What are Closing Costs and Who Pay's for What ?

Interesting that I hear this question a lot and it seems a lot of people don't want to ask it as they feel that it may show their lack of knowledge or understanding of buying or selling real estate and make them look naive or foolish...

Well, in fact this is a Very Important Question and you need to know the answer, most of the typical buyers and sellers that I work with might sell or buy a home every 5 to 10 years, well during that time you are surely going to forget who paid for what at the closing and what was involved and things change all the time too.

Just to mix that up and make it more confusing and complicated is that most all of it is negotiable and yet regulated by lots of different entities, government bodies, mortgage companies, investors, builders, etc.   So, there is no simple answer. 

I always tell a seller that it depends on the buyer that we get, if we get a first time homebuyer than we will need to figure on paying thier closing costs for them to make the deal, this typically can run as high as 3% of the sales price but many lenders can get that costs down if the agent works with them on their fees, etc.

The problem is that a lot of time the buyers agent does not have a relationship with the buyers lender as the buyer found them online or thru a friend, etc, and this takes out the ability for the agent to negotiate better terms and costs for the transaction.

In addition to this 3% for the buyers costs as a seller you would also typically have about 1% to cover your costs, like the document preparation that the attorney does, the termite letter, recording costs of payoffs, deed stamps, etc.  And of course in additon to this 3% and 1% we have the Real Estate Commission expense which I charge at 6% of the sales price which is the only expense besides the transfer tax that is non-negotiable.

On buyers side of the deal you have to think about three separate expenses, the down payment which can vary from 0 down loans all the way up to 25 to 30 percent now required on some loans.  The average is about 5% for a required down payment to get a normal FNMA (Fannie Mae) loan.

Second the buyer would need to think about pre-paid items, like home owners insurance that must be paid up front one year in advance, setting up the escrow account to pay next years insurance and taxes, per diem interest charge to get the loan to the first of the following month as all loan payments are due on the first so the pro-rata interest must be paid to get the loan paid thru the first.

Third item is the closing costs, the actual costs of the loan, appraisals, underwriting and other junk fees that banks can charge, attorney costs, title insurance, etc.  The list goes on for an entire legal page of items that they have thought of over the years.  It is important / imperative that you get a GFE or Good Faith Estimate in writing from your lender BEFORE looking at houses and making offers.  If your lender won't do this I have one that will.   Many times I get offers from buyers agents and they have to re-write the offer afterwards because nobody ever explained the closing costs to the buyer and they got shocked and decided they needed to add them into their loan.

Wouldn't it be nice to know upfront the amount of money you will need and then you can negotiate with the seller if needed to pay some of these expenses or all of them for you.  This is where your agent comes in and makes the deal work for you, just be upfront with your agent and honest with them about exactly what you can and can't do and work together with the lender and you can have everything fall smoothly into place.

Hope this helps, Sincerely, David Wertan & The Wertan Team of RE/MAX 843-270-6455

RE/MAX Celebrates 38 Years of Success

RE/MAX reaches another milestone and at the same time I am celebrating 20 years with the RE/MAX organization, during that time I have been inducted into the RE/MAX Hall of Fame and won numerous National Awards.  I have thoroughly enjoyed my affiliation with this phenomenal organization and look forward to the future with the power of the RE/MAX brand.   Here is a great article about accomplishments in 2010 alone.

'Significant Success amid Challenges’: RE/MAX Celebrating 38 Years

I will be celebrating with the other top agents in the World at Mandalay Bay in Las Vegas next month.

Nobody in the World Sells More Real Estate than RE/MAX.

Thanks for 20 great years and here is to more to come.

Sincerely, David Wertan of RE/MAX Advanced Realty serving all of Charleston, SC