It’s normal for homeowners to have lots of questions about selling a house.
- How much cash will I have in my pocket after closing?
- What’s my return on investment?
- Will I have a large enough down payment to buy another house?
- Will the proceeds be enough to cover the remaining balance on my loan?
You can expect to pay anywhere from 6-10% of the final sale price in fees and closing costs. But unless you have low equity in the home, most of these costs are simply deducted from your profit—no need to come up with lots of extra cash. Still, it’s helpful to understand where that money is going, and how it impacts your bottom line.
I can help you estimate your Seller Net proceeds, but here’s an overview of the process and costs involved.
What happens at closing?
At “close of escrow” the seller, buyer (and lender) transfer all money and important documents. It only happens when both parties fulfill their commitments, according to the purchase and sale agreement. The lender sends the buyer’s purchase funds, which will be used to pay off the seller’s loan or liens. An escrow company, or a neutral third party, usually facilitates this process.
What are typical seller closing costs?
The seller usually pays the sales commission for both real estate agents involved in the sale. Additionally, your closing costs include title insurance, escrow fees, septic inspections, document recording fees, excise tax, and prorated items, such as real estate taxes, HOA dues, and utility bills.
How do I pay off my existing loan or mortgage?
If you need to pay off a mortgage when you sell your home, you should request a loan payoff amount from your lender. This is because the remaining principal balance on your loan is not the same as your lender’s payoff requirements.
For example, some lenders require a pre-payment penalty within a certain timeframe, which can impact your net proceeds. You can probably request the payoff amount online, based on your expected closing date. This will also calculate any additional interest due at the time of closing.
Like other closing costs, your loan will be paid using the proceeds from the sale at closing, so put your checkbook away for now.
What about seller concessions?
Sometimes, cash-strapped buyers may ask you to cover some or all of their closing costs. This sweetens the deal for buyers, encouraging higher offers. After all, it’s easier for many people to accept a slight increase in their monthly mortgage than it is to find extra cash up front. Concessions that lower the buyer’s cash requirements include loan origination fees, inspection fees, title insurance, down payment, settlement or recording fees, and taxes.
Or, you may be asked for concessions that lower a buyer’s monthly financing costs, such as reducing the sale price, or paying points for a lower interest rate on the buyer’s mortgage. Again, the goal is to incentivize buyers to make their best offer.
Other common concessions include completing repairs before closing, purchasing a home warranty or protection plan for the buyers (about $500 on average), moving the closing date, upgrading fixtures or appliances, or including allowances for special inspections and repairs (commonly for a roof, deck or septic system). These things add value for buyers, who may otherwise struggle to afford the purchase.
Buyer closing costs that are paid by the seller are simply reflected in the settlement statement, covered by the profit from the sale. If applicable, seller concessions are typically 1.5% to 3% of the sale price.
How do agents get paid, along with other closing costs?
As long as there is enough equity in the home, both agent commissions and seller closing costs are simply deducted from your sale profit at the time of closing. But if the market value of your home isn’t enough to cover all mortgage debt, you have an upside-down mortgage. (In that case, you may need to bring additional cash to the table in order to cover these closing expenses.) Sellers usually receive the remaining sale proceeds by check or wire transfer 1-2 business days after closing.
Talk to a trusted agent to get the full picture.
It all starts with a realistic valuation of your home, or determining the best selling price. Remember that closing costs can vary, depending on the purchase scenario. But a reasonable estimate of your net proceeds helps you know what to plan for.
If you’re thinking about putting your home on the market in Kitsap County, I’d be happy to help you project your net proceeds from the sale. That way, you can avoid surprises and make the best financial decision for your family. Give me a call today!