Thursday, May 31, 2012

What's in the Closing Cost?

Differing from state to state, closing costs are best explained and dealt with by expert real estate agents.  Sellers and buyer should familiarize themselves with a real estate agent's knowledge base regarding closing costs to properly educate themselves as consumers.  An expert agent should be able to discuss with any consumer or client the entire process of listing or purchasing a home--especially the end--before the process gets underway.

Closing costs are "fees and expenses, over and above the price of the property, incurred by the buyer and/or the seller in the property ownership transfer."  Closing costs incur on the buyer, the seller, or both, since closing costs are negotiable.

Generally speaking, in strong markets the seller has the upper hand when negotiating closing costs.  Since there is demand for homes, and the seller expects to have multiple contracts, the seller can push their demands forward.

In slow, stifling, or recovering markets, the buyer has the upper hand, since inventory is high and the sellers are less confident that their property will sell quickly--or sell at all.

Below is a list of the most common types of closing costs:

1.  Attorney/Lawyer Fees
  • When clients and/or lenders request help from attorneys helping to secure the preparation of recording official documents.  Paid by either or both buyer and seller.
 2.  Title Service Cost
  • Sometimes combined with Attorney Fees if the attorney does the title search.  The title search and title insurance indicate and protect against liens on properties.  It is imperative that clients understand and are aware what liens exist on a property, if any.  Usually paid for by seller.   
 3.  Recording Fees
  • When the deed is recorded the government requires a service cost.  Paid by either party.
 4.  Document or Transaction Stamps or Taxes
  • Tax levied on documents.  Usually paid for by both parties.
5.  Survey Fee
  • To ensure the lot of land's boundaries are accurate, the lost must checked by a professional. 
6.  Brokerage Commission
  • Usually the largest closing cost.  Usually paid for by the seller.  This payment compensates the listing-agent and buyer-agent.
7.  Mortgage Application Fee
  • Buyers always need to pay lenders for processing their loan application.  Sometimes this cost is paid to the lender directly, before closing costs, and other times it is inserted into closing costs.  
8.  Points
  • Points are paid by the buyer to the lender.  If the buyer chooses to prepay interest charged by the lender the buyer may save money since prepaid interest is cheaper (usually) than a higher rate of interest on a loan.
9.  Appraisal Fees
  • Usually paid by the buyer, most lenders will require an appraisal of a property conducted by a Professional Appraiser.  This is important since buyers always want the sale price of the property to be equal to or less than the fair market value of the property.  
10.  Inspection Fees
  • Usually paid by the buyer, home inspections, pest inspections, termite inspections, etc. are intelligent ways to safeguard any unwanted and costly surprises before a house is bought.
11.  Home Warranties
  • Warranties insure major household systems against repair or replacement for a certain length of time after initial ownership.  Paid for by either the seller or the buyer. 

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