As a buyer, you probably know that you have a lot of closing costs when you buy a home. But what about the seller? Do they have closing costs too? If so, how do they affect you?
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Sellers do have closing costs when they sell their home. In fact, they can cost as much as 10% of the home’s selling price. While sellers don’t have to come up with the money at the closing, they still need to know the costs they will pay.
More importantly, though, how do those costs affect the buyer?
The Real Estate Commission
The largest expense that a seller has that will affect buyers the most is the real estate commission. This is the charge that the real estate agent charges to list and sell the home. Typically, it’s 6% of the home’s sales price, but each agent can negotiate their own prices. The seller pays both the buyer’s and seller’s portion of the real estate commission.
While you might think you get away by not paying the real estate commission yourself, in essence you do pay it. Buyers pay the real estate commission in the price of the home. If the seller were to sell the home by owner and skip the real estate agent, they would probably be able to list and accept a lower price for the home. But because they have this large commission to pay, they will generally keep their expectations high for the home’s sales price.
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The Escrow Fees
If your seller sets up an escrow account, which most sellers do, there will be a fee for it. The escrow keeps the earnest money that you put down on the home in a safe place. This way neither the buyer or the seller has access to the money until the contract is settled. If anyone breaks the contract, the escrow agent will distribute the money according to contract’s terms.
The escrow provider may charge you a flat fee or a percentage of the sale, which is usually 1% of the sale. Many buyers and sellers split this cost, so you should know upfront what the seller intends to do with this fee so that you can calculate your costs accordingly.
The Seller Credit
Of utmost importance to you is probably the seller credit. In a slow market, sellers often try to entice buyers to buy their home by offering help with the closing costs. This is called a seller credit.
The seller gives up some of the proceeds of the sale of their home to cover your closing costs. You and the seller must negotiate this before you sign the contract, as it must be in there to work. If the seller agrees to pay some of your closing costs, they must be in accordance with your loan program. For example, on an FHA loan, the seller can give the buyer up to 6% of the price of the home for closing costs.
The long and short of it is that seller closing costs do affect you slightly. Your closing costs may increase or decrease according to what the seller decides. Of course, there’s always room for negotiation and you don’t have to sign a contract that you do not agree with – you can always ask for different terms or walk away from the sale.
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