How Much Are Closing Costs?
By John Jennings, Purplebricks REALTOR® | May 31, 2019
One of the most common questions a REALTOR® is asked is, “What are closing costs, and how much should I expect to pay?” The short answer is, “It depends.” Generally speaking, buyers and sellers each have their own categories of expenses they should budget for. I’ll break down both, one at a time:
Buyer Closing Costs: 2-5% of the Purchase Price
“Closings costs” is a general term that encompasses a wide variety of expenses incurred at the time a home is passed from one owner to another. When asked about closings costs, Ben Johnston, a branch manager with RPM Mortgage stated, “A buyer’s closings costs typically consist of lender fees, escrow / title fees, pre-paid taxes, and insurance. Lender fees include appraisals, origination fees and / or points to buy down your interest rate. Title company fees include escrow fees, title insurance, county recording fees, notary fees.”
Closing costs are negotiable, but as a buyer, it is best if you budget for a minimum of $2,000 in out-of-pocket expenses. This will cover most home inspections and an appraisals. Depending on your situation, however, the end cost could be as high as 5%. (In other words: If you are buying a $400,000 home, your closings costs could be as much as $20,000.) The bottom line: Closing costs differ by circumstance, so make sure you consult your agent, who can advise you on how much to budget for based on your individual situation.
Seller Closing Costs: 8-10% of the Purchase Price
The amount of closings costs paid by a seller are typically higher than that of a buyer. This is because sellers typically pay for both their agent and the buyer’s agent. (The seller’s agent is paid for services rendered while the buyer’s agent is paid for his or her ability to bring a viable buyer to the table.) Historically, this cost has been a total of 6%, with 3% going to the seller’s agent and 3% to the buyer’s agent. However, in recent years, numerous companies have been founded that provide alternatives to that high 6% cut. If you are selling a $400,000 home, instead of paying 3% ($12,000) for a seller’s agent, Purplebricks will provide you with all the bells and whistles of a traditional agent for a flat fee as low as $4,950. This results in a savings of $7,050, even with the traditional percentage paid to the buyer’s agent factored in.
Like buyers, sellers also have their own title / escrow fees to contribute to the transaction. These costs vary, but a good rule of thumb for escrow is $200 + $1 for every $1,000 of the purchase price. For example if you are selling a $400,000 home, a seller’s escrow cost would be $200 + $400 = $600. And don’t forget taxes! This cost depends on your specific situation, so be sure to consult a tax professional when selling a home.
Buying and Selling a house can be expensive, but the good news is, these costs are negotiable. That’s why having an experienced REALTOR® and lender can make all the difference in the world. A REALTOR® will negotiate on your behalf for the best deal with the seller. An honest lender will disclose the fees to you up front to avoid any surprises during the process. Together, they will guide you through the real estate process and help you successfully achieve your real estate goals.
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