Real estate transactions are subject to several taxes and fees at the time the deal is finalized, or closed. These are termed as “closing costs.” These taxes and fees vary widely based on the city, state and county where the property is located. Though usually less expensive for sellers than buyers, closing costs are often thousands of dollars. It’s important to understand the different fees that are paid by the buyer and the seller. This article focuses on the costs that sellers of property can expect to have deducted from their proceeds when the sale closes.
Here are some of the costs sellers are usually expected to cover:
1. Real estate commission – A percentage of the sale price paid to the real estate agent, agreed upon when you listed your property with the agent. It is one of the biggest costs that will be deducted from the sales proceeds.
2. Title and lien search – To ensure that you, the seller, have the right to sell your property, this search must be completed. In addition, it determines whether there are any restrictions or allowances attached to the land (such as an easement for power lines). Finally, it will find any liens on the property, including mortgages, back taxes, or construction liens.
3. Clearing title defects – If the title search discovers any liens on the property, the seller will need to pay these off completely to ensure a clear title is being transferred into the buyer’s name.
There are other charges that may be assessed against the seller or the buyer, or may even be split, depending on what is typical in each state. Following are some of those costs:
1. Document stamps (also called doc stamps) on the deed – This is a state tax exacted from the sale of the property, due at the time the deed is transferred into the name of the buyer. In Miami-Dade County, Florida, for example, it is $0.60 per $100 of the sales price. Thus, doc stamps on the deed for a property being sold for $200,000 in Miami will cost $1200.
2. Document recording fees – Counties usually require a per-page document recording fee for deeds as well. The new deed being recorded for the mortgage is typically charged to the buyer. However, there is a deed that transfers title out of the seller’s name, and this is generally paid by sellers.
3. Preparation of sale documents – These include the deed, bill of sale, no lien affidavit, and 1099 tax form. In some areas, these documents are prepared by an attorney, while in other cases the title company takes care of this process. Either way, there is generally a fee assessed. This fee is usually called an escrow fee when the paperwork is handled by a title company. Paperwork prepared on behalf of the seller is charged to the seller.
4. Prorations of homeowner association fees and property taxes – the seller will need to pay the part calculated for the percentage of the year that they owned the home.
As fees associated with closing the sale of a home are surprisingly varied from state to state and even city to city, talking with a real estate professional about closing costs in your area is prudent. Your real estate agent is required by law to disclose all possible fees to you, so they are an excellent resource for understanding the local regulations that apply for your transaction.
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