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The Real Estate Closing Process

(A continuation of How to Sell a House)

By - 2006

The real estate closing process has become more complicated over the years. It perhaps another argument for not trying to sell your home on your own. But even if you have a real estate agent, you should try to understand the whole home selling process - including closing.

In fact, you should understand the home buying process as well. That is, you have to know the basics it if you want to make it easy for a buyer to buy your home. This includes knowing the real estate closing process, or at least the most common things to expect.

If you are selling the home yourself, ask for some help from the closing company. They should at least be able to provide you with a list of what you and the buyer need to bring to closing. Make sure you understand, and then help the buyer as much as you can.

Also demand that you get a closing statement at least two days before closing, so you and the buyer can look it over for errors, and ask any questions before the day of closing.

Below is an item-by-item list of what you may see on your closing statement, and what it means. There are also a few suggestions about how you or the buyer can save money on some of the items. Loan related charges are not included here, because the lender should be explaining those to the buyer.

Closing or Escrow Fee

This is the fee that is paid to a title company, bank, lawyer's office, or other company for handling the closing. At the moment, it can range from $250 to $650 depending on the area of the country and the nature of the purchase. If you have a preference as to which company does the closing, speak up early in the process (put it in the offer), or the decision will likely be made by the bank or real estate agent.

Although you can check a few places, there isn't usually much of a difference in pricing between closing companies in a given town. To save money on the closing fee, you can get the buyer to pay more of it, but this has to be in the original purchase agreement.

In many areas, if it isn't specified, it is customary to have the buyer and seller split the fee. If you include "buyer to pay the closing fee," in your counter-offer, and it is accepted, the buyer will have to pay the whole thing.

Document Preparation Fees

These can vary. Some closing companies are very reasonable, charging $25 or so for preparing a deed or contract-for-sale. Others may pretend that a lawyer is preparing them (it will be a secretary, and the lawyer will only look at it briefly), and charge accordingly.

You are not obligated to have the closing company prepare the documents. If they charge too much, ask them to lower the cost, or have the documents prepared by a lawyer or paralegal, and then delivered to the closing company.

Notary Fees

These are never much. If they are more than a few dollars, ask why. Closing companies always have a notary public on staff, and it takes them just a few minutes to look at your ID and verify that you signed something.

Attorney Fees

Unless there are some particular legal issues in the transaction, there usually won't be any attorney fees. Document preparation fees could show up under this category, though. In any case, ask about these if you see them on the closing statement. When I sold real estate, I saw charges removed more than once just because they were questioned.

If you hire your own attorney, you will most likely pay him apart from the other costs on the closing statement.

Title Insurance

This insurance is for the buyer, and guarantees that if there are any title problems in the future, the issuing company will pay the legal costs of resolving them. In many areas it is customarily paid for by the seller, as a way of assuring the buyer of a good title. There is generally no law or rule about these things though, so be sure if you want the buyer to pay, you specify that in the offer.

There may also be a separate charge on the buyers side for the bank or lender to be covered by the policy. If there is, the buyer can ask if this is absolutely necessary, or if there is some cheaper way to arrange this.

Recording Fees

There is a small charge that is paid to the county or parish where the deed, mortgage and other documents are recorded. Unless there are many documents to record, these fees should add up to less than $100 in most areas. Most closing companies don't charge more than the county fees, because recording the documents is included in their closing fee. If the fees seem high, ask if they are charging extra, and why.

Commissions

Ordinarily any real estate sales commission would be paid by you. Even if the buyer is working with a buyers agent, the offer is usually structured so the seller pays his or her fee too. Ask about this before you accept an offer.

Title Transfer or Tax Stamp Fees

Most states charge tax on the transfer of real estate. Whatever it is called, it is most commonly based on the sale price of the property. Some states mandate that the seller pay this charge, while in others it is left up to the two parties to negotiate this. In other words, if you want to save on this, make it a condition of your offer that the buyer pay it (if the law allows this).

Other Taxes

There may be other title transfer or similar taxes charged by the local government. Ask your agent about this before you accept an offer. If there are such taxes, specify in the offer if you want the buyer to pay.

Other Charges

There may be any number of other charges according to the specifics of your offer. In fact, in almost every real estate closing I have been involved with there have been "surprise" charges. Always ask about anything that isn't clear, and demand that the closing agent keep explaining until it is clear to you. Just as in the medical profession, in the real estate professions there is sometimes an attitude toward customers of "You're just supposed to shut up and write the checks."

Don't accept that. I have seen people pay hundreds of dollars extra at closing just because they were intimidated. You have the right - and the responsibility - to know what you are signing.

There are other items on a real estate closing statement that are not exactly fees or charges. These include prorations of taxes and other recurring costs, as well as prepaid escrow monies on the buyers side. Though these are not strictly speaking closing "costs," they still have to be paid. Ask the closing company to explain these well to both you and the buyer.

The book continues here: Home Selling Checklist - We reach the end of the book with these lists.


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Houses Under Fifty Thousand | The Real Estate Closing Process