I am often asked for an expectation of closing costs. Closing costs will vary slightly depending on which attorney is conducting the closing and what loan product, if any is being used to obtain financing. Furthermore, taxes and homeowner association dues will be settled up on a prorated basis based on the exact closing date. This can be a credit or debit for either buyer or seller side depending on what time of year it is and whether the seller has paid their current year bill in advance or not.
Nonetheless, the following should be useful in estimating what your costs will likely be:
Items on every sale (even Cash sales)
Transfer Tax – This is a tax charged by the state for the transfer of the deed. It uses a convoluded formula that charges a different rate for the first $1,000 than it does for the rest. My guess is this law and rate was established in pre civil war times when it was realistic to have homes sell for under $1,000. However, to keep things simple it is safe to consider this fee to simply be $1 per $1,000 of purchase price (i.e. $500 on a $500,000 sale). It is rather interesting that the state tax web site indicates that this fee shall be paid by the seller of the property unless otherwise agreed to in the contract (See the GA Tax Guide); yet the standard GA state contract states that the buyer shall pay this fee. Since I typically utilize the GAR contract, the buyer does typically pay this fee.
Closing Attorney Fees – Range from $300 – $500 depending on attorney
Title Insurance – There are 2 kinds of title insurance: Lender’s title insurance is required to be paid when there is financing involved. This insurance protects the lender’s interest in the property. There is also Owner’s title insurance which protects the owner’s equity in the property. In Georgia, owner’s title insurance is optional but it is highly recommended that the buyer obtain it. The fees for these fluctuate and may vary between attorneys who essentially act as resellers for these policies. However, a ballpark figure to use is approximately $250 per $100,000 in home price for both lender’s and owner’s policies combined. In a cash transaction, there is 100% equity; so there will not be any lender’s title insurance but the owner’s policy will be higher due to the increased equity that is being insured on behalf of the owner. This fee is paid one time and will remain on the property for as long as you own it even if you subsequently refinance.
Real Estate Commissions – Typically paid entirely by the seller. This fee is negotiated between the seller and their listing agent in their listing agreement for the property though they are most commonly 6% of the purchase price.
Title Search – Approximately $150. Required for financed transactions. Optional on cash transactions but will be required if owner’s title insurance is obtained.
Hazzard Insurance – this will be required when a loan is involved and highly recommended even for a cash buyer. The fee will vary a great deal depending on the type of property (investment homes may be higher than owner occupied, etc.), the size and location of the property. Typically, I have seen an average of approximately $800/year for this but the buyer would have to contact their insurance provider to get a quote for a particular property.
Items only charged when financing is involved
Loan Origination Fee and other lender fees – this is a form of “commission” that the lender charges to facilitate the loan. Some loan products do not have this fee and others do. A good faith estimate from the lender should indicate what lender fees including origination fee will be charged. Other lender fees that sometimes show up are application fees, processing fees, etc.
Appraisal – Required when financing is involved and optional on cash purchases. Typically around $400. Most lenders require this fee to be paid up front at the time of loan application though it is still considered a closing cost.
Flood Certification – Fee to verify if the home is in a flood zone. Averages $100. Only required when financing is involved.
Completely Optional Expenses
Home Inspection – Approximately $400 average fee – Paid at time of inspection directly to the inspector.
Survey – Approximately $450
Termite Inspection / Bond – Inspection is typically Free or $75 Max. Bond will vary but typically between $400 – 1,000.
Home Warranty – typically approximately $400
It is important to note that in addition to the above fees, the Seller will be required to pay any back taxes or homeowner association dues. Some attorneys and lenders will charge both buyer and seller some small junk fees like mail out fees, etc. but these are typically only $10 – $25 each. It is unfortunately not possible to know exactly what all of these fees will be in advance of seeing the settlement statement but if both buyer and seller budget for an additional $100 padding they should be fairly on target.
Prepaid / Prorations
In addition to the above fees, buyer and seller will settle up current year property taxes and homeowner association dues. If the seller has paid the current year amount in full then the buyer will be debited an amount to reimburse the seller for the portion of the year that the new buyer will own the property. If the seller has not paid yet, then the seller gives a credit to the buyer for their portion of the year of ownership and the buyer will then be responsible for the full bill when it becomes due.
If a loan is involved, it is common for the lender to require the buyer to pay additional money to start off an escrow account to ensure that by the end of the year, there will be enough in the escrow account to cover property taxes. There is a complicated formula that indicates how much can and should be collected based on the closing date.