Closing Costs Myths & Realities

Closing costs. Who pays what? Can a seller have the buyer pay some of their closings costs? Vice versa? Closing costs may be divided differently in other states so I am addressing typical divisions in Florida only.  Most costs can be shifted from one party to the other through contract agreement as long as the lender will allow it. Lenders usually will not allow buyer costs like pre-paids and escrows to be paid by the seller. Writing it into the contract will not change this. Lenders need to be consulted before adding seller paid costs to a contract. If the Realtor agrees to pay something, it will not show up on the settlement statement.

In a typical Florida residential sale for cash, the seller will pay the following:

• Owner's title policy
• Doc stamps on the deed ($7 per $1000 of sales price)
• Courier fees if a mail-away to the seller
• Settlement fee of around $300 to closing agent (usually the title company)
• Real estate commission for both seller's and buyer's broker *more on this below
• Taxes prorated to day of closing
• And, of course, payoff of existing mortgages.

The buyer will be responsible for the following:

• Recording fees for deed, usually around $10
• Transfer fees to homeowner's or condominium association (usually $50 to $100)

The buyer will also have already paid for inspections and insurance but these aren't closing costs. Cash buyers don't usually pay a settlement fee but a few title companies and attorney's offices try to slip in a $200 to $300 fee in hopes it won't be questioned. It will usually disappear if contested by the buyer or his agent prior to closing.

If the buyer is financing the sale with a mortgage there are a few other costs. Those include:

• Recording fees for mortgage, around $50
• Doc stamps on mortgage ($3.50 per $1000 of mortgage amount)
• Intangible tax on mortgage ($2 per $1000 of mortgage amount)
• Prepaid insurance for a year and some prepaid taxes (if included in payments)
• Lender fees (usually 1% to 3%)
• Settlement fee to title company (usually around $200 to $300)

It is not customary for the principals to use attorneys in our state although they may if they are so inclined. The title company typically handles all aspects of the closing after the contract is executed. In a foreclosure sale, the bank may require the buyer to pay the doc stamps and/or the owner's title policy. Be sure to factor this in (if it applies) if offering on a foreclosure.

*About the seller paying both brokers. People often assume that both brokers are working for the seller since the seller is paying both. That is not true. The seller pays their listing broker who then offers a split to the buyer's broker. The buyer's broker is working for their client who pays them nothing directly unless by prior arrangement. Sometimes with unlisted properties, the buyer may agree to pay their broker. This brings up another misunderstanding. Buyers often assume that a FSBO can be purchased for less than a listed property since no commission is being paid. Often, the exact opposite is true. Sellers go "for sale by owner" for one reason; to net more money. They usually overprice their property and they plan for that saved commission to go into their pocket, not the buyer's. A seller's motivation to go it alone never involves a thought of giving the buyer a better deal.

"You are not entitled to your opinion. You are entitled to your informed opinion. No one is entitled to be ignorant."  _____________Harlan Ellison