Who Pays What When You Sell Your Home
To the uninitiated, the process of selling and buying a home can appear a bit complicated. From taxes to insurance, there are various costs associated with the transaction (aside from the cost of the home itself) and it can be a challenge to keep them all straight.
Luckily, it’s easy to arm yourself with the knowledge you need to make the process easier. Understanding who pays for what when you sell (or buy) a home can help clear up any confusion and streamline the transaction for both buyers and sellers. Following are some of the major costs involved.
Costs Paid for by the Seller
It’s been said that you never get a second chance to make a first impression. This is certainly true in the real estate market. First impressions can make or break a sale, so it’s important for buyers to get their homes in tip-top shape before listing. Outside of repairs, this may include sprucing up the landscaping and adding a fresh coat of neutral paint. Clearing out the clutter and giving your home a deep cleaning are also essential. Some sellers choose to hire a professional stager, while others