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Seller Closing Costs
What are they? How are they paid?
The sum of fees associated with selling (or buying) of a home is referred to as "the closing costs". Certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local custom. Closing costs can vary depending on many factors, such as purchase price, commission (typically paid by the seller), and the location. The practice of who typically pays for certain closing costs varies by geographical area in the state of California.
It is important to understand what you are obligated to pay for under the Purchase Agreement. Make sure you read the Purchase Agreement (Offer) carefully! I will review each offer with you and answer questions that may arise.
What are the typical seller closing costs?
Some typical seller closing costs may include the following. Note: What party pays for some of these costs may be negotiable under the Purchase Agreement, and not mandatory to be paid by either the buyer or the seller.
- If the seller has not yet paid for the house in full, the seller's most important closing cost is satisfying the remaining balance of their loan. Before the date of closing, the Escrow Officer will contact the seller's lender to verify the amount needed to close out the loan. Then, along with any other fees, the original loan will be paid for at the closing, before the seller receives any proceeds from the sale.
- Broker's commission
- Transfer taxes
- Documentary stamps on the Deed
- Title Insurance
- Seller's portion of the escrow holder's fees
- Property taxes (prorated)
- City and/or County inspection, including water conservation certificate (certain areas only)
- Homeowners Association transfer fee and fee to provide documents
- Homeowners Association dues (prorated)
- Pest Control Inspection and work to be done for clearance.
- Property Taxes (prorated - read further info below)
- Home Warranty Plan (aka Home protection plan)
- Other fees as per the purchase agreement
- Misc fees (notary, messenger, etc)
Can you negotiate who pays for closing costs?
In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations.
If the buyer does not have the cash for the down payment and the closing costs, then the buyer may offer to pay a certain price for the property in return for the seller paying some of all of the allowable closing costs. Ask your Realtor for guidance when you are negotiating, and make sure the terms are clearly written down on the purchase agreement.
How do prorations work?
At the closing, certain costs are prorated (or distributed) between buyer and seller. The most common proration is for property taxes. This is because of the property tax due date. The seller is "charged" for that portion of the property taxes when they own the property, and the buyers responsibility is typically started the day they own the property. The escrow holder would use the most recent property tax bill, and at the close of escrow, the escrow holder would prorate the amount due between the parties accordingly.
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