When home sellers calculate the amount of money they anticipate making from the sale of their home, they usually forget to factor in realtor fees and closing costs. However, it’s important to include these costs into the sale price as they can eat into your profits. So, how are realtor fees and closing costs calculated?
How Are Realtor Fees and Closing Costs Calculated?
Realtor fees and closing costs are calculated based on the purchase price of a property, paid at closing. Realtor fees amount to about 5%-6% of the final sale price. For instance, if you sell your house for $500,000 at a 6% commission rate, you’ll pay your realtor $30,000 (6/100 x $500,000 = $30,000).
On the other hand, closing costs are fees paid by both sellers and buyers after closing a real estate transaction. The fees range from around 1%-7% of the sale price and include property and loan-related fees, mortgage insurance fees, property tax, and homeowners insurance, as well as title fees. However, sellers usually pay between 1%-3%. Typically, closing costs are deducted from your home sale profit.
Are Realtor Fees Part of Closing Costs?
Realtor fees are part of closing costs as they are included in closing costs. They are deducted from the selling price when the money paid by the buyer is transferred to the seller. Real estate realtors earn a commission when a house is sold, which can vary depending on the state, brokerage firm, or realtor.
That’s where your broker comes in. Experienced brokers such as AZ Flat Fee will guide you through all the stages of the transaction, including the closing. In addition to the commission, you’ll also pay taxes, loan origination, and appraisal fees, while the seller will pay title transfer, attorney, and closing fees.
Other costs included in closing costs can vary depending on the transaction.
- Mortgage Insurance: Mortgage insurance covers the cost lenders incur when borrowers default on loans. Keep in mind that you may pay mortgage insurance that is built into your monthly payment with less than a 15% down payment. There could also be an upfront mortgage insurance charged at closing.
- Application Fee: This fee is charged by the lender to cover the cost of processing the loan. While some lenders do not charge an application fee, you should compare lenders to get the best interest rate and low fees.
- Title Insurance: It protects the interest of the borrower and lender in a property, from ownership claims that may occur after closing the sale.
- Title Search: This ensures you are the owner of the home and there are no judgments or outstanding claims against the home.
What Is a No-Closing-Cost Mortgage?
A no-closing-cost mortgage means instead of paying the closing costs from your pocket, the charges are added onto your mortgage interest rate or loan balance. The advantage is that you avoid paying more upfront on your down payment and at loan closing.
However, the monthly payment is higher and you might end up paying more than if you had paid upfront the closing costs. This may be worth it if you have used all the money you had for the down payment.
How To Calculate Closing Costs
Calculating the closing costs of your house is easy. However, do not forget to include the broker’s commission if you’re working with mortgage brokers. Note that a broker’s fee is not a closing cost. However, it is important to include it because it’s a related cost.
Let’s calculate the seller and buyer closing costs on a $300,000 home.
Seller Closing Costs
Generally, the seller’s closing costs for this house would be as follows:
- Real estate commission: $300,000×6%=$18,000
- Excise tax: $300,000/1000=$300x$2=$600
- Attorney fee:$500
- Wire fee:$60
Total closing costs for the seller=$19,160
Buyer Closing Costs
The buyer’s closing costs for this same home covers the following:
$300,000×70%=$210,000 (assuming the home buyer is borrowing 70% of the property’s value).
- Origination fee: 0.5%x$210,000=$1,050
- Homeowners’ insurance: $450 (6 months x $75/month)
- Property tax: $1200 (6 months x $200/month)
- Application fee: $400
- Appraisal fee: $300
- Credit: $40
Total escrow and lending fees on a $300,000 home=$3,440
Closing and Title Fees
- Closing/title fees: $1200
- Title insurance: $$850
- Recording fees: $80
Total closing costs for the buyer: $3,440+$2,130=$5,770
Are Closing Costs Negotiable?
Closing costs are negotiable and can save you money. However, not all closing costs are negotiable. Below is a table showing negotiable costs and those you can’t negotiate.
|Negotiable Costs||Non-negotiable Costs|
|Real estate commissions||Flood certification fees|
|Underwriting/origination fees||Tax service fees|
|Lender credits (discount points)||Stamp service fees|
|Homeowners insurance||Property taxes|
|Application fees||Recording fees|
|Title insurance||Appraisal fees|
|Rate lock fees||Transfer taxes|
You have numerous opportunities to negotiate for an affordable mortgage. Begin by negotiating for origination fees, discount points, and interest rates. Negotiating these fees can reduce the cost of your loan.
Additionally, you can shop for discounts on attorney fees, home inspections, and title insurance. Although these fees are smaller than the origination fees, they can add up quickly.
Are Realtor Fees Considered Closing Costs for the Seller?
Realtor fees aren’t always considered closing costs for the seller. The party responsible for paying realtor fees can change. In some cases, the buyer can offer to pay all or some of the realtor fees during the negotiation process.
Are Realtor Fees Included in Mortgage Costs?
Realtor fees are not included in mortgage costs. This is because mortgage costs are the responsibility of the home buyer at closing. They can only be included if the buyer has agreed to pay closing mortgage expenses for the seller. However, the final negotiated contract can be used to make this clear.
When selling or buying a home, it’s crucial to know how to calculate realtor fees and closing costs. If you are considering selling or buying a home, AZ Flat Fee can help you determine these costs so that you decide whether or not to put your property on the market. Selecting a full service flat fee brokerage like AZ Flat Fee can help you save a considerable portion of these closing costs.