When selling your home, understanding closing costs is crucial to ensuring a smooth transaction and avoiding any unwelcome surprises. Closing costs are the fees and expenses you incur during the closing process, and they can add up quickly. Here’s a breakdown of what to expect, how to estimate your total costs, and tips for navigating this important aspect of selling your home.
Breakdown of Common Closing Costs
1. Abstracting Fees
A property abstract is a summarized document that provides a concise history of a specific piece of real estate, including:
Ownership History: A chronological list of past and current owners of the property.
Legal Descriptions: Detailed descriptions of the property boundaries and any legal identifiers.
Liens and Mortgages: Records of any liens, mortgages, or encumbrances against the property.
Easements: Information about any rights of way or easements affecting the property.
Judgments: Any legal judgments that may impact ownership or use of the property.
Property abstracts are commonly used in real estate transactions to ensure clear title and to inform potential buyers about the property's history and any legal issues that may affect it. They help protect both buyers and lenders by providing a comprehensive overview of the property's legal standing.
The property abstract must be reviewed and updated including the transfer to the buyer. In Iowa, if the abstract cannot be located, it will have to be re-built. This can cost $1,000-$1,500. If you plan on selling your home, its always best to locate your abstract to avoid closing delays due to a rebuild.
2. Agent Commissions
Real estate agents charge a commission that is negotiated with the seller. Just like all service-based businesses, not all companies or agents charge the same fee when listing a property for sale. You should always ask your prospective Realtor what you receive as a seller when hiring them as your Realtor. We understand that sometimes it comes down to how much they are charging as to who you choose to represent you, I would encourage you to also interview other agents and compare their services not their fee.
3. Home Inspection Fees
If you choose to have a pre-listing inspection, you’ll need to factor in that cost as well. While inspections usually benefit buyers, having one done before listing your home can help identify issues that may need addressing. This can help to get your home in "show ready" condition as well as avoid surprise costs in the middle of the transaction.
The buyer may or may not choose to have a home inspection, they will then have the opportunity to ask for repairs. It is then negotiated between the buyer and seller with the help of your realtor as to what you choose to repair, leaving the final decision to move forward or not with the buyer.
4. Transfer Taxes
Some states and localities impose a transfer tax when property ownership changes hands. This fee varies significantly depending on your location and can be a percentage of the sale price.
Negotiating Who Pays What During Closing
In real estate transactions, closing costs are often negotiable. While the seller typically pays for title insurance and agent commissions, buyers may be responsible for appraisal and inspection fees. Discussing who pays what during negotiations can help you avoid surprises at closing.
Preparing for Unexpected Expenses
While you can estimate closing costs, it’s always wise to prepare for unexpected expenses that may arise. Here are a few tips:
Set Aside Extra Funds: Keep a buffer of around 1% to 2% of the sale price for unforeseen costs.
Get a Pre-Listing Inspection: Addressing issues early can help you avoid last-minute expenses related to repairs.
Stay Informed: Regular communication with your agent can keep you aware of any potential additional costs throughout the process. PRO TIP: When interviewing Realtors prior to listing your home, ask them how and how often they communicate with their sellers.
The Importance of Reviewing the Closing Statement
Before finalizing the sale, you will receive a closing statement that outlines all the fees and expenses associated with the transaction. Reviewing this statement is crucial, your Realtor will also review this document for accuracy and explain the fees or changes that are included.
Understanding closing costs is an essential part of selling your home. By familiarizing yourself with common fees, estimating your total costs, and preparing for negotiations, you can make informed decisions that facilitate a smooth closing process. Always take the time to review your closing statement to ensure there are no surprises. With the right preparation, you can navigate closing costs confidently and focus on your next adventure!
Tasha Garlick, Realtor
The Garlick Team | RE/MAX Concepts
Licensed to Sell Real Estate in Iowa
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