What are Seller Closing Costs?

A real estate closing, or settlement, is the date the transfer of title occurs. The closing agent prepares a statement which lists the debits and credits for both parties. The debits listed for the seller are called seller closing costs.

The liability for some of these charges may be negotiated, though local laws can dictate who pays for certain items. Unless a mortgage is being assumed by the purchaser, one of the most significant seller closing costs is any mortgage payoff. The seller is also liable for all tax and mechanic's liens on record.

The majority of real estate transactions are handled through the use of a professional agent. The seller and agent contract for a fee to be paid from the seller’s funds. If the seller hires an attorney to oversee any part of the process, outstanding charges to that attorney would be considered seller closing costs.

Most countries require the seller to provide assurance of a clear property title to the buyer. This is often done through a title insurance company, and includes fees for a title search and an insurance policy that will protect the buyer if a discrepancy in the title is found at a later date. This portion of the title insurance is a part of seller closing costs, though the buyer is often required to buy a title policy as well. The buyer’s portion only guarantees that he has not placed any liens against the property prior to closing.

Several transfer fees are assessed during the closing, most of which are paid by the seller. Some countries, such as the UK, assess stamp duties on real estate transactions. If the property is part of a homeowner’s association or co-op, then seller closing costs will also include transfer fees for these organizations.

Other seller closing costs may include a land survey, a home warranty, or an inspection. In some localities, these items are mandatory. In areas where they are not required, real estate professionals usually recommend that the buyer at least obtain a safety inspection prior to closing.

Other costs are normally divided between the seller and the purchaser, though the responsibility can often be negotiated. These include escrow fees, notary charges, wire transfer fees, recording fees, postage, and document preparation fees. Since real estate taxes are generally paid in arrears, the seller is responsible to pay taxes to the date of closing, though a buyer may be allowed to pay these if so stated in the contract. If the seller has been making escrow payments for insurance and taxes, the amount in the escrow account will be reimbursed to him after closing.

Seller closing costs usually include a prorated amount for water and utilities. The seller may offer to purchase a home warranty for the buyer even when not legally required to do so. He may also provide an allowance to upgrade certain property deficiencies. In some cases, the seller may offer to pay points assessed by the buyer’s mortgage company to assist the buyer in obtaining financing.

When preparing to sell a property, an owner should obtain an estimate of seller closing costs. This initial estimate will be approximate, since many charges depend upon the final selling price. Once the property is under contract, the closing agent will provide both parties with a good faith estimate, which should help to reduce any unpleasant surprises at the closing.