For those that have been through a closing process when buying or selling a home, or investment real estate, understanding all that happened in that conference room is stymied in some mystery, that we will explore.

Your attorney probably did his or her best to explain why this or that deduction is taking place from your hard earned money. For first time home-buyers, the closing process can leave one very tired, confused and feeling like you just had a financial “lube” job.

I have always referred to some of the closing cost charges as “highway” robbery, that’s truly legal. I will examine the cost that the seller of any real estate will have to pay, and what the buyer pays, and why.

Within the article, you can find methods you can use to reduce your closing cost.

What Are Closing Cost?

When you buy or sell real estate, some additions or deduction must be made at closing, to make the transaction viable. For the uninitiated in the closing process, it can feel like the professionals present at your closing are doing a “number” on you, financially.

Do not be confused by all the smiles and friendliness of the lawyers and title insurance person at your closing, they’re there to get paid, and most people are happy when that happens.

In fact, the buyer and seller of the real estate property might be the only ones scrutinizing why all the costs that has nothing to do with you. The biggest chunk of your money would go to the state and city government coffers.

You pay a percentage of the selling price as transfer tax, a cost which both the seller and buyer pays. Also, if you’re using a mortgage banker to help you buy the house, expect your closing cost to go even higher, than if you paid cash for the house.

I will try not to give you what percentage of your selling price would constitute your closing cost, as that is determined by your state and location of the real estate.

On the average, a buyer should expect to pay at least about 3% of the purchase price, and that can go as high as 8% in some areas, and what type of financing is involved.

The seller sometimes has the highest burden, when it comes to paying closing cost. The sellers closing cost should average from 4% and up to 9%, depending if you used a real estate broker or not.

Mind you that when you sell, all types of liens against the property and the name of the sellers, must be satisfied to transfer clean title.

Here is a Detailed Look At the Sellers Closing Cost

►1 – Real estate Agent commission. Your friendly real estate agent did you all that favor of finding a qualified buyer, and now must be paid his or her due fees, based on the listing agreement both of you signed.

I have seen broker’s fees go as low as 2% of the selling price, or as high as 7%. The best time to negotiate the commission lower, is before you signed the agreement, not at the closing.

At least make sure you’re not charged an additional fee for the paperwork or marketing of your real estate property to find a suitable buyer.

►2 – Cost of Properly surveying your House. In some states, sellers are required to provide the buyer, an updated survey of the real estate property they’re selling.

So, if you have a dwelling that has not been sold for many decades, expect to be responsible for this cost. Recently, the surveying standards were increased, thus increasing the fees charged.

►3 – To help record the release of all your liens. You can expect a deduction to be made at closing for the recording of the required documents at your county clerk’s office, that lets the world know that all the liens and mortgages placed on your real estate property has been paid in full, and satisfied at closing.

The satisfaction of mortgage recording fees can range from $25 to $200, depending on your area of residence, and is collected by the title insurance company.

►4 – Mortgage payoff. If you have any amount remaining on your mortgage loan, expect that to be paid in full at closing from the selling price of your home. Depending on your home loan terms, you can see some additions or deductions in your favor.

From my experience, the mortgages to be paid off always comes with more fees than you expect. Most times, the cost of preparing your final amount owed will just be included in your final bill.

Also know that, all prepayment penalties if applicable, would be included in the mortgage payoff amount. The title company would usually collect a little more than it’s required, and you should get a refund in the mail after closing.

►5 – Next Day Delivery Fees. After closing, most of the required activities to payoff any liens is done right-away. The cost to mail some of the documents would be deducted from your proceeds from the selling price of the real estate property.

In any home closing, expect to see at least one courier fee, but you’ll probably be hit with more, based on the number of creditors owed money on your home.

►6- Title Insurance Policy. Depending on your area of residence, the cost of insuring the title to the house is borne by either the buyer or seller.

If the seller pays title insurance fees in your area, expect to lose about a few hundreds, or thousands of dollars from the proceeds of the selling price.

►7 – Transfer tax by your State, City, or Village. Now you know why politicians like to encourage people to buy homes, they get to collect a lot of fees from both the buyer and seller.

