How Much Are the Closing Costs?

Typical Escrow Settlement Costs in Riverside County

I'm often asked by home sellers "How Much Are the Closing Costs?"  Here are some of the typical costs that I have seen that are paid by home sellers in Riverside County.

Mortgage Payoff:  Usually this is the largest expense to be paid from escrow proceeds.  The amount of money to be paid is determined by the existing lender.  In addition to the principal balance (the overall amount owed), the bank will charge for outstanding interest and possibly ‘demand fees' and other similar fees.  Usually these fees are relatively small (under $100).  Many sellers will underestimate their mortgage payoff because mortgage payments of interest are made ‘in arrears' or after they've been incurred.  So a payment made on April 1^st is actually paying for the interest expense on the loan from March 1^st through the end of March.  If the sale is scheduled to close on April 10^th, the bank will likely ask for about 44 days of interest (31 days in March, 10 days of April plus 3 days to allow for money to arrive from escrow).  If the funds arrive early, the bank will make a refund of overpayment back to the seller sometime after the sale.

Prepayment Penalty:  This is an item included in the mortgage payoff but worthy of special notation as the penalty can add significantly to the cost of the sale.  The amount is usually a percentage of the outstanding mortgage balance and may be in effect for quite a few years after the mortgage is put in place.  Make sure you understand your penalty dates and amounts if you have a mortgage that includes early payment penalties!

Broker Commissions:  The commission that is paid to the brokers will typically be the largest expense (after mortgage payoff) related to the sale.  This is often a percentage of the total sales price.  When you list your home you will be paying the listing brokerage and you will authorize a portion to be paid to any other brokers who may ‘participate' and represent a buyer in the sale.  This is referred to as the commission split.  Real estate commissions are fully negotiable and must be in writing to be enforced.

Buyer Closing Costs:  Often an offer to purchase a property will include a request for the seller to pay either a fixed amount or a percentage of the sales price to be credited to the buyer for the buyer's closing costs.  This is especially common in transactions involving 1^st time homebuyers who are often working with limited funds.

Property Tax Pro-Rations:  Property taxes are only paid ‘current' on two dates, June 30 and December 31^st.  Sales on any other dates will involve either a credit or debit from or to the seller.  If you have already made the property tax payment due in the current ½ year (ie. Selling between July and December and you've made the payment due in December OR selling from January to June and you've made the payment due in April) then you will receive a credit from the buyer through escrow.  If you have NOT made payment yet, then you will be responsible for a pro-rated portion of the taxes due through the date of closing.  And of course if you are in tax default, all old outstanding bills will need to be brought current including penalties, interest and a reinstatement fee.

HOA Fees:  Most purchase contracts will ask the seller to pay for HOA documentary costs and HOA transfer fees.  These costs are usually relatively small but it's important to remember that the HOA will be charging for all those HOA docs as well as setting up the new owner account.  It's not unusual to see these costs in the hundreds of dollars.

Pest Control: Most purchase offers will include a request to sell the home free-and-clear of termites and similar infestations.  Many termite inspection companies will perform complimentary inspections and some will charge a nominal fee ($75-$85) with credit for the inspection applied against any work that may be needed.  You do not need to be in a sale situation to have a termite report completed so if you are worried about the cost of repairs you can do an inspection prior to listing the home for sale.  Remember though that termite reports are public records that are filed by the termite company with the State.  The report will be on file for a two-year period.

Home Warranty: A home warranty policy allows the buyer of a home to have repairs made for a fixed fee (typically $55 to $65) and will cover many of the major components of the home.  These policies cost anywhere from $350 to $700 depending on options selected and most sale contracts will ask that the seller pay these expenses.

Septic Certification:  If you're not on a sewer line, the buyer is almost guaranteed to request a septic certification.  They don't want your leftovers left at the property.  Clean-outs and certifications can run in the $700 to $1000 range.

Natural Hazards Report:  As the home seller, you are obligated to disclose hazards of a general nature related to a property.  There are several companies in the marketplace which will provide this service and the cost is usually around $90 and is paid by the seller.

Smoke Detector Installation:  If you home is older, you may not have smoke detectors installed on the property.  You will be required to have smoke detectors in place prior to the sale of the property.  These can run anywhere from $8 and up depending on brand and whether they are hard-wired or battery.  You are not required to provide hard-wired so if you don't already have them in place, just provide the inexpensive battery operated detectors.  There should be one inside each bedroom and ideally at least one outside the bedrooms within 10 feet of the bedroom door.

Water Heater Strapping:  All water heaters need to be strapped to prevent tipping over in the event of earthquake.  The straps are relatively inexpensive and a handyman can install for a relatively modest cost (probably $100 or less).

Carbon Monoxide Detector Installation:  California codes are changing and CO detectors are required effective January 1, 2011.  They are similar to smoke detectors in appearance but run closer to $40 in cost and only one unit will be required.

Escrow Fees:  The escrow office is the coordinator of the paperwork for both sides of the sale.  The costs of escrow are usually split 50/50 between buyer and seller.  Some escrow companies charge a flat fee, others have a minimum fee and then charge a fee per $1000 of sale price.  The costs can vary quite a bit and often the listing agent is the person making the recommendation for who will handle escrow.  Make sure to understand if there is a related party relationship between the listing broker and the escrow company (i.e. both companies are owned by the same company or individuals) as this may lead to higher (or sometimes lower) costs.  Reasonable escrow fees on a sale of $300,000 would be something less than $1000.

Title Insurance -Owner's Policy:  The seller of property is generally asked to pay for an owner's title policy which insures the buyer that the seller is the true owner.  The title company will be responsible for any ownership claims that may be filed after the sale and title will be responsible to ‘make-it-right' if there were any problems with the ownership transfer.  Often title company costs are proportionate to the sale price.  Reasonable title fees on a sale of $300,000 would be something near $1000.

County Transfer Tax:  The county charges a transfer tax on all property sales.  The amount is $1.10 per $1,000 of transfer value.  So home selling for $300,000 will have $330 of county transfer tax.  If your property is in the City of Riverside, the transfer tax is $2.20 per $1,000 of transfer value.

Private Transfer Tax:  In some areas, there are private transfer taxes which are similar to the county transfer tax but paid to private entities.  These situations are rare.

Notary Fee on Grant Deed:  As the seller, you typically have only one document to notarize and the fee should be about $10.

Messenger & Similar Fees:  Escrow often will need to send documents back and forth to you and to your agent.  Escrow will probably charge a flat fee of about $50 to cover their costs.

Escrowed Impound Refund:  If you pay impounded property taxes and insurance (payments with your mortgage payment) you are likely to have a refund of the balance in this account after you close escrow.

Insurance Refund:  Regardless of whether you impound your insurance payments, make sure to contact your insurance company as they should return a pro-ration of the annual insurance premiums that you've made.

Water Company Bill:  If your property includes stock in a water company, you may have transfer fees and water pro-rations to attend to as part of the sale.

Document Fees:  Other miscellaneous (sometimes called 'junk' fees) may apply to the sale such as grant deed preparation, etc. and generally should run $100 or less.

So "How Much Are the Closing Costs?" is a difficult question to answer precisely.  Much will depend on your individual situation but most sellers will pay somewhere between 7% and 8% of the sale price towards closing costs and easily upwards of 10% if there are special situations at play such as buyer closing costs, prepayment penalties or significant termite damage.

If you are a Riverside County homeowner and you are thinking of selling your home, please contact me for a free evaluation of your home value as well as an analysis of your potential sale proceeds.  I can be reached at DiamondRidgeReal@aol.com or by phone at 951-898-8912 (office).