The Real Estate Closing Process
(A continuation of How
to Sell a House)
By Steve Gillman - 2006
The real estate closing process has become more complicated
over the years. It perhaps another argument for not trying to
sell your home on your own. But even if you have a real estate
agent, you should try to understand the whole home selling process
- including closing.
In fact, you should understand the home buying process
as well. That is, you have to know the basics it if you want
to make it easy for a buyer to buy your home. This includes knowing
the real estate closing process, or at least the most common
things to expect.
If you are selling the home yourself, ask for some help from
the closing company. They should at least be able to provide
you with a list of what you and the buyer need to bring to closing.
Make sure you understand, and then help the buyer as much as
you can.
Also demand that you get a closing statement at least two
days before closing, so you and the buyer can look it over for
errors, and ask any questions before the day of closing.
Below is an item-by-item list of what you may see on your
closing statement, and what it means. There are also a few suggestions
about how you or the buyer can save money on some of the items.
Loan related charges are not included here, because the lender
should be explaining those to the buyer.
Closing or Escrow Fee
This is the fee that is paid to a title company, bank, lawyer's
office, or other company for handling the closing. At the moment,
it can range from $250 to $650 depending on the area of the country
and the nature of the purchase. If you have a preference as to
which company does the closing, speak up early in the process
(put it in the offer), or the decision will likely be made by
the bank or real estate agent.
Although you can check a few places, there isn't usually much
of a difference in pricing between closing companies in a given
town. To save money on the closing fee, you can get the buyer
to pay more of it, but this has to be in the original purchase
agreement.
In many areas, if it isn't specified, it is customary to have
the buyer and seller split the fee. If you include "buyer
to pay the closing fee," in your counter-offer, and it is
accepted, the buyer will have to pay the whole thing.
Document Preparation Fees
These can vary. Some closing companies are very reasonable,
charging $25 or so for preparing a deed or contract-for-sale.
Others may pretend that a lawyer is preparing them (it will be
a secretary, and the lawyer will only look at it briefly), and
charge accordingly.
You are not obligated to have the closing company prepare
the documents. If they charge too much, ask them to lower the
cost, or have the documents prepared by a lawyer or paralegal,
and then delivered to the closing company.
Notary Fees
These are never much. If they are more than a few dollars,
ask why. Closing companies always have a notary public on staff,
and it takes them just a few minutes to look at your ID and verify
that you signed something.
Attorney Fees
Unless there are some particular legal issues in the transaction,
there usually won't be any attorney fees. Document preparation
fees could show up under this category, though. In any case,
ask about these if you see them on the closing statement. When
I sold real estate, I saw charges removed more than once just
because they were questioned.
If you hire your own attorney, you will most likely pay him
apart from the other costs on the closing statement.
Title Insurance
This insurance is for the buyer, and guarantees that if there
are any title problems in the future, the issuing company will
pay the legal costs of resolving them. In many areas it is customarily
paid for by the seller, as a way of assuring the buyer of a good
title. There is generally no law or rule about these things though,
so be sure if you want the buyer to pay, you specify that in
the offer.
There may also be a separate charge on the buyers side for
the bank or lender to be covered by the policy. If there is,
the buyer can ask if this is absolutely necessary, or if there
is some cheaper way to arrange this.
Recording Fees
There is a small charge that is paid to the county or parish
where the deed, mortgage and other documents are recorded. Unless
there are many documents to record, these fees should add up
to less than $100 in most areas. Most closing companies don't
charge more than the county fees, because recording the documents
is included in their closing fee. If the fees seem high, ask
if they are charging extra, and why.
Commissions
Ordinarily any real estate sales commission would be paid
by you. Even if the buyer is working with a buyers agent, the
offer is usually structured so the seller pays his or her fee
too. Ask about this before you accept an offer.
Title Transfer or Tax Stamp Fees
Most states charge tax on the transfer of real estate. Whatever
it is called, it is most commonly based on the sale price of
the property. Some states mandate that the seller pay this charge,
while in others it is left up to the two parties to negotiate
this. In other words, if you want to save on this, make it a
condition of your offer that the buyer pay it (if the law allows
this).
Other Taxes
There may be other title transfer or similar taxes charged
by the local government. Ask your agent about this before you
accept an offer. If there are such taxes, specify in the offer
if you want the buyer to pay.
Other Charges
There may be any number of other charges according to the
specifics of your offer. In fact, in almost every real estate
closing I have been involved with there have been "surprise"
charges. Always ask about anything that isn't clear, and demand
that the closing agent keep explaining until it is clear to you.
Just as in the medical profession, in the real estate professions
there is sometimes an attitude toward customers of "You're
just supposed to shut up and write the checks."
Don't accept that. I have seen people pay hundreds of dollars
extra at closing just because they were intimidated. You have
the right - and the responsibility - to know what you are signing.
There are other items on a real estate closing statement that
are not exactly fees or charges. These include prorations of
taxes and other recurring costs, as well as prepaid escrow monies
on the buyers side. Though these are not strictly speaking closing
"costs," they still have to be paid. Ask the closing
company to explain these well to both you and the buyer.
The book continues here: Home
Selling Checklist - We reach the end of the book with these
lists.
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