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Once you've accepted an offer on your home, you may be anticipating a nice profit. But then come all of the closing costs you’re expected to pay. Closing costs for a seller can amount to roughly 6% to 10% of the sale price.
On the bright side, unless you have very little home equity, the closing costs will simply be deducted from the proceeds from the sale of the home. You're still spending the money, but since it never hits your bank account in the first place, losing it can hurt a little less.
Both you and the buyer will receive a closing disclosure three days prior to the actual closing. This will lay out all the details of the sale with real numbers, so you'll know what everything costs — and have the chance to get any errors corrected.
Here's an overview of common closing costs for sellers, plus tips on ways you might be able to lower them.
Real estate agent commissions
Real estate agent commissions are the most significant closing cost the seller typically pays.
It’s common for the seller to pay the commission for both the listing agent and the buyer’s agent. That’s usually a 6% hit to your bottom line, with 3% of the home’s selling price going to each agent involved in the transaction. On a $250,000 home sale, that would amount to $15,000.
To lower this cost, you could decide to take the 'for sale by owner' approach, though you'd still have to pay the buyer's agent. You can look for a discount agent, though be aware that their low commission may come with fewer services. If you're selling in a hot market, your home is especially high value or your listing agent is also helping you buy your next home, you may be able to negotiate a lower commission.
» MORE: Calculate your closing costs
The lender’s title insurance policy is another closing cost a seller can expect to pay.
Prior to a sale, a title search is conducted to verify ownership. In some states, a real estate attorney is required to review the title as well. A title policy protects the lender (and the new home buyer, if they opt to buy a policy of their own) against unexpected ownership claims that may arise.
While not common, an ownership claim can trigger legal disputes — and the extensive lawyer's fees that come with them. You can't lower the title insurance cost, but its price is probably worth the potential trouble it could save you.
Taxes and fees
Which party pays what fee may be negotiable, but the precise costs of many filing and recording fees or transfer taxes are determined by the state or local jurisdiction. Sellers will often be required to pay the property or deed transfer tax.
Property taxes, as well as homeowner association fees, will likely be split with the buyer (unless you, as a seller, agree to cover them). These are normally prorated based on the closing date. So, for example, if you were closing on the 15th of the month, as the seller you'd be on the hook from the first through the 14th. As the home's new owner, the buyer would pick up the tab starting on closing day.
Taxes and fees are generally not negotiable, though in an especially hot seller's market you might be able to get a buyer to take on more of the fees. But since which party pays these may be defined by local laws, you're unlikely to get out of those the government deems the seller's responsibility.
In a buyer's market, or just to make the deal go through, you might agree to pay some of the closing costs. This is referred to as a seller concession, seller contribution or seller credit — these terms all mean the same thing. Agreeing to cover the cost of necessary repairs found during the home inspection is a common seller concession.
If your buyer isn't paying with cash, the total amount of seller concessions may be limited by what type of home loan they're using. For a conventional loan on a single-family home that will be a primary residence, the limits on seller concessions vary from 3% to 9% depending on the size of the buyer's down payment and whether they're receiving closing cost assistance from other sources. Loans backed by government agencies, such as the Federal Housing Administration, have their own limits on seller concessions.
Other costs for home sellers
Though it's not exactly a closing cost, it is important to keep in mind that unless you own your home outright, a sizable chunk of your profits will likely go toward paying off your current mortgage. You may be hit with a fee for paying off your mortgage early. Look at your mortgage documents to see whether you have a prepayment penalty.
If there are any liens or judgments against the property, you'll have to pay those before it can be sold. These may be uncovered in the title search.
Last, if you have a second mortgage, like a home equity loan or a home equity line of credit, those will need to be paid in full before you can sell. (These can also be subject to prepayment penalties.) Since those loans are secured by the property, you can't continue borrowing if you no longer own the home.