When a house is sold, the buyer and seller are responsible for fees and taxes called closing costs. So, what are seller costs at closing on average?
If you’re the seller, you’ll want to budget 8% to 10% of the home’s sale price to ensure you can cover the total closing cost. Here’s a quick look at what generally accounts for a sellers expenses at closing:
- Real estate commission
- Transfer tax
- Owner’s title insurance (optional)
- Escrow fee (if applicable)
- Attorney’s fee (if applicable)
The amount you can expect to spend varies. Read on to learn more about the closing process for sellers.
Real Estate Agent Commission
When answering, what are typical closing costs paid by seller? It helps to start with the biggest expense—the real estate agent commission. Real estate agent commissions will take up the majority of your seller closing costs budget.
When a home is sold, there are typically two real estate agents who make it happen: a buyer’s agent and a seller’s agent, also known as a listing agent. The buyer’s agent helps the buyer find the home of their dreams, while the seller’s agent lists the home and shows it to potential buyers. Typically, the combined commissions of the agents is 6% of the house’s sale price. The seller pays both commissions:
- Buyer’s agent – It’s common practice for the seller to pay for the commission of the buyer’s agent as a sort of fee for finding a buyer. Commission for the buyer’s agent is typically 3% of the house’s sale price.
- Seller’s agent – The seller’s agent typically gets a commission of 3% of the sale price as well. In theory, the seller agent is splitting the 6% commission with the buyer agent because the arrangement is a co-brokered one.
While these percentages seem small, they can make a big impact on a seller’s budget. Let’s say a seller is selling their home for $500,000. A typical commission would be 6% of that price, so a seller would have to pay the new owner $30,000.
When a home changes ownership, the state charges a tax for the transfer fee. Typically, the seller covers this tax. In some states it’s even the law. The amount taxed is usually a percentage of the home’s sale price. What you can expect will vary from state to state. In NYC, for instance, a seller pays two transfer taxes: one to the state and one to the city.
Owner’s Title Insurance
While not required by law, buyers will often request that the seller take out an owner’s title insurance. Owner’s title insurance protects the buyer from any problems they happen to find in the future that are shown to have existed before the time of closing.1 The cost of this insurance is typically a small percentage based on the sale price, usually totalling around $1,000.
Escrow Closing Fees
Once the buyer and seller settle on a purchase price, the buyer will put aside 1% to 2% of the house’s total sale price into an escrow account. Here’s why and how it works:
- Third-party account – An escrow is a neutral, third-party account that both seller and buyer can trust while following through with the sale.
- Good faith deposit – A buyer deposits money into the escrow account to show they’re serious and committed to following through with the sale.
- Release of funds – Money in the escrow account is released and applied toward the buyer’s down payment once the house has been officially closed on. This can sometimes take weeks after the closing.
- Escrow fee – When funds are dispensed from escrow, a fee is paid for the service. Since the function of escrow is in the interest of all parties involved, the buyer and seller typically split the cost of the escrow fee.
To sell a home, there are laws that have to be followed on the state and federal levels. When it comes to dealing with matters of the law, it’s often best to have a lawyer. Here’s a quick rundown of what a real estate attorney does, and why having one warrants a fee:
- Keeps the law – A real estate attorney helps sellers to ensure they are within the limits of the law before closing on a sale. In several states, it is the law to have an attorney present when closing on a house.2 Even if your state doesn’t require an attorney’s presence, it’s typically just a good idea to follow this practice.
- Records agreements – Along with serving as your go-to encyclopedia for dos and don’ts, the real estate attorney also monitors negotiations and keeps track of what both parties are legally committed to at the time of closing. You said you’d fix the squeaky board in the porch step? The attorney has a record of it. They said they were willing to pay for their real estate agent commission? The attorney, though greatly surprised, has a record of that, too.
Save on Closing Costs with FlipSplit
As you calculate your future selling costs, it helps to factor in the closing costs and find ways to help reduce your expenses. The biggest closing cost fee is the real estate agent commission—but it’s not a required one. FlipSplit removes the need for a seller’s agent, thus making it one of the easiest, most effective ways to save on seller closing costs. Check out our site today to get an offer on your house exactly when you want it.
- Consumer Financial Protection Bureau. Do I need an attorney or anyone else to represent me when closing on a mortgage? https://www.consumerfinance.gov/ask-cfpb/do-i-need-an-attorney-or-anyone-else-to-represent-me-when-closing-on-a-mortgage-en-177/
- Consumer Financial Bureau Protection. What is owner’s title insurance? https://www.consumerfinance.gov/ask-cfpb/what-is-owners-title-insurance-en-164/