The transfer tax would depend on your state and local rules. Sometimes you’ll be paying three separate entities for the privilege of selling your home.

Some areas have state transfer tax, city transfer tax, and your local town transfer tax. Be mindful, some states require the deduction of all capital gains tax right from the selling price.

►8 – Required Notary Fees. This fee is now becoming more common all over the country. It’s now required by law in some states that all closing documents must be signed by the seller in front of a notary agent. I have seen closing clerk’s perform this service, for a discounted fee.

►9 – Utilities fees. The utilities provided by the city government comes with some cost, and any outstanding balance must be settled at closing. The most common type are sewage and water charges.

Usually the buyer of your home would be issued a credit towards how much he or she has to give you at the end.

►10 – Lawyer’s Fees. Some states would not even allow you to close by yourself, unless you’re a practicing attorney. Your attorney’s fees should reflect the complexity of the real estate closing transaction.

I doubt any attorney can save you money from all the required fees, but the good ones would make sure all the required documents are properly executed, with copies for your record.

►11 – Coop/Condo Move out Fee. If you’re selling your condo or coop apartment, know that the board that runs your association can impose a fee for moving out. For coop buildings, the fee is actually much more.

Some associations would also charge you some type of a transfer fee, just for processing the paperwork you’ll be needing for your closing.

Yes, the mortgage banker needs certain documents from your condo board, testifying to the financial condition of the building or buildings that comprises the condo units. Most boards also have the right of first refusal, which requires a release letter.

►12 – Home Warranty. As usual California leads the country, either good or bad. Most buyers of California real estate expect the seller to provide some type of home warranty, for all the major electrical and mechanical appliances. It simply guarantees, most will be in working condition for at least one year.

Some Credits to the seller

At closing, the seller should also expect some credits to be added to the final amount. Since taxes are paid ahead of time, expect some credit for prepaid real estate taxes.

If you have a deposit with your association, it will be transferred to the new buyer, and you’ll be credited. Same would apply to water and sewer charges.

Here Are Some of The Known Closing Costs For Buyer of Real Estate Property

Before we get to some of the fees and cost most buyers would face during the closing process, you should know that most of them can be negotiated lower before your closing date.

You can ask for, and get concessions from the seller on some of the fees you have to pay. In some instances, sellers would agree to pay some or all of the buyers closing cost.

I have seen brokers contribute money from their fees towards the buyers closing cost, to make the deal happen. The truth is, you never know what you can get away with, unless you ask.

✔1 – Loan Origination fees and points. The points you pay to fund your new home loan can range from a few hundreds to almost 3 points. Unfortunately, the points charged on your loan will be based on your credit worthiness, and downpayment.

Some mortgage bankers would even offer you higher interest rate with lower points, or lower mortgage rates with higher points. Contrary to what some might think, all bank charges are truly negotiable, especially if you’re a good risk borrower with a very high FICO score.

✔2 – Your Loan Processing Fees. Most mortgage loan lenders will charge you a loan processing fee. From my experience, the fee can be negotiated or eliminated altogether. Within the fee, is an amount to pull all your credit reports from the three major bureaus.

The fee seems reasonable, to ward-off people not serious about buying a home on credit terms. But you can ask the banker to refund the fees if the loan closes.

✔3 – Document Preparation Fee. This blew my mind when I went to a closing and the lender wanted about $200 for document preparation fees.

I was by now furious, and refused to close the loan, until the seller agreed to take it out of his proceeds. While applying for the mortgage, you can negotiate this fee out of your closing cost, but must be done prior to the closing date.

✔4 – Home Appraisal Cost. Your potential new home has to be appraised, to ensure the bank is within allowed lending guidelines. The cost is usually based on what type of property, the location, and what the bank expects to be in the report.

Mortgage bankers will always use their own in house list of approved appraisers, but you’ll be paying for it. The cost is usually paid prior to closing.

✔5 – You’ll be paying pre-paid interest. The interest cost is usually calculated on a per day basis. The amount you’re borrowing, and what day of the month you’re closing, plays major roles in how much you’ll be paying in pre-paid interest.

To make this cost as low as possible, try to schedule your closing closer to the end of the month. If you close on the first week of the months, you’ll be paying pre-paid interest for almost three weeks, as compared to closing on the 28th, 29th, or last day of the month.

✔6 – Approved Full Coverage Insurance Policy. As part of your home loan terms, the lender requires you keep in effect, a home owners insurance policy. At closing, if the premium is not fully paid for at least one year, your mortgage banker might insist on it.

Most times, the policy documents are required ahead of the closing date. So expect a check to be sent to your insurance company, if the whole year’s premium was not paid when you got the policy.

✔7 – Tax Liability Escrow. Since most sellers of real estate have prepaid tax obligations, you’ll be required to refund the un-used portion of the yearly taxes paid by the home seller.

In some parts of the country, the lender would actually charge you an initial fee for setting up the process to monitor and pay your real estate taxes. Most times, it’s just included in your monthly mortgage payments.

✔8 – Title Insurance. In most states, the title insurance cost is borne by the buyer of the real estate property. The title insurance guarantees the property is free of all prior liens and mortgages, right from the closing date.

Any claim from any one after you close, has to be handled by the title insurance company. The title insurance cost is a major closing cost, and will depend on the amount you paid for the property.

✔9 – Inspection Fees for Your New Home. Be very careful closing any real estate deal without doing adequate home inspection. Your appraisal is not home inspection. Home inspection will look closely at the mechanics and electrical setup of your potential new home.

You’ll also get a timely report of pest infestation, or water and sewer pressure problems. A good home inspection company would also look carefully at the roof, boiler and other appliances, to make they’re in good working condition.

✔10 – Recording Fees for Your Mortgage and Title. As the buyer, you’re charged a recording fee by the title company to record your mortgage, and your ownership to the real estate property.

The cost will also include any fees charged by your county government. The recording of the mortgage documents and title is usually done right-away after closing.

✔11 – Transfer tax for the State, City, and County Government. Politicians love real estate transactions, because they collect thousands of dollars in fees from both the seller and buyer, from each sale.

The transfer tax is a major closing cost to the buyer, and can be quite substantial in some jurisdictions. In New York, the state transfer tax is calculated at the rate of two dollars for each $500.

If the real estate home is more than one million dollars, the buyer is required to pay an additional one percent of the purchase price, which is an extra transfer tax. Mind you, the city will have its own transfer tax requirements. 

✔12 – Lawyer’s Fees. In some states, you cannot close your home loan unless you have a qualified licensed attorney representing you. Who you use is your responsibility, but make sure they’re at least knowledgeable about real estate closing procedures, and needed documents.

✔13 – Move-in Fees for Condos. If you’re buying a condo or coop, some boards are known to charge a fee for the privilege to move into the complex.

This is not to help you with your personal possessions, but to make sure nothing is broken during your move-in.

Some will also require you pay a deposit during your moving-in phase, just to cover any potential damages that might occur.

✔14 – Maintenance Cost. If you new home is a condo, expect to pay at least the first month’s maintenance charges at closing.

✔15 – Transfer Fees For Co-ops. Since co-ops sales involves buying stocks from a corporation that owns the building, you’ll be charged a fee to setup such documents.

✔16 – Additional Credit Check. Some condo or co-op boards will insist on running credit check on each of the buyers, before allowing the sale to proceed.

✔17 – Mortgage Insurance. If you’re using an FHA loan for first time home buyers, you’ll be required to get mortgage insurance policy.

First you’re charged points upfront at closing, which can go as high as 2% of the mortgage amount. You can also expect to pay monthly premiums, until your home loan is paid down to a certain amount.

To avoid the need for a mortgage insurance, you’ll be required to invest at least 20% of your own money, as down-payment.

Just Some Final Thoughts

Apart from the state and title insurance fees, all other closing cost charges to be paid by the buyer, can be negotiated downwards.

The fees from mortgage bankers can be onerous, and I urge you to haggle and threaten to go somewhere else, until you get some type of a reduction.

One other point, any agreed to deductions must be in writing to make it enforceable.

If your mortgage banker makes any promises that involves reduction in fees towards your closing cost, get it in writing on the bank’s letterhead.

If you’re a good borrower and credit risk, you’re in a much stronger position to ask for less fees in your mortgage loan.