If you are pondering a home sale and are doing some homework on seller closing costs, this post will walk you through it.
Two quick things before we get rolling. First, none of these items are paid out of pocket from the seller. They are simply taken out of the proceeds at closing and will be clearly line-itemed on the settlement statement. Second, prorations on settlement sheets tend to be confusing but if you just look at it this way, you will get it. Should the seller have to pay for something they did not use? No. Should the buyer? No. That is all there is to prorations. They are simply adjustments using that logic.
1. Tax Prorations — Say you close on your home on May 1st. You owned the property from Jan 1st of that year all the way up to May 1st. This means that the property tax bill that comes end of year shouldn’t be the sole responsibility of the buyer since they didn’t own the home for that first five months. Costs for that part of that tax interval will be credited to the buyer. After the title company verifies all bills paid to the county from the seller, they will determine the prorated figure based on the on the date of closing.
2. HOA Prorations — Similar to the tax section above, if a seller has prepaid on their HOA fees, whether they are annual, quarterly, monthly. They won’t pay for time they don’t own the property and that will be added to their proceeds. On the flip side, if the seller hasn’t yet paid for the HOA fees for the time they have owned during that billing interval, the past due amount will be taken out of their proceeds. If you home doesn’t have an HOA, then nothing to see here folks.
3. Buyer’s Title Policy — Most real estate contracts stipulate that the sale is contingent on the seller providing what is called clear title and it is customary that the seller pays for the buyer’s title policy. This is the title work done to make certain that no one has any claim to the property (IRS Lien, court judgement, mechanics lien, marital interest, etc) except the seller and the seller’s lender. Depending upon the sale amount, figure around $600-$800 for this title policy in the KC Metro.
4. Seller’s Closing Fee/Wire Transfer Fee — I usually put these together when I give estimates to my sellers. The closing fee is a charge from the title company (approximate $225) and the wire fee (approximate $20) is the charge to move the proceeds to whatever account the seller specifies. Combined around $245.
5. Realtor Commissions — Whatever agreed upon (written listing agreement signed between seller and brokerage) commission will be subtracted from the seller proceeds. If a seller gets $200,000 on their sales contract, and they had signed a listing agreement with a 6% commission split evenly between the listing and buyer’s agent, they will see the agent commissions as folllows: $6,000 to Listing agent brokerage and $6,000 to Buyer’s Agent brokerage.
6. Outstanding Loan Balances – Mortgage balance, home equity line of credit, 2nd mortgage will be taken out of seller proceeds. The title company will reach out to the lender to get the payoff balance.
The seller will have several opportunities to review closing costs before and during the transaction. We review an estimated proceeds sheet prior to signing a listing agreement and then prepare and review another when offers are reviewed. Finally, the seller will have an opportunity to see the title’ company settlement statement before they go to the seller closing to sign paperwork. Your realtor will review the statement ahead of time to make sure all the figures are accurate. The point I’m making here is that there is never a single time that the seller should be in the dark as to what an offer will net them at closing.
As always, don’t hesitate to reach out with your questions. I’d love to help.
Terry Jackson | Terry@DomicileOne.com | www.DomicileOne.com | 913-488-5623