Closing Costs Explained
Have you ever tried to understand closing costs? In theory, it should simple, but in reality, calculating your exact closing costs can be extremely complicated.
According to Realtor.com, “closing costs for sellers vary according to where you live, but as the seller you can expect to pay anywhere from 6 percent to 10 percent of the home's sales price at settlement.” That amount of inconsistency is insane, and difficult to budget for. Therefore, I highly recommend calculating your exact closing costs using a seller net sheet, like this one!
With that said, closing costs can still be difficult to understand even after reviewing your net sheet. I created this guide to help you understand each and every closing fee to help you save as much money as possible.
A Short Lesson on the Percentage Fallacy
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Real Estate Commissions
Real Estate commissions are generally the largest closing cost associated with selling a home. In Ohio, the seller pays the commission for both their own agent and the buyer's agent.
In a "typical" sale, this will run you 6% of the sale price with 3% going to each of the two agents. But in a Common Cents sale, it's much less! The 3% buyer agent commission still applies, but the listing agent commission is just $2,500.
Prorations
Prorations technically aren't closing costs, but they can be expensive. They're also very confusing, which is why I'm including them in this guide.
So what exactly are prorations? Simply put, they are property taxes, HOA dues, or any other recurring fees associated with the property that are paid in arrears (AKA paid after the fact).
For example, most property taxes are paid in arrears, so your 2018 tax bill actually isn't due until 2019. Therefore, if you sell your home on February 1, you'll have to pay the buyers the pro-rated taxes for January 1-31 since they're the ones who will have to pay the actual tax bill.
This can get even ore complicated if you escrow your taxes. Be sure to check with your lender to see how much is held in your escrow account. Hopefully those funds can off-set much of the tax burden.
Regardless of where this stands, just remember you have to pay all property taxes for the time period you own the home. There's no real way around this, but it can significantly impact the amount of money you owe/receive at closing.
Title & Settlement Fees
TBD
Government Recording & Transfer Charges
TBD
Additional Commission
Additional commission, often referred to as a "document storage fee", is one of the most blatantly unethical closing costs I've ever seen. It's basically a $200-300 fee your agent's brokerage charges for no apparent reason, and is often weasled into listing agreements.
Common Cents has not, does not, and will not ever collect addition commissions.
Loan Payoff
Last, but not least, is the loan payoff. The total amount you owe on your home (including any second, third, or fourth mortgages) will be deducted from your proceeds.
