Buying:
When buying a property, several costs are involved beyond the purchase price. Here are the key expenses that buyers should consider:
1. Down Payment
It can vary from 5% to 20% (in some special cases more) of purchase price
2. Closing Costs
Closing costs include various fees and expenses associated with finalizing the real estate transaction. They typically range from 2% to 5% of the purchase price and may include:
Loan Origination Fees: Charged by the lender for processing the loan application.
Appraisal Fee: Paid to a professional appraiser to determine the property's value.
Home Inspection Fee: Paid to a professional inspector to check the property's condition.
Title Insurance: Protects the buyer and lender against disputes over the property’s ownership.
Recording Fees: Paid to local government entities for recording the property's sale.
Attorney Fees: If required or desired, for legal representation during the transaction.
Credit Report Fee: Charged by the lender to check the buyer’s credit history.
3. Property Taxes
Buyers may need to pay a portion of the annual property taxes at closing, depending on the time of year the purchase is made. These are often prorated based on the closing date.
4. Homeowners Insurance
Lenders typically require homeowners insurance to protect the property against damage or loss. The first year’s premium is usually paid at closing.
5. Private Mortgage Insurance (PMI)
If the down payment is less than 20% of the home's value, the lender may require PMI. This insurance protects the lender if the borrower defaults on the loan. The cost of PMI varies based on the loan amount, down payment, and credit score.
6. Homeowners Association (HOA) Fees
If the property is part of a homeowners association, buyers may need to pay a portion of the HOA fees at closing. These fees cover the maintenance and upkeep of common areas and amenities.
7. Prepaid Interest
If the loan closes in the middle of the month, buyers may pay interest on the mortgage for the days between the closing date and the end of the month.
8. Moving Costs
Moving costs can include hiring movers, renting a moving truck, purchasing packing materials, and other related expenses.
9. Miscellaneous Expenses
There may be other costs, such as utility setup fees, repairs, or upgrades needed before moving in.
Being aware of these costs can help buyers budget effectively and avoid surprises during the home-buying process.
Selling:
Selling real estate involves various costs that sellers should be prepared for. Here's a breakdown of the key expenses:
1. Real Estate Agent Commissions
Typically the largest expense, real estate agent commissions are usually around 5% to 6% of the sale price. This amount is split between the seller's and buyer's agents. For example, if a home sells for $300,000 with a 6% commission rate, the total commission would be $18,000.
2. Closing Costs
Sellers are responsible for certain closing costs, which can include:
Title Insurance: Protects the buyer and lender from title defects. The cost varies by location and sale price.
Escrow Fees: Fees for the escrow service that manages the transaction, including holding and distributing funds.
Transfer Taxes: Local or state taxes imposed on the transfer of property ownership. The rate varies by location.
Attorney Fees: If an attorney is involved in the sale, their fees are part of the closing costs.
Recording Fees: Fees charged by the local government to record the sale of the property.
3. Home Repairs and Improvements
Sellers often invest in repairs or improvements to make the property more appealing to buyers. This can include fixing structural issues, updating outdated features, or making cosmetic improvements. The cost varies depending on the scope of the work.
4. Staging Costs
Staging involves arranging furniture and decor to make the home more attractive to potential buyers. Staging can significantly impact the property's perceived value and marketability. Costs vary depending on the size of the home and the extent of the staging.
5. Mortgage Payoff
If the seller has an existing mortgage, the remaining balance must be paid off at closing. This includes any prepayment penalties that might apply.
6. Capital Gains Tax
If the property has appreciated in value, sellers might owe capital gains tax on the profit. However, primary residence exemptions may apply. For example, single homeowners can exclude up to $250,000 of capital gains, and married couples can exclude up to $500,000, provided they meet certain conditions.
7. Home Warranty
Some sellers offer a home warranty to the buyer as a selling incentive. This warranty covers repair costs for major home systems and appliances for a set period after the sale. The cost usually ranges from $300 to $600.
8. Utilities and Holding Costs
Sellers may need to continue paying for utilities, property taxes, and homeowners insurance until the sale is finalized. If the property is vacant, there may also be costs associated with maintaining the property, such as landscaping and security.
9. Relocation Costs
These costs include expenses related to moving to a new home, such as hiring movers, renting a moving truck, and temporary storage.
10. Miscellaneous Fees
There may be additional costs, such as notary fees, courier fees, and fees for obtaining required documents like a property survey or homeowners association documents.
Understanding these costs can help sellers budget appropriately and maximize their net proceeds from the sale.
What to know exactly how much will cost if you buying and selling real estate? Please contact us and find out what is included in our service fee!
