We are kicking off part 5 of our blog series, “Closing Explained”. I want to write on a topic that can be very foreign to clients. This week I will be explaining the closings costs that go along with closing on the sale of your property. Many of these costs can seem confusing or are not properly explained to the consumer, which is exactly why I want to discuss them!
Whether you are buying or selling, it can be expensive to close on your property. For sellers especially, there can be unexpected costs that surface throughout the closing process. Part of our job as Closers is to research and unmask any previous liens, unpaid water bills, old mortgages, or any other miscellaneous issues in order to insure title to your property. Although these issues are normal to us, they are not routine for our clients.
One of the most common fees that sellers are surprised to see on their closing statement is their water/sewer bill. Did you know your water/sewer bill is tied to your property, even after you have moved? That’s right. Unlike other utility bills, if you don’t pay your water/sewer bill, the new buyer will be stuck with it. As Closers, we call the city where your property is located, and chat with the Public Works department to find out how much your water/sewer bill will be upon your closing date to ensure this doesn’t happen. Title Insurance does not cover utility bills so we do this as a courtesy for our customers.
Another commonly forgotten fee for sellers is their Home Equity Lines of Credit (HELOC). This is a second mortgage taken out on your home. Sometimes, these are taken out with your initial mortgage or later after the purchase to do some improvements or consolidate bills. Many people don’t think about these loans as a mortgage and file them in their minds on the back burner. Or, the seller has paid it off, but has not formally closed the account. Although there isn’t a balance left, most lenders still require a fee to close the line of credit and issue a release of the mortgage to be recorded at the county. There have been many times either I, or someone on my team, has had to call a seller to tell them they have a HELOC that has to be paid off. I have personally had sellers ask me why they had to pay off their HELOC loan. I usually just smile and tell them “well, your buyer probably would not care to have that lien on their new property”. Regardless, it’s not a fun thing to find out about!
Sometimes closing costs from the title company are a surprise as well, specifically for sellers. Typically, the only closing cost sellers are aware of is the Settlement/Closing fee. This fee is fairly standard across the board for most title companies. However, it is not the only cost associated with selling a property.
Aside from the Settlement/Closing fee, there are other various fees that are typically paid by the seller. These fees can range from ordering payoffs for your mortgage, wiring your proceeds rather than taking a company check, obtaining a certified copy of a legal document from the county, pre-signing your closing documents, document preparation, Homeowner Association fees, as well as county recording and transfer fees. To break it down, I’ll briefly explain why each of these is important, and why you can trust we aren’t overpricing our services.
- Mortgage Payoffs
- Like I said earlier, most mortgage lenders require a fee to be processed upon the closure of an account. This goes for both first and second mortgages. Not only do we obtain the payoff, but typically, we either wire the funds to pay it off or send a check to the lender by overnight express mail. When it absolutely MUST get there immediately, there is a charge to guaranty that happens.
- Proceeds
- Much like paying off a mortgage, if a seller would like their proceeds from the sale wired to them, this costs money. Fortunately, this is a very small fee, for such a convenient way of transferring funds. The cost of this is typically around $30, and the funds are in your account the same day. This is a great convenient option for many people! This can be especially useful for sellers who are buying a new home immediately after their sale and need the funds wired to their purchase title company.
- Certified Copies of Legal Documents/Recording and Transfer fees
- Clearing the title of a property can require a certified copy of a legal document. Examples of this could be a satisfaction of a mortgage, marriage certificate, or even a divorce decree. In order to obtain this, most counties charge a fee, and on top of that, we need to send someone to pick it up and bring it to us for the closing. Also, the seller is responsible to pay the recording fees for any documents that need to be recorded to clear title for their buyer. Along with recording fees, the county also charges State Deed Tax which is based on a percentage of the sales price. This one is typically the big shocker that sellers tend to forget about.
- Pre-Signing Closing Documents
- Last but not least, if you are unable to make your closing appointment, there is almost always the convenient option to pre-sign your closing documents. This allows for sellers to sign their documents at a date and time that works better for them. Now, although this is part of the normal closing appointment, the closer must prepare the appropriate documents to sign in advance of the normal closing appointment and will attend both appointments on your behalf.
I truly hope this can be used as a resource for you and your clients to clarify some of the mystery of closing costs for sellers. Until next time, happy home selling!
-Cindy