Your agent will provide you with a “net sheet” that estimates how your sale can be expected to break down at closing and the approximate amount of proceeds you might expect from your sale after all expenses and closing costs are paid. This document is provided for reference, and the exact costs at closing will depend on the terms of the purchase contract, specific prorations, and any amounts still owed on the property.
The term “closing costs” can sometimes be a topic of confusion in real estate. Technically speaking, closing costs are any of the fees paid at the closing of a real estate transaction. The following are some of the common closing costs you can expect to see listed on the settlement statement for your sale.
Property Tax Prorations
Property taxes are prorated between the buyer and seller at closing to ensure each party is only paying taxes for the specific amount of time they have ownership of the property.
Many homeowners pay a portion of their property taxes each month included in their mortgage payment through an escrow account established with the lender. At closing the prorated property tax amount for the entire year is paid, and any amount in the escrow account saved for taxes is refunded to you directly from the lender (typically within 3-6 weeks after closing). This ensures all of the property taxes are paid on the property prior to transferring ownership.
Additional Taxes and Government Fees
The government taxes and fees associated with buying and selling real estate vary by state and sometimes even by local municipality, so it is important to work with a local expert to make sure you understand all of the costs associated with your sale.
Florida does levy a “documentary stamp tax” on the transfer of real property. The rate of this tax is $.70 per $100 of the purchase price (.007 x purchase price), and this is typically a seller-paid expense (the reasoning being that the tax must be paid in order for a property to have “clear and marketable title” to transfer the deed).
A title policy is a specific type of insurance policy that ensures the deed to the property can be transferred from one party to another with no “cloud” on the title (i.e. problems involving the chain of ownership, future unexpected claims of ownership rights, etc.). If one of these situations arises in the future, the company issuing the title policy is on the hook instead of the buyer or seller. There is also a title search fee associated with issuing the title policy, as the title company must search through court and county records to confirm the property indeed has a clear and marketable title.
The majority of the time the seller pays the title expenses, and the total amount will depend on the purchase price. An exception to this is in new construction where the buyer typically pays this expense, and there are times a buyer might offer to pay title expenses if they are trying to make their offer as attractive to the seller as possible (we see this most often in multiple offer situations).
These are the fees paid to title companies for completing the closing of a real estate transaction and the fees associated with wiring funds and securely delivering documents for the closing. These fees include administrative fees, wire fees, courier fees, and the fee to the closing agent or attorney handling the signing and recording of the closing paperwork and recording of the deed to legally transfer ownership of the property.
Homeowner Association Fees
HOA dues (when applicable) will be prorated between the buyer and seller at closing. Many homeowner associations also charge application or transfer fees to buyers or sellers, and these fees should be listed within your HOA governing documents.
Seller-paid Buyer Expenses
Depending on the transaction and what is negotiated through offers and counter offers, sometimes buyers may ask the seller to pay a certain amount toward the buyer’s closing costs to enable the buyer to close on the property with less money due upfront from the buyer at closing, and some buyers may need this assistance to be able to purchase the property. This amount along with the purchase price are important items to consider when reviewing offers and preparing counter offers.
Commissions are the fees paid to the real estate brokerages representing the buyer and seller in a transaction. Typically the seller pays a total sales commission based on a percentage of the purchase price that is split between the listing agent and the agent who produces the buyer for the property.
Many brokerages now also charge a “broker base commission” or “transaction fee” on each real estate transaction. These fees are similar to the “docking fee” you may have encountered when purchasing a vehicle. Some agents are even going so far as to raise this fee 3, 4, or even 5x what their brokerage actually charges!
We cannot stress enough how strongly we are against these extra fees being passed onto our clients. We have decided to take a stand against them, so we refuse to charge this extra fee to our clients (we will pay them out of our own pocket if necessary), and we hope more agents will follow suit!