Counting the Closing Costs Before you Sell
When you sell your home, you may be subtracting the amount you owe on your mortgage from the sales price and counting the difference as the cash you’ll make from the deal. But it’s not quite that simple. Both the seller and buyer must pay certain closing costs from the sales proceeds. What the seller actually receives is what’s left after those payments, which can range from 6 to 10 percent of the sales price. Let’s take a look at those costs.
Net profit from the sale
Suppose you sell your house for $375,000, and the payoff on your mortgage is $225,000. It may appear that your net profit is $150,000, but that’s actually not the case. Your net profit is calculated based on your basis in the property — that is, what you paid for the property plus the costs of any improvements you made. So assuming you paid $300,000 for the home and put $20,000 in improvements into it, your basis is $320,000, and that sales price of $375,000 will yield only $55,000. This amount, less the closing costs you must pay, is your actual net profit.
Counting the costs of sale
The seller’s closing costs will be spelled out on the seller’s side of the Closing Disclosure form, which has replaced the HUD-1 form for most real estate transactions. Those costs are:
Real estate agent commission: This fee, which is always negotiable but is often around 6 percent, goes to the seller’s and buyer’s agents. If the selling agent brings the buyer to the deal, she receives the full commission.
Loan payoff: Your mortgage company has the first lien on your house, which means it is paid before any other creditors from the sales proceeds. If you have a home equity line of credit, that comes next. All liens on the property must be satisfied from the sales proceeds.
Property taxes: As the seller, you are responsible for the prorated amount of property taxes covering the period of time you own the house during that tax year. The buyer will be responsible for taxes from the point of closing through the remainder of the year. Even if the tax bill isn’t due until the end of the year, your portion will be paid to the buyer or put into escrow to use when the tax bill is due.
Transfer fees: The seller pays the fees your state or county charges for transferring title to the new owner.
Title insurance fees: The seller pays for title insurance to protect the buyer and his mortgage lender from any undiscovered liens or other encumbrances upon the property’s title.
Homeowners association costs: If the home is in a neighborhood with an HOA, the seller must pay any unpaid dues to the point of ownership transfer. Additionally, some HOAs charge a transfer certificate fee at the change of ownership, and the seller usually pays this.
Miscellaneous costs: As the seller, you’ll pay your attorney if you’ve had one advising you. Also, if you agreed during contract negotiations to pay for any inspections or repairs, those expenditures will be credited to the buyer from the sales proceeds.
What’s left of the sales proceeds after these payments is your final takeaway.