1. Who Pays the Commission?
Most real estate transactions are structured to where the real estate commissions are paid out of the Seller's proceeds at closing. However, many companies charge their Buyers a transaction or processing fee. (Usually somewhere between $200 and $400.)
2. How do Closing Costs work?
There seems to be some confusion about what closing costs are, and whom is paying them! The Buyer and Seller each have their own closing costs associated with the closing of a real estate transaction. Generally, the Sellers portion of the closing cots are considerably less than the Buyers because the Seller is not obtaining or generating a new loan to purchase the house. Here's a breakdown of what makes up each:
- Buyer's can include: loan origination fees, title fees, tax and insurance prorations, real estate marketing/processing fees, HOA dues, etc.
- Seller's can include: Title Policy and fees, prorated taxes and HOA dues, real estate marketing/processing fees, etc.
Many Buyer's ask for closing cost assistance to be paid by the Seller. Current market factors will go a long way in determining whether or not Sellers will be willing to include such assistance. But in most cases, a middle ground can be found.
3. How much $ am I going to be out of pocket (prior to closing)?
In most cases (financed loans) Buyers are going to be responsible for:
- Earnest Money $500 to $1,000 or more
- Inspections $500 to $1,000 or more
- Appraisal $400 to $600 or more
- Total = $1,500 to $2,500 out of pocket expenses prior to closing. *Buyers are given credit for their earnest deposit at closing.
4. Why do you keep talking about Net Sales Price?
The Net Sales Price is what the Seller would actually be receiving for their property after taking into consideration Seller Paid Closing Costs for the Buyer. It's important to see the offer in terms of net, so that we understand how Sellers will receive them.
Ex.) If a house is listed at $250,000 and we want to make an offer for $245,000 and ask the Seller to pay Buyer's Closing Costs of up to $5,000, then our net offer to the Seller is $240,000. Maybe the market is competitive, and you really wanted to offer a net of $245,000 for the property as a starting point. Then the offer should be for $250,000 with Seller Paid Closing Costs of up to $5,000.
What if closing costs aren't the full $5,000? The contract is written as "closing costs and/or prepaids". Which means that the Buyers' lender can use that amount towards prepaid items as well. For most intents and purposes, the $5,000 written in the contract as "closing costs and/or prepaids" is the amount that the Buyer will be given credit for, and the Seller will be out.
5. When do I get to take possession?
"At Funding" - A lot of us assume that we will get the keys or take possession at closing. However, most contracts today include the language that the Buyer shall take possession "at funding". At funding means when the title co. is in receipt of the funds from the Buyers' lending institution and/or has sent them on to payoff the Seller's mortgage. This process can sometimes take a few hours, but, if something goes wrong, it could take a day or more. This is why we advise people to close on a Thursday or earlier in the week, because if there is a hiccup on Friday, you might be out of luck until Monday. Which can be a huge problem! Especially, if you've got to be out of your current home and have all of your belongings on a truck expecting to move over the weekend.
"At Recording" - "At recording" is a step further than "at funding". This means not only does the loan have to be funded, but that the Deed must be recorded at the county courthouse. This is seen more often in new construction, as builders that do many transactions a year are trying to guard themselves against giving possession prior to someones ability to "close".
6. What is all this about Radon?
You can Google what Radon is, but in short, it's a naturally occurring gas that the EPA says is the second leading cause for lung cancer. In today's market, many Buyers are having their would-be homes tested for radon during the Inspection Period. Should the home "fail", or test positive for radon levels above the EPA acceptable guideline of 4.0 pCi/L, it is recommended that the home have a mitigation system installed.
These systems generally cost from $800 to $1,200. Many Sellers will agree to pay for this mitigation, as it is assumed any other Buyer that comes along is also going to request that it be done. However, in a hyper competitive Sellers market, the Seller may refuse to do so, especially if that Seller has multiple offers on their property for at our above list price.