Selling a house in San Diego or elsewhere in the States is a great way to earn money. As long as the property is in tip top condition, you can easily make hundreds of thousands of dollars from closing a sale with a buyer.
However, to manage your expectations about your profits, you need to consider closing costs. These can significantly affect the amount of money you’re going to earn after closing a deal.
What Is “Closing on a House”?
In real estate, closing is a stage of the home selling process when documents and money are transferred to change the ownership of the property to the buyer.
The length of the closing process can range from hours to weeks. Once all of the documents are signed, the buyer will receive the keys to the property, and the sale is officially closed and finalized.
In its simplest sense, closing costs are the fees paid by the buyer and seller to finalize and close a real estate transaction. Closing fees are excluded from the property’s purchase price or the commission given to real estate agents.
In total, closing costs can range anywhere from 1% to 7% of the property price, but sellers often pay around 3%. The seller is also expected to provide commission for agents involved in the real estate deal.
It’s challenging to pinpoint the exact amount of closing costs sellers have to pay because these vary per state, municipality, mortgage lender, and loan type.
What Is Included in Closing Costs?
Closing costs can affect the amount of profit you earn from selling a house, which is why it’s important to know what these costs cover. How can you complete a sale if you can’t fully pay for the closing costs? Do you think you can earn a profit in this case?
The following are included in closing costs:
- Appraisal: The appraisal report specifies what the bank should be willing to loan to the buyer and why. This report also details the value of the property.
Securing an appraisal report can range from $450 to $650.
- Attorney or settlement fee: This amount is paid to the title or escrow agent responsible for your closing. If an attorney is handling the closing, you will need to pay attorney fees instead.
Attorney fees can range from $150 to $500 while settlement fees are around $2,000-$1,000.
- Credit report: Lenders will run a credit report on buyers to determine whether they can afford the mortgage. This is often done through one of three main credit reporting bureaus.
Running a credit report can cost between $20 and $50 per report.
- Home inspection: This examines the overall condition of the property and allows buyers to determine whether the house has any underlying issues. A home inspection is a requirement among lenders before financing a property.
A home inspection can cost from $300 to $500.
- Loan pay-off costs: These cover application and assumption fees, as well as loan origination fees and prepared interests. Loan pay-off costs can range from 0.5% to 1.5% of the sale price of the property, according to this source.
- Mortgage pay-off or prepayment penalty: You’re expected to pay anything that you owe on the property’s mortgage during the closing. The majority of lenders will charge a penalty if you pay off your loan before your mortgage term. These penalties vary per lender, which is why it’s best to check with them.
- Amounts outstanding on the property: This covers utility bills, property taxes, homeowners insurance, and homeowners’ association dues. These amounts are often prorated until the closing date.
- Recording fees: Generally, the attorney, title agents, or escrow agent will file the deed that transfers the property over to the buyer. This process is facilitated with the county office, and the costs vary per county.
- Survey fee: This fee is charged by a surveying company to determine the property lines and confirm the boundary of the property. Survey fees can cost anywhere from $350 to $500.
- Title insurance: Title insurance is secured to ensure that buyers and sellers are protected from possible financial losses sustained from defects in a title to a property. The average cost of title insurance is around $1,000.
- Title search: This is the process of going through public records to determine the legal owner of a property and assess if the owner has the right to transfer ownership. A title search also identifies issues concerning the property’s chain of title, taxes, and liens.
A title search can cost anywhere from $300 to $600.
- Transfer taxes: Some local and state laws will require you to pay transfer taxes once you sell your property. Since transfer taxes vary per state, always check with your local laws to determine how much you’re going to pay. In San Diego, for example, transfer tax is charged by both the city and the county.
- Extra state requirements: Don’t forget to check with your attorney or agent for any state-specific requirements that aren’t mentioned in this article. While some states require a flood certification or septic system certificate, other states allow you to close a real estate deal without these.
Keep in mind that closing costs widely vary per state. For example, Bankrate reports that the average total closing cost for a $200,000 loan in South Dakota is $2,159, while the average closing cost for the same loan in Washington is $12,406.
Who Pays the Closing Costs?
Both the buyer and seller pay for the closing costs, but buyers typically pay more than the sellers. Buyers’ closing costs tend to run around 6% of the total sale price.
Buyers often have to pay for the following closing costs:
- Any loan-related fees
- Appraisal fees
- Buyer’s attorney fees (where applicable)
- Credit report fees
- Home inspection fee
- Lender’s title insurance (usually needed for a mortgage)
- Settlement fee (where applicable)
- Survey fee (where applicable)
- Title search fee
The main closing costs for the seller include:
- Any outstanding amounts owed on the property
- Fees associated with the buyer’s title insurance policy
- Mortgage pay-off or prepayment penalty (where applicable)
- Recording fees and transfer taxes
- Seller’s attorney fees (if applicable)
How To Calculate Closing Costs
So, how much are closing costs for the seller? As mentioned previously in this article, closing costs vary depending on many factors, namely the requirements of your state/municipality and the value of your property.
If you want to get an estimate of your net costs, consider using home sale calculators available online. These enable you to input items, such as repairs, moving costs, and agents’ fees, so you can better understand how much your closing costs will tally up.
Should Sellers Pay the Buyers’ Closing Costs?
If you want to make your property more enticing on the market, you can always offer to pay a portion (or all) of the buyers’ closing costs. This is also a great way to attract more buyers, especially if you want to sell your home as early as possible.
There are also instances when the buyer will ask for a concession during the negotiation process. If significant issues were identified during a home inspection, for example, and you’re not able or willing to pay for them, the buyer will likely ask for a concession to make up for this. When this happens, it’s best to go through any possible concessions with your real estate agent so you end up earning profits that meet your financial goals.
If you decide to sell my house fast San Diego to I Buy SD, however, you don’t need to worry about any renegotiations or strategies to sweeten the deal. We will provide an all-cash offer regardless of the condition of your property and buy it as-is!
As a seller in San Diego, or elsewhere in the U.S., it’s important to have a good idea of what closing costs are and how much you’re going to pay when you close a home sale. Hopefully, the information presented in this article will clear any questions you have about closing costs and prepare you to have a smooth real estate transaction!