You’re about to complete a transaction involving a few hundred thousand dollars….you would think that would be enough. But Nooooooooo…..they want more. They want closing costs.
So, what are closing costs? Closing costs are the fees and expenses associated with a real estate transaction. And, they are quite different for Buyers and Sellers.
Buyers have a wider range of closing costs, so let’s start there.
First, Buyers have escrow and title fees. These are the costs for the escrow and title company to manage the transaction, provide title insurance, record the transaction with the county and miscellaneous small items, such as the required flood certification fee.
Second, your lender is going to charge you fees to get the loan started. Yes, you will be paying them quite a handsome sum via interest over the next 30 years, but you still need to pay origination fees for the upfront work, plus related fees like paying for the appraisal. Some buyers pay “points” up front to reduce the interest rate, so that would be another closing cost.
Third, Buyers need to pay ahead for property taxes and home insurance. This is highly variable depending on when you close escrow and who you choose for your home insurance. Consult with your Realtor for more precise information in your area.
One closing cost that most Oregon and Washington buyers do not have to worry about is a transfer tax, though these are quite common in other parts of the country. A transfer tax is a tax on the transaction that goes to the city and/or county. There is, however, one locality that does charge a very small transfer tax for Buyers, and that is Washington County in Oregon; but it is a relatively small tax, just .1% of the purchase price split between the Buyer and Seller.
Also, the good news for Buyers is that they do not need to pay for the services of their Realtor. That is handled by the Seller in nearly all transactions. However, that commission is usually figured into the pricing of the house, so you could make that case that Buyers pay for it in the long run.
Okay, time to look at the closing costs that Sellers have to contend with. This is one is somewhat easier.
Sellers also have to pay fees to the escrow and title company, including a transaction fee and the owner’s title insurance policy for the new owner.
In addition to the small transfer tax in Washington County, Oregon, Sellers in Clark County, Washington also pay a transfer tax called an “excise tax.” This is currently 1.78% and is the responsibility of the seller to pay out of their proceeds.
Of course, the big closing cost for Sellers is the realtor commissions. The industry standard has long been 6%, which the listing agent usually splits evenly with the buyer’s agent. This fee is completely negotiable, however, and you should always have the discussion with your listing agent. For instance, I usually provide a discount for clients who list a property for sale and then also buy a new home or for repeat clients.
Finally, one closing cost that sometimes comes up for Sellers is to contribute towards the Buyer’s closing costs. This is a common request, completely negotiable, and one that Seller’s should plan for just in case when looking at net proceeds.
The big message about closing costs is to make sure to figure them into your planning. Ask your Realtor (or me) for a rough estimate when starting your real estate journey, then get an estimate from the escrow officer once you have an accepted offer.
If you have any questions about closing costs, just drop me a line. I’m always happy to help.