As a seller, it’s important to understand that the closing process involves more than just the sale price of your home. Closing costs can take a significant portion out of your profits, and being prepared for these expenses can help you better plan for the financial aspects of the transaction. Here’s a breakdown of the common closing costs you’ll encounter when selling your home.
Real Estate Agent Compensation
One of the biggest expenses sellers face is the real estate agent compensation. Typically, this is around 5% to 6% of the sale price (know that compensation is negotiable!), which is usually split between the buyer’s agent and your listing agent. This is often the largest cost you’ll incur at closing, so make sure to factor it into your financial expectations when pricing your home.
Repairs or Concessions
After a home inspection, buyers may request repairs or ask for a credit toward closing costs. If you agree to make repairs, you may need to pay for those costs before the sale can proceed. Alternatively, you might offer the buyer a credit at closing instead of making the repairs yourself. Keep in mind that these costs can vary depending on the condition of your home and negotiations.
Outstanding Mortgage Balance and Any Liens Associated with the Home
If you still have a mortgage on the property, the remaining balance will need to be paid off at closing. The title company will work with your lender to pay off the mortgage, and this amount will be subtracted from your proceeds. If your sale price is less than the remaining mortgage balance, you may need to bring extra funds to the table to cover the difference.
Closing Fees
Various smaller closing fees can add up. These may include:
Attorney Fees: These are fees for the escrow company that handles the closing transaction. These are typically around $200 to $300 to prepare the deed and lien waiver for the seller
Recording Fees: Local governments charge a fee to record the sale of the property.
Transfer Taxes: Depending on your location, there may be a tax for transferring the property title to the buyer.
These fees are generally a few hundred dollars, but they can vary based on where you live and the sale price.
Property Taxes
If your property taxes are not fully paid for the year, you’ll need to prorate the taxes for the time you owned the home during the current tax year. In some cases, the buyer may reimburse you for their portion of the taxes at closing.
HOA Fees
If your property is part of a homeowners association (HOA), you may be required to pay any outstanding HOA fees or assessments at closing, and some HOAs require the seller to pay a fee when they sell their home. Some sellers may also need to provide a letter from the HOA verifying that all dues are paid.
Staging and Marketing Costs
Staging isn’t necessary for every home, and whether it's used depends on the property and market conditions. When it is done, the cost is typically the seller’s responsibility. Photography is more commonly included in the services covered by the agent’s compensation, but it’s still a good idea to confirm what’s included. While these costs aren’t classified as closing costs, they can be part of your overall selling expenses.
Capital Gains Taxes
If your home has appreciated significantly in value and you are selling for a large profit, you may be subject to capital gains taxes. However, most homeowners who sell their primary residence are eligible for exclusions on capital gains taxes up to a certain amount—$250,000 for individuals and $500,000 for married couples filing jointly—provided they meet certain requirements, like living in the home for at least two of the last five years.
Conclusion: Budgeting for Closing Costs
Sellers should be prepared for various closing costs that can add up quickly. It’s crucial to factor these expenses into your financial planning when deciding how much you expect to net from the sale. Your agent can help you estimate these costs more accurately and work with the buyer’s agent to ensure a smooth and fair closing process. By understanding and preparing for these costs in advance, you can minimize surprises and ensure that the sale of your home is a successful and financially sound transaction.