What are the closing costs for sellers?
Home sellers often stand aghast at the extraordinary amount of closing costs that are associated with selling their home. Of course, the closing costs on any given property will differ, but there are certain costs that sellers should anticipate and prepare for when initially discussing an asking price for their home with their real estate agent.
If home sellers decide that they will put their house on the market for the amount that is still outstanding on the mortgage, they might just get a rude awakening when the property transfers have to be completed. These closing costs can eat into the profits on their property and, in some unfortunate cases, they can even see sellers incurring a loss on the sale.
A trustworthy and experienced real estate agent will be able to advise you on the exact closing costs associated with the property you want to sell, but we have compiled a list of common closing costs for sellers to consider in your discussions.
One of the most basic closing seller costs is the commission that the home seller will pay the real estate agent that helped them to sell their property. In fact, when pondering whether to find a real estate agent to help them sell or to attempt to sell the property themselves, commission is usually one of the most prevalent qualms among sellers. Does it really make financial sense to pay a significant portion of what the home ultimately sells for to someone else?
While the commission that is paid to a real estate agent post-sale can seem like a lot of money, sellers should consider exactly what they are paying for. Not only do they have a knowledgeable, trained and experienced person who understands their local property market on their side, but sellers also have access to the large database of potential buyers that real estate agents have access to.
Real estate agents’ commission is usually divided into two categories: tiered and fixed commission.
A fixed commission structure entails that the agent is paid a set percentage of the selling price of the home after it has been sold. This percentage is agreed upon before the home goes on the market.
A tiered commission structure provides a greater incentive for the real estate agent to sell at the highest possible price, as the commission they will ultimately earn will be based on a sliding scale that is also established before the house goes on the market.
In Australia, commission structures in the real estate industry are not regulated, which means that real estate agencies and the agents working for them establish their own rates. It is important to keep in mind, though, that the commission you pay your real estate agent can always be negotiated. However, home sellers should be wary of not being fair about the commission they pay their agent, as this may influence the effort they put into selling your property quickly at the highest possible price.
Paying commission comes part and parcel of the property world – and, in the end, it’s probably the most valuable investment you’ll make into gaining the most from what might just be one of the most significant financial transactions you conduct in your lifetime.
Loan payoff costs
Due to prorated interest on the mortgage of their home, home sellers might have to pay a mortgage payoff balance that might be a bit higher than the outstanding balance remaining on their property.
When establishing an asking price before their house goes on the market, home sellers should find out exactly what the balance is that still needs to be paid. Sellers should not forget to also enquire as to the prepayment penalty that they might have to pay because they are paying off the loan before the end of term. These are called mortgage discharge fees. Additional lines of credit and home equity loans will also need to be paid in full when the settlement is completed.
These additional costs will also have to be added when deciding how much the property will be advertised for. Simply fetching an amount that settles what remains on the mortgage (should it not sell for an amount high enough to cover the amount that remains on the mortgage, this is known as negative equity) will simply not be enough to cover the extra amounts – ask your real estate agent about an asking price that is fair, but takes all of these factors into account.
Transfer taxes or recording fees
When transferring ownership of a home from one person to another, another cost sellers will need to take into regard is the transfer taxes imposed in the state where they are selling. Recording fees might also be charged by your local or state government to record or register the purchase or sale of the property in question.
Property taxes, as well as outstanding council rates and body corporate will have to be paid before the property’s owner changes.
Title insurance fees
While it is more popular in the United States than in Australia, people here are also increasingly taking out title insurance to protect the buyer against fraud, encroachments, forgery, and unregistered easements on the property.
As title insurance fees in Australia are not paid by the home seller, like they are in the US, this once-off insurance to protect the home buyer is also usually paid by the buyer.
Title insurance fees cover things like planning errors and title defects, outstanding water and council rates and third-party claims on the land, among other things.
Another type of closing cost that home sellers will have to keep in mind is the legal cost that comes when a property sees a change in ownership. In terms of legal fees, home sellers will incur conveyancing fees when the property changes hands. As part of the legal transfer of ownership from the seller to the buyer, the home seller will have to enlist the services of a solicitor or conveyancer who is a member of the Law Society.
The world of real estate comes with its own list of industry-specific terminology, which the man on the street may not be very familiar with. Because tiny mistakes in the documents related to transfer of ownership may severely hamper the sale of a given property, home sellers would do well to make peace with the fees they’ll pay a conveyancer or solicitor, and sleep soundly, knowing the legalities are being taken care of by an expert.
Different Australian states have different laws pertaining to the transfer of ownership of property, and conveyancing fees may also differ depending on the specific lot, the different parties that are involved in a transaction, and the seller’s goals and needs. As such, conveyancing fees differ across the country, but a rough guide on what you can expect to pay is available here.
In Australia, conveyancing fees can be broken down into three categories:
- The fixed professional legal fee, made up of the lawyer’s and conveyancer’s time, the labour and the conveyancing works.
- Standard search fees, including utilities, third-party costs payable to the council, etc.
- Additional costs which cover services that are not included in the standard conveyance and standard search fees, like the General Power of Attorney draft or review, the Licence Agreement drafting or review, the caveat lodgement or the Deed of Rescission drafting or review.
When looking for a conveyancer to help you complete the sale of your property, remember to make sure that they are licensed with the Australian Institute of Conveyancers. Also, ask your real estate agent who they’d recommend.
Additional closing costs for sellers
Home sellers often don’t consider the expenses they might incur, should they decide to undertake cosmetic or extensive renovation efforts in order to make their property appeal to a larger pool of buyers. These costs will vary, depending on the repairs required.
Home sellers should also heed advice to budget an amount for the home inspection, including getting an expert to check the property for termites or other pests.
Sellers should make sure that no liens have been placed on the property, and should try to pay these in full before the property goes on the market, as sales are greatly hindered and delayed until the liens have been settled.
The closing costs that home sellers have to contend with when transferring ownership of the property they are selling may be much more than they could have anticipated, but when the price a property fetches is right, these can easily be settled, and still leave the seller with some profit in their pocket.
One such cost is the commission that is paid to a real estate agent after the sale has been completed. However, having a real estate agent on board that knows how to sell quickly, and at the best possible price, can be invaluable to sellers, and can markedly minimise the stress they might have about closing costs.
Still looking for the perfect agent to help you sell your property? Let Perfect Agent recommend a list of agents that understand your needs.