, as it could be more profitable. Talking with your real estate pro when managing offers and deciding on whether to pay closing costs is the best way to ensure that you do get the home of your dreams and sell your at top value.