Who Pays What When Selling a House?
If you’ve sold a house before, you must understand that the financial requirements are beyond just listing the property and can sometimes be overwhelming. Imagine having to cater for everything surrounding home-selling simply because you’re the seller- impossible, right?
Understanding who pays for what closing cost is crucial for every home seller and buyer. As a homeowner, you may ask yourself, “How do I sell my house fast?” In this case, you will need to be familiar with the costs to improve your efficiency.
The real estate industry encourages home sellers to recognize their financial obligations to avoid falling into constraints due to settling irrelevant bills. Here is a look at who pays what when selling a house to keep you safe.
1. Real Estate Commissions
Plenty of fees must be settled during or before the house-selling process, and real estate commission is on top of the list. Real estate commission refers to a stipulated percentage of the total selling price of a property granted to the realtors as payment after successfully facilitating the purchase or sale of a house. Usually, the rate is between 4-6%, changing on factors such as inflation.
Primarily, the seller pays real estate commissions to realtors through the listing agent, who then shares the halves/quarters with the rest. However, some sellers can sell a house alone, meaning the brokers won’t be involved. In such cases, only 3% is paid to the listing agent.
2. Home Inspection Fees
Home inspection fees have attracted debate over the years in the real estate industry as buyers question who should cater to them. Legally, the buyer is responsible for a home inspection if they demand one for their potential property.
The main reason buyers undertake home inspection is to uncover any concealed damages in the property that would otherwise cost them in the future. However, some sellers may perform a home inspection on their customer’s behalf to attract loyalty and boost their reputation.
3. Land/Property Survey
Since such practices benefit the buyer, it’s their responsibility to pay for them. However, the buyer may still choose to forgo the survey, depending on their trust in the seller. There are a few types of land surveys, including homebuyer and building reports.
The homebuyer survey indicates any prevailing structural issues, while the condition report touches roughly on the general wellness of the property. Conversely, building reports look deeper into the structure and usually cost more than their counterparts.
4. Home Appraisal
Home appraisal refers to the procedure where a real estate appraiser or other relevant professionals establish the fair market value of a property, assuring the seller and buyer that the stated price is fair enough.
Generally, buyers manage the home appraisal cost, which their lender or employer often requires when they apply for a mortgage or salary advance. Some buyers undertake home appraisals for certainty and peace of mind with the stated price, even when lenders or employers aren’t involved.
5. Delinquent Property Taxes
Delinquent properties also bring significant confusion when added as part of the closing costs. When unpaid taxes are connected to the property, the seller should pay for them before selling their house. Failure to do that the county government takes over the property and puts it on tax sale.
In a tax sale, the interested buyer (usually determined through bidding) is responsible for the delinquent taxes, after which the property becomes legally theirs. Understanding property taxes before selling or purchasing a house is essential.
6. Attorney Fees
Usually, home buyers prefer to review the contracts, title documents, and other closing materials before a qualified lawyer. Therefore, the buyer will be liable for such costs if they engage a lawyer or attorney in the buying process for more confidentiality.
Conversely, when the seller seeks an attorney’s services to evaluate a buyer’s credibility, especially after agreeing to receive payment in installments, they will cater for the fees. Most attorneys often charge their services per hour alongside other factors, such as the complexity of the closing costs.
7. Title Insurance
Title insurance is a financial obligation to both the seller and buyer, although the type may differ under various factors. Lenders and owners are two major types of title insurance as part of closing costs.
The buyer pays the lender’s title insurance to protect their investment in the property. On the contrary, the seller pays the owner’s title insurance to confirm that no one else (apart from the current buyer) owns or is connected to the property following past transactions or disputes. The buyer must demand an owner’s title insurance during the buying process.
8. Escrow Fees
Sometimes, the buyer or seller may involve a third party to cover their closing costs in an agreement to pay back in installments. For instance, a buyer may request their lender to settle their mortgage fees, for which the bank creates an escrow account on behalf of the buyer.
Both buyer and seller are responsible for escrow fees and may sometimes split it in half. Other crucial closing costs and their payer include transfer taxes (real estate), and home warranty (seller), stamp duty (buyer).