You’ve likely heard about closing costs, but do you know everything that they include? Check out our closing cost “FAQ” to learn more about what closing costs are all about.
What Are Closing Costs Exactly in the Bay Area?
The term ‘closing costs’ is a broad designation used to refer to all of the fees and charges that must be paid at the time of closing a real estate transaction. It is important to note that these fees and costs can vary significantly depending on the geographic location where the transaction is being conducted. Generally speaking, closing costs can include, but are not limited to: appraisal fees, title searches and insurance, inspection fees, property taxes and transfer taxes, attorney fees and other miscellaneous costs:
- Notary fees
- Transfer Costs
- Transfer Taxes
- Appraisal Costs
- Inspection Fees
- Origination Fees
- Recordings Fees
- Title Insurance
- Underwriting Fees
- Bank Fees
- Courier Fees
- Wire Transfer Fees
- Liens against the home will need to be paid to clear the title
- Credit Report Fees
- Administrative Fees
- Attorney Fees, If Applicable
- The balance of your mortgage or loans against the home
- Possibly repairs or pest control if this has previously been agreed upon
- COMMISSIONS!
Who’s Paying?
The commission fee, usually about 6% of the final sale price, is typically paid entirely by the seller, although the buyer may cover some additional costs. This commission fee is often the largest expense at the closing table, besides the outstanding mortgage balance. To offset this cost and attract more buyers, some sellers are choosing to negotiate and cover other expenses associated with the sale process. This trend is becoming more common and may include paying for the appraisal, inspection, and other fees normally incurred by the buyer. Ultimately, the total amount of costs associated with the sale that the seller will be liable for will largely depend on the specifics of any negotiations between both parties and the overall state of the housing market at the time.
As a seller, you are obligated to pay your share of the current year’s property tax, up until the day of closing. Any applicable Homeowner’s Association (HOA) fees or other community costs should also be prorated and paid at this time.
What Are Seller Subsidies?
This previously agreed upon amount is usually negotiated between the buyer and seller and is typically a percentage of the overall cost that the seller agrees to pay towards any closing costs. As an example, you may offer to contribute up to $3,000 towards closing costs in order to reduce the financial burden on the buyers. In many cases, the costs associated with attracting prospective buyers to the negotiating table can be considered a relatively small price to pay when compared to the potential gains that could be made through successful negotiations.
Can You Avoid These Costs?
Absolutely! By engaging with a direct buyer, you can save yourself from incurring the costs associated with closing a sale. Moreover, unlike an agent, a direct buyer does not require any commission for their services. It is not uncommon for direct buyers to offer to cover all associated costs, which can be a great advantage both in terms of saving money and reducing the amount of paperwork that needs to be completed at the time of closing.
Are Repairs Included?
When it comes to repairs, the buyer and seller can negotiate and come to an agreement. Before putting their home on the market, the seller may take care of any needed repairs. However, if an inspection reveals additional repairs, the buyer may make a contingency offer which allows for negotiation before the closing date. This ensures that both parties can work out any necessary repairs and avoid any potential conflicts that could cause problems with the sale. By negotiating repairs beforehand, both parties can feel more confident in the transaction and avoid any last-minute surprises that may cause delays or even lead to the sale falling through.