When you sell your house by yourself, it might seem like you’re saving a lot of money given the hefty size of the standard 5%-6% agent’s commission. However, there are costs you might have to incur and end up eating into your profits. So, are there closing costs on a for sale by owner?
Are There Closing Costs on a For Sale By Owner?
Yes, there are closing costs on a for sale by owner. Otherwise known as a FSBO, typical closing costs for buyers range between 2-4% of the home’s sale price. In some cases, sellers and buyers share the closing costs. In other situations, the seller may incur the closing costs or the buyer may be fully responsible.
As a seller, you’ll be responsible for transfer taxes, lawyer’s fees, and more whether you list on your own or with an agent. Due to this, it’s crucial to understand who pays closing costs, when they’re due, and the home buying process before selling your house by owner.
What Are Closing Costs?
Closing costs are a combination of services, fees, taxes, and prepayments. These costs can vary depending on settlement and title company fees, lender costs, and local tax law variations. In some states, you might pay a lot of money to transfer your home’s title to the new owner.
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Who Pays Closing Costs?
Both sellers and buyers pay closing costs. However, sellers should expect to pay a lot of money. Let’s take a look at both.
Buyer Closing Costs
Buyers should expect to pay between 2%-5% of the sale price, most of which goes to fees related to the lender at closing. Other closing costs for buyers include:
- Homeowner’s insurance
- Application fee
- Inspection fee
- Appraisal fee
Seller Closing Costs
The average closing costs for sellers are between 8%-10% of your home’s sale price. It’s higher than closing costs for buyers because sellers pay both buyer’s and listing agent’s commission, which is about 6% of the sale. Taxes and fees for sellers are an additional 2%-4% of the selling price.
However, you don’t have to immediately pay at closing because closing costs for sellers are usually deducted from your home’s sale proceeds at closing. Below are the most common potential seller closing costs:
- Prorated property taxes
- Credits towards closing costs
- Escrow and closing fees
- Agent commission
- Title insurance
- Lawyer’s fees
- Transfer tax
- HOA fees
Flat fee agents can help you make sense of these costs while providing unmatched professionalism and excellent customer service. Plus, you’ll get a full-service agent experience for a flat fee price.
What Is Included in Closing Costs?
Closing costs can be really confusing to figure out all that is included. Here is a lengthy list of what you can expect to see on your closing costs statement.
Prorated Property Taxes
When you own a house, you’re required to pay property taxes. Although the property tax rate differs from state to state, most states accept tax payments twice annually. You can either pay the taxes out of your escrow account linked to your mortgage or pay them directly.
You’re responsible for property taxes when you sell your house due up to the day of the sale. Thereafter, the buyer will take over. Bear in mind that you may need to pay the money at closing depending on your timing to ensure you’re up to date.
Credits Towards Closing Costs
If you intend to sell your house in a market where buyers have several listings to choose from, you can sweeten the transaction by giving interested buyers credit towards closing costs.
The credit you offer the buyers covers part of their closing costs. In turn, this lowers the amount of money needed to close on their home.
Escrow and Closing Fees
Escrow firms charge about 1% of the selling price to manage the transaction’s closing or between $500-$2,000 flat fees depending on where you stay. This includes the holding of the purchase funds plus the recording and signing of the title deed and the closing documents.
There are also some additional costs like transferring funds fees and notary charges. Note that escrow fees are split 50-50 between the buyer and seller.
Generally, the seller pays the agent commissions, which is usually between 4%-6%. However, this is not a fixed rate because the rate is negotiable between the listing and selling agent.
From the total commission offered, the seller pays the buyer’s agent fees, which is 2%-3% of the amount paid. This means in any sale the 4%-6% commission fees take the largest portion of closing costs.
However, you can work with flat-fee agents to sell your home to reduce agent commissions. Instead of paying the average 3% to list your home for sale, AZ Flat Fee only charges $3,000, saving you money.
Title insurance protects new owners from your home’s title issues. It also prevents someone else from claiming ownership over the home, either because of outstanding state, creditors, or contractors’ liens. Moreover, owner’s title insurance protects owners from solving title issues in court, in case they arise after many years or at closing.
This cost can range between $1,000-$4,000, which is a lot. However, you can ask for a reissue rate if you have stayed in your home for less than 10 years.
Attorneys are required when handling inherited real estate holdings, distressed homes, or complex deals. So if you hire an attorney, you’ll pay him at closing from the proceeds of your home sale.
This is a tax you’ll pay when your home’s title is transferred from you to the new owner at the closing. It varies by state because each state charges a different rate.
Homeowners Association Fees
Like property taxes, you’ll have to pay homeowners association (HOA fees) up to the closing day. Some HOAs also charge you a small transfer fee to pass on your home to the new owner.
When Are Closing Costs Due?
Closing costs are due on closing day when the closing and disbursement documents are signed and the buyer’s money is available for payment. All the costs we have mentioned above will be subtracted from your sale’s proceeds.
Who Pays Closing Costs When Selling a House by Owner?
Generally, both sellers and buyers pay closing costs when selling a house by owner. However, buyers pay more than sellers, which is 5%-6% of the selling price.
Can Closing Costs Be Waived?
No, closing costs can’t be waived. However, you can reduce closing costs by selling with Full-Service flat fee agents. You’ll get full service with complete closing coordination, escrow and title, offers and negotiations, professional marketing, and more for a low flat fee.
Selling via For Sale By Owner (FSBO) doesn’t always mean more savings for you. Although the seller can save if they choose not to use a listing agent, it can bring issues into the sale process. However, working with AZ flat fee realtors can protect you from experiencing any problems that might arise.