Determining Seller and Buyer Closing Costs

We have all heard the phrase “closing costs” associated when buying property.  Both the buyers and sellers are charged closing costs to the various parties involved in the approval, funding, and insurance of the sale. Closing costs are not included in the listing price of the home and can serve as a very unwelcome surprise if you aren’t prepared for them.

The best Closing Cost Calculator on the internet for both buyers and sellers. Click on "Sell it" or "Buy it" in the top right corner.

Title Search

A title search ensures the seller is the rightful owner of the property. It also checks on any outstanding claims or judgments against the home. The average cost of a title search usually ranges from $300 to $600.

Title Insurance (Buyers Only)

In case of a title problem, usually, both the lender and buyer secure their individual title insurance policies. This helps with any unforeseen problems that may arise post-closing with the transfer of property ownership. The average rate of title insurance is around $1000. The cost of title insurance is calculated by multiplying the purchase price by the rate per thousand that the insurance company uses. This means the higher value of the property, the more title insurance will cost. 

Appraisal (Buyers Only)

The appraisal is ordered by the lender and verifies if the home is worth what the seller has listed the property. This ensures the lender is not loaning the borrower more than what the property is worth. Appraisals usually run between $400 to $700 paid prior to settlement. 

Home Inspection (Buyers Only)

The home inspection gives the buyer an opportunity to discover any issues with the home before purchase. It is also a time the seller can address these issues, which typically result in negotiating pricing with the buyer. A home inspector will check the home’s foundation, structural components, electrical systems, plumbing, and HVAC. After the inspection, a written report will be available with the findings. In Northern Virginia, the average cost ranges between $300 to $500 depending upon the size of the home. 

Credit Report (Buyers Only)

A credit report will be ordered by the lender with at least one of the three major credit reporting bureaus. Credit reports generally aren’t more than $50. 

Property Survey (Buyers Only)

A property survey corroborates a property’s boundary lines, legal description, and determines any easements or restrictions on the property.  A property survey defines what is the property owners and what is not. Property surveys are regulated by Virginia, Maryland, and the District of Columbia. The title company will contact a professional surveyor to complete the service. The average cost of a residential property under one acre is $500 but can cost up to $900. 

Loan Payoff Costs (Seller)

Loan payoff costs include the application, assumption fees, prepaid interest, and the loan origination fees. This is usually between 0.5% to 2% on the higher end of the sale price. This is usually determined by the individual lender.

Outstanding Balances (Seller)

Outstanding balances owed on the property can include taxes, HOA dues, homeowners insurance, and utilities. If applicable these amounts are prorated prior to the closing date. 

Transfer Taxes (Generally split between both parties, varies state by state)

Transfer taxes are calculated based on the home’s value and state and local laws. In Virginia, the state transfer tax is $0.25 for every $100 of the sale price. If county and city taxes are applicable this the total amount is typically equal to one-third of the state tax. 

Recording Fees (Varies state by state)

Either the escrow agent, title agent, or attorney if the parties have hired one, will file the deed transferring the property to the buyer. Each county determines its own recording fee. Virginia does not require an attorney to be involved in a real estate transaction. 

Settlement Fee (Both)

A settlement fee is paid to the title or escrow agent that handles the closing. In the event an attorney is hired, this fee would be paid to the attorney. The settlement fee can vary but is usually about $2.00 per $1,000 of the sale price. 

Additional Fees

Depending upon the individual sale there may be additional fees required such as a septic system certification. 

Buyer’s Closing Costs

The buyer’s closing cost generally consist of: 

• Title search 
• Title insurance 
• Appraisal 
• Home Inspection
• Credit report
• Property Survey
• Transfer & Recordation Taxes

Seller’s Closing Costs

The seller’s closing costs generally consist of: 

• Loan payoff costs
• Outstanding Balances 
• Settlement fees
• Transfer & Recordation Taxes

Should a Seller Pay the Buyer’s Closing Costs?

As with all sales, negotiation determines much of the final outcome. Buyers and sellers will both have closing costs. In addition to the down payment, buyers will frequently pay an additional 2-4% of the sales prices. Because of this, it is common for buyers to request a credit at the time of settlement to aid in covering their large closing costs. In the state of Virginia, this is known as a seller subsidy. 

Conclusion

It is crucial to have a clear idea of any fees that are included in addition to the sale price. Knowing which party is usually responsible for individual closing fees can help buyers have a better idea of what they can safely afford.