Many of our clients ask, “How much are closing costs?” Unfortunately, closing costs are notoriously difficult to calculate.
Closing costs are based on several factors including:
The price of the home
The location (because of local taxes and fees)
The loan amount, type of loan, credit score, and lender (in the buyers’ case)
So while we can’t give you an exact figure, we can help you understand which fees you’ll need to plan for. And we can give you estimates to help you create a budget for your next purchase or sale.
Closing Costs for Sellers
The biggest closing cost for sellers is the real estate agent commission. Some sellers are so tempted to avoid this fee that they try to sell the home themselves. In theory, this doesn’t sound like a bad idea. But in practice, the average home listed by a real estate agent sells for 35% more than the average home listed For Sale By Owner. The higher sale price is well worth the expense!
In addition to real estate agent commissions, you’ll pay for:
Loan payoff fees
Transfer taxes and recording
Title Insurance
A closing fee, paid to the title insurance company or attorney's office where everyone meets to close on the home
Capital gains taxes on the income from the sale (although you could get an exemption of up to $500,000 on your primary residence)
Any property taxes, insurance, and HOA fees through the closing date
How Much Are Closing Costs for Sellers?
Closing costs for sellers typically fall somewhere between six and ten percent of the home’s sale price.
In markets with high home values, like the Bay Area, closing costs for sellers can exceed $100,000. While this amount would seem excessive in other real estate markets, most Bay Area homeowners have enough equity in their homes to turn a solid profit on their home sale despite these fees.
Instead of trying to reduce your closing costs, focus on increasing your profit by increasing the sale price. You can:
Invest in renovation projects with strong returns.
Stage the property to appeal to more buyers.
List with a professional listing agent for the best possible marketing strategy.
Closing Costs for Buyers
As a buyer, you won’t have to pay real estate agent fees. Sellers typically pay all real estate agent fees, including the fees for your agent.
Aside from the obvious expense of the down payment, the bulk of your closing costs will come from securing your mortgage loan. There will be fees for things like:
Applications
Loan Origination
Underwriting
Loan document preparation
Possible mortgage insurance (if you put less than 20% down)
Any prepaid interest or points
You’ll also be nickel-and-dimed by third parties for the many services required to successfully transfer a property. These fees are small, but there are lots of them. They include fees for things like
Title search
Appraisal
Inspections
Credit checks
Escrow services
Escrow reserves
Deed recording
Couriers
Notaries
Wire transfers
Prepaid insurance
Prepaid property taxes
Transfer taxes
How Much Are Closing Costs for Buyers?
Closing costs for buyers typically fall somewhere between three and six percent of the purchase price. For buyers in high-value areas like San Francisco and San Jose, closing costs can exceed $10,000.
Buyers can reduce their closing costs in a few different ways:
Shop around for a lender that offers good interest rates and low closing costs.
Ask the seller to pay some of your closing costs. While this won’t work in a hot seller’s market, it can work in slower markets.
Roll your closing costs into your loan. With today’s low interest rates, it may be well worth financing the closing costs.
Are You Buying or Selling?
When you’re ready to buy or sell, contact Sequoia Real Estate. Our team of real estate experts is excited to get to work for you.