Settling Up The Final Tab: Which Types of Closing Costs Are Sellers on the Hook For?

Closing. The word has a nice, final-sounding ring, doesn’t it? Especially since it means you, the seller, will be the recipient of a sizable check for the sale of your home soon!

But before you’re officially in the clear, prepare to be on the hook for an assortment of fees called closing costs. Buyers pay a laundry list of closing costs typically amounting to 2-5% of the sale price to settle up with the lender. But even though the total number of charges is smaller for sellers, don’t expect to get a free ride.

In fact, according to real estate and title industry experts we spoke with, the closing cost rate for sellers can range between 6% and 10% of the sale price. Let’s break down the types of fees that are customary for sellers to cover so you know what’s standard and won’t be blindsided by unexpected costs.

Why the seller’s closing tab can vary big time from deal to deal

6-10% in closing costs is normal for the seller? Well, that’s quite the range, isn’t it! You’d rather be on the lower end of that spectrum than creeping up toward the double-digit rate.

They say that “everything in real estate is negotiable” but you’ll be hard-pressed to wiggle out of some costs that are standard—basically written in stone—for the seller to pay, and the big one is the real estate agent commission on both the buy and sell sides.

Since the 1950s the typical agent commission has been 6% but more recent reports put it at around 5%. So you can expect it to fall somewhere between 5-6%. That commission is split with 50% to your agent and 50% to the buyer’s agent.

Closing costs also differ depending on the price of the home, state and local rates for taxes and recording fees, and customary charges for your individual region, all of which you won’t have too much control over.

Whether you’ll have to pay even more in closing costs depends on where you land in negotiations with the buyer—for example, you might agree to pick up some costs that the buyers traditionally pay, making it easier for them to make a down payment and speed up the deal. Or the buyer could request that you cover the costs of the title search or provide a two-year home warranty. Whether you end up footing the bill on those items will depend on what your agent is able to negotiate into the contract on your behalf.

One big cost difference comes from where your home is located. Transfer taxes and recording fees are fees levied by the state, county and/or municipality to record deeds and transfer real estate ownership.  For detail on what your state levies, visit the National Conference of State Legislatures website.

Closing costs also vary depending on who is facilitating the closing, whether it’s a title company or real estate attorney. On its website, the trade group ALTA (American Land and Title Association) advises that sellers call up title companies, “to get detailed information on what’s included in quotes on closing fees” so that you can accurately make comparisons between companies. You can also review a list of firms here at ALTA’s directory.

Many sellers rely on their real estate agent’s recommendation for a closing firm, says Christopher Michael, a top real estate agent in Oklahoma City who sells on average 70% more single-family homes than his peers. Agents should know about the reliable and economical options in your local area but also agree to the closing company of the client’s choosing, notes Michael.

Take a closer look at each typical seller closing cost

At least a few days before the scheduled closing, you can expect to receive an estimated settlement statement aka closing statement that outlines all your costs.

Here are the costs sellers are likely responsible for in every locale.

Seller’s agent and buyer’s agent commissions

If your home sells for $450,000 and the contract with your agent’s firm specifies a 5.5% commission, that’s $24,750, reducing your net to $425,250.

Loan payoff amount

If you have a mortgage on your home, you’ll be paying it off as you transfer ownership.

If you close in the middle of the month, there may be some interest charges from when you last paid your mortgage bill. Also expect a fee for “reconveyance” which officially documents that the lender releases you from the debt, as well as additional recording fee charges.

“These fees can be as low as $25 pay-off for the payoff statement and $175 for the reconveyance, “ explains Maureen Pfaff, president of Olympic Peninsula Title. But that can double or triple if closing dates are rescheduled, there are multiple mortgage pay-off statements, or if recording fees in a locale are high.

So, if your mortgage balance is $200,000, and you close in the middle of the month, you might owe $350 in interest, and pay $250 for reconveyance and recording. In that case, you’d owe a total of $600 for this category of closing costs.

Transfer taxes and recording fees

The state and/or county and city that your home is in pick up revenue on every home sale with transfer taxes. Local bodies will also charge to enter the property and mortgage deed into the record—though these are often the buyer’s responsibility.

Title insurance premium and insurance fees

Your buyer’s mortgage lender requires insurance guaranteeing that his borrower has clear ownership or title to the home. If, somehow, the title company misses a valid claim on the property when conducting the title search, the company pays the lender.

Buyers usually pay for this insurance required by their mortgage lender. Sellers might be asked to pay for a similar policy for the buyer.

You’ll often see the term “simultaneous” in reference to title insurance, and that means that work involved in searching title is similar for both an owner’s and a lender’s policy, and there’s a lower rate for the combined policies than what two separate ones would cost in total.

HOA unpaid dues and real estate taxes

Depending on how you’re billed for property taxes, you might pay in one year for the previous year’s taxes. So if you move in March, you’ll owe whatever three month’s worth of property tax is. The same calculus applies to homeowner association dues.

Seller’s closing cost tools and resources

If your listing agent is on the ball, the standard seller closing costs and your real estate commission shouldn’t be a surprise.

“In Oklahoma, it’s even the law that listing agents provide sellers with an estimated net sheet,” says Michael.

Right from the start, a seller then knows how much the purchase contract price will be reduced with closing fees. And, if in negotiating with your buyer, you offer to pick up some of his charges, your agent should keep you advised on how that impacts your net proceeds.

One of the largest title companies in the country, First American Title, also has a calculator that sellers can use nationwide to estimate their closing costs in their own particular area.

The differences in costs by locale are evident if you plug different addresses into the calculator.  For instance, two homes, one in a Denver and the other in a Chicago suburb, both priced $450,000, with a buyer getting a $200,000 mortgage, have major differences in what the calculator estimates closing cost to be.

For the Chicago home, it’s $6,184, with the seller’s portion at $3,198. For the Denver property, the total is $3,121, with the seller’s portion at $1,998.  Neither of the estimates includes the realty firm commission.

An experienced agent knows a lot about the common closing fees for clients in his market area.

As Michael noted, you are likely to hear about closing costs in the very first discussions with your listing agent. And for most of us, the legalities and fees are going to seem confusing. An agent should be able to answer your questions—and you can also consult a skilled real estate attorney for any legal matters.

Header Image Source: (Nick Morrison/ Unsplash)