Understanding closing costs

Buying and selling real estate comes at a cost and it’s important to know what your expenses will be before you begin the process. While we will give you a brief summary below, please make sure to consult with your specific service providers to ensure you have a thorough understanding of the fees associated with your transaction.

Sellers

While the seller’s expenses aren’t insignificant, there are fewer of them so let’s start there. Typically when selling a home you should expect to incur the following costs:

• Real estate commission - when hiring a real estate company, the listing agreement will include the agreed upon fee. The agreed upon percentage includes the co-broke the listing broker will pay the buyer agent.
• Attorney fees - It’s highly recommended that both parties engage a real estate attorney to represent their interests in the sale. The local rates tend to be between $550-700 and that is a one time fee, payable at closing.
• Transfer tax - New York State charges $4 per $1000 of the sale price.
• Water credit- If applicable, the seller credits the buyer for any water used since the last water bill.

Buyers

The list of fees buyers incur is quite a bit larger, and in general can add up to between 3-6% of the purchase price. Assuming the buyer is getting a mortgage, here are the fees associated with securing funding-

• Application fee - Charged by some lenders for processing your mortgage application.
• Appraisal fee - The bank hires an appraiser to evaluate the property.
• Credit report fee- Lenders may charge for checking credit scores.
• Down payment - Depending on the type of loan, buyers can expect to put anywhere from 0% to 20% or more down.
• Origination fee - This is an administrative fee some lenders charge to process a loan.
• Points - Buyers may decide to pay this optional expense as a way to reduce the interest rate and lower the monthly payment. One point equals 1% of the loan.
• Prepaid interest - This is the accrued interest from the closing date to the date of the first mortgage payment.
• Private mortgage insurance - If the downpayment is less than 20%, the buyer may be required to purchase private mortgage insurance.
• USDA and VA loans - These loans have somewhat different fee structures so ask the lender if you are pursuing one of them.

Not all banks structure their fees the same so when shopping for a lender, it’s important to know all their fees so you can compare apples to apples.

Additionally, buyers will incur these expenses-

• Attorney fees - It’s highly recommended that both parties engage a real estate attorney to represent their interests in the sale. The local rates tend to be between $550-700 and that is a one time fee, payable at closing.
• Inspection - Buyers typically hire a licensed home inspector to evaluate the premises. Depending on the size of the home, the base inspection cost is somewhere in the $600 range, though additional inspections such as mold ($250), radon ($100), septic ($300), water quality ($100) may be advised.
• Property and school taxes - The buyer is responsible for the property taxes from the date of closing. This might result in paying a credit to the seller for the remainder of each billing cycle (property taxes - January 1st and school taxes - September 30th). Some lenders will require that you put a full year of taxes in escrow.
• Recording fee - The expense of filing the purchase with the local government.
• Title search fee - The title company charges for researching the deed records and ensuring the title is clean and free from liens.
• Title insurance - Protects the buyer from any future issues with the property title.
• Credits at closing to the seller - Buyer pays the seller for any fuel (propane/oil) left in the tanks, if applicable.