If you’re thinking about selling your home, you’ve probably also thought about how much you’ll be able to make on the sale.
Your first step will be to calculate your potential net proceeds by subtracting the expected final sales price from the total closing costs.
While most home sellers are aware of listing agent fees, many home sellers forget about buyer agent commission, taxes and other closing costs a seller may be responsible for. This final amount generally adds up to about 5-8% of the final sales price and could significantly impact the net profit on a home sale.
Which Closing Costs are Paid by the Seller?
Each state handles closing costs a bit differently, but there are several categories of closing costs that are consistently paid by the home seller. It's important to remember that some closing costs may be paid by the buyer if negotiated as part of the purchase agreement or a contract amendment.
1. Real Estate Agent Commission
Realtor commissions are hands down the largest line item when it comes to closing costs. The national average paid by most home sellers is about 5.75% of the sales price. This includes both the listing agent fee and the buyer agent fee - both of which are paid at closing by the seller. For a $500,000 home, the seller will pay about $28,750 - given a 5.75% total commission.
Keep in mind that both the listing agent commission rate and the buyer agent commission rate are negotiable. While some large real estate corporations charge commissions as high as 6.5%, it’s becoming increasingly common for homeowners to hire agents with reduced commission models. For example, SimpleShowing charges a 1% listing agent commission.
2. Transfer Tax
Before the buyer officially becomes the owner of your home, you need to sign over the title to the house. That’s easy enough, but to do so, you’ll also need to pay a transfer tax, which is a percentage of the home’s sale price. This percentage varies significantly by state, though.
For example, in Illinois, you may pay 0.15% to transfer title, whereas the cost could be 0.9% in nearby Michigan. The transfer tax in Georgia is about 0.1%. In some states, this is paid by the buyer rather than the seller.
3. Title Company/Closing Attorney Fees
In some states, you can’t close on the sale of a home unless a real-estate attorney oversees the transaction. For example, this is the case in Georgia And in all of the other states, you'll use a title company to perform the closing.
In both cases, the attorney fees or title company fees are considered closing costs. In some states, the purchase contract often stipulates that the buyer is responsible for closing attorney fees and title insurance. For example, real estate attorneys are used in Georgia, New York and North Carolina. However, title companies are used in California, Texas and Florida.
4. Prorated Property Taxes
In most states, homeowners pay their property taxes are due at the end of the year or paid in arrears. If you’re selling your home four months before those taxes are due, you’ll need to pay the prorated amount for the final months you’re living in the home.
Most homeowners escrow their property taxes as part of their mortgage payment so they may receive a refund of their escrow payment depending on when the lender disburses property tax payments and how the timing aligns with the closing date.
5. Balance of HOA Dues
Similar to property taxes, if your community has a homeowner’s association (HOA), your dues are probably charged monthly, quarterly, or once a year. If it’s one of the last two, you’ll need to include prorated dues in your closing costs, so the buyer isn’t stuck paying for months before they owned the house.
6. Buyer Closing Cost Credit
In especially buyer-friendly market conditions, you might be asked to provide a monetary closing credit or seller "concession". Both of these terms refer to a credit that you apply toward the buyer's closing costs. By doing so, you’re reducing the amount of cash the buyer will need to pay at the time of closing.
Some sellers may reject credits altogether, depending on the nature of the deal. Sellers may also negotiate a credit in lieu of necessary fixes when submitting their offer. Either way, if you agree to provide a buyer credit, then that amount will be deducted from your proceeds at the time of closing.
7. Repair Credit to Buyer
Once you get an offer on your home and go under contract, it's not uncommon for the buyer to ask for a monetary credit in lieu of repairs being made. The buyer will perform a home inspection which might reveal critical fixes that must be completed prior to closing.
If necessary repairs are discovered during the inspection/due diligence period, many homebuyers will request that you either perform the repairs prior to the close of escrow or provide an in-kind, monetary cash contribution at closing. If you balk at providing the credit (or the repair), the homebuyer may opt to terminate the contract and claw back their earnest money deposit.
How to Reduce Seller Closing Costs
As we covered, the closing costs for a seller can be quite substantial, taking thousands of dollars out of the potential profits from your home’s sale.
Realtor fees represent the biggest opportunity for cost savings. If you're considering selling, avoid paying 6% in commissions by hiring an independent brokerage if one is available in your area. SimpleShowing offers a 1% listing commission in Florida, Georgia and Texas, which saves home sellers $11,400 on average.
To find out more about how we’re helping sellers keep closing costs down, please contact us today or obtain a free online home valuation.
