Buying or selling a home is exciting! It is a major transaction, and for many it is the single largest sum of money they will deal with in their lives. My clients often ask me, “If I am already buying or selling my home, why do I have to pay extra money at closing to complete the transaction?” It is a fair question! The short answer is… the mortgage and tax system. In a longer format answer, closing fees are paid on both sides of a transaction, and each buyer and seller are responsible for paying different fees to make sure that the sale gets completed and recorded correctly. From mortgage origination fees to escrow accounts, closing fees are mostly built to protect you and your investment. At Coastal Point Properties, we are always here to answer any questions you have about a specific transaction. The following blog lays out the general expenses you can expect as either a buyer or a seller.
For the Buyer
Deposits:
The first deposit you will be asked to give out is in the form of a binder check to secure the offer. The second deposit is given in the form of a certified cashier’s check to bind the Purchase and Sale Agreement, together these amounts should roughly equate to 5% of the purchase price of your new home. Those funds are placed in an escrow account as insurance that you really intend to complete the purchase as agreed. When you successfully close on your new house, those funds are released toward closing costs. If you end up needing to walk away from the transaction for a legal reason, such as a whopping surprise on your homeowner’s inspection or the inability to finance the amount, those funds are released back to you. If you walk away for some other reason that is not covered in your contracts, those funds go to the seller.
Inspections:
As a homebuyer, it is a good idea to get a homeowners inspection. You will have ten days after your offer is accepted to have the home inspected. After you receive the inspection report, you can purchase the house as is, negotiate repairs or lower the purchase price, or you can walk away all together and take your binder with you. Homeowner’s inspections cost between $400.00 and $800.00.
Mortgage Fees:
Speak with your lender about your specific loan product when trying to ascertain how much closing costs will be for you. In general, lenders charge based on the loan amount. Typical fees associated with obtaining a mortgage.
- Origination points
- Commitment fees
- Document preparation
- Broker/Lender fees
- Processing
- Taxes
- Underwriting
There are also third party fees that will need to be paid. The bank requires the information garnered from these services to ensure that their investment is worthwhile.
- Appraisal: This important for the bank. If the appraiser finds that the property you are trying to purchase does not value at the amount you are offering, things can get tricky.
- Attorney (see below, you can choose this one!)
- Credit Report: The bank will want to check out your credit history, and you have to pay for it!
- Flood certificate: Again, the bank wants to make sure that they are not taking any unnecessary risks. They will want to certify that the house is not on a floodplain, and if it is, they need to see proof of flood insurance.
Prorated and Adjusted Amounts:
There may be some things that the seller bought for the house that aren’t included in the sale price. Commonly, these are things like real estate taxes, leftover oil in tanks, or prepaid water bills. The seller paid it for the year, but won’t be there the whole time. The buyer will end up paying the seller back for the portion that the buyer will benefit from. These costs are usually relatively small, in the hundreds of dollars range.
Attorney Fees:
Generally, the buyer’s attorney will handle most of the closing. Many will charge a flat rate for taking care of the transaction. Their duties include reviewing all documents, handling disbursement of funds to pay off any liens, filing paperwork at the Registry of Deeds, handling title work and title insurance, and handling the closing for your lender. Each of these duties costs money. If you are working with representation that offers a flat fee, it is good to be aware of where that money goes to. If your representation does not offer a flat fee, these funds will come out of your pocket.
Buyer’s expenses handled by the attorney and their costs (estimated):
- Title Exam: about $200.00
- Mortgage Inspection Plan or Plot Plan: $100.00
- Municipal Lien Certificate: $50.00
- Recording fees at the Registry of Deeds: $365.00
For the Seller
Real Estate Agent’s Fee:
Typically, in MA, this fee is around 5% to 7% of the net sale price of your home. You will pay this money to your agent at closing, from the proceeds of the sale. The fee should cover the marketing of your home, any showings that your agent does, open houses, paperwork your agent does and any incidental work the agent does in your name. Call us at Coastal Point Properties today for an exact explanation of what we do for each of our seller clients.
Attorney’s Fee:
It is a good idea to have a lawyer in your court regardless of which end of the transaction you are on. They will review documents, work directly with the buyer’s attorney to settle disputes, and offer general counsel about a transaction. They typically charge a flat rate anywhere from $800 to $1000 (estimated) for seller representation.
Excise Tax Stamps:
In Massachusetts, the seller pays to have the deed recorded and stamped at the time of sale. In Barnstable county and Cape Cod, stamps cost $6.48 on every $1000.00 of the purchase price. The fees are paid by the closing attorney to the Registry of Deeds at the time of closing and the funds come from the proceeds of the sale.
Septic Fees:
If you have septic system in MA, you will need to get it inspected and approved under Title V. The inspection costs around $400.00, and any repairs needed would be additional. It is possible to sell a home that has failed Title V if the funds for repair are placed in escrow upon sale. It is better to know ahead of time if your septic will fail. Once there is an offer of the table and Title V comes back out of compliance, it is tough to save the deal. Certifications of Compliance with Title V are good for two years, so it is common advice to get this inspection done before you put the house on the market.
Smoke Certificate:
You must get your home inspected by the Fire Department. It is illegal to sell a home that does not have functioning smoke and carbon monoxide detectors. This inspection report must be furnished to the buyers prior to closing. The inspection costs between $30 and $100 depending on your municipality. If your home fails the inspection, repairs must be made and re-inspected.
Mortgage and Discharge:
If you owe money on the house you are selling, the mortgage will get paid from the proceeds of the sale. The mortgage also must be discharged with the registry of deeds. Your attorney will make sure these things happen correctly, and generally discharging a mortgage costs about $75.00 (estimated) per mortgage.
The Takeaway
Although closing costs can feel like an additional burden, they all exist to help oil the legal and municipal machines that keep you safe when making such a large purchase. Most clients forget all about them after they close on a home, and are just so happy to have those new keys in their hands! If you have concerns about footing the bill for closing costs, let a trusted agent know. Give us a call at Coastal Point Properties any time to discuss the possible closing costs and net proceeds of your home sale or the final costs of your home purchase. We would be happy to guide you through the real estate process.
