When you are purchasing a home, you will see a lot of numbers thrown at you. From real estate fees to brokerage fees to closing costs, what are you exactly supposed to pay out? Buying a home can quickly turn to an expensive purchase—and often much more expensive than buyers realize.
These days you don’t have to worry about showing up at closing and being hit unexpectedly with fees. You will receive a closing cost estimate as well as a Good Faith Estimate which discusses settlement charges.
So, when you are putting a bid in on a house, you will have to decide if you want to not only pay a down payment, but if you are willing to cover your closing costs.
A Buyer Incurs a Lot of Costs…but So Do Sellers
Buyers and sellers have costs in real estate transactions. Unfortunately, no one walks away without paying anything. The buyer has to pay line-item expenses, which are more than the seller. For example, they may have to pay for the inspection, appraisal, credit reports, earnest money deposit, etc. Buyers also pay point costs and origination fees just to lock in a great interest rate.
Let’s not forget about homeowner’s association fees, pro-rated home insurance, and more. All of these items easily add up into the thousands for the buyer.
Sellers Deal with Commission
Sellers don’t have all of the little line items to pay for, but they do have commissions. The seller will take on the biggest fee that can take up three to six percent of the sale price. For example, a home is sold for $200,000 and the agent commission is 5 percent. So, the seller pays out $10,000 in commissions, which is much more than the buyer’s line items.
For buyers, it is often better to pay full price and get the seller to cover those closing costs than to agree to a lower price and they pay. A lower mortgage saves the buyer only a few bucks a month on their mortgage, while closing costs could equal up to $5,000 or more paid right upfront.
There are some instances where buyers are willing to pay half the closing costs, especially if appraisals come in too low and negotiations are back on the table. Ultimately, buyers need to address how much they are willing to pay for and what they aren’t, then assess what fees they want the seller to take on.
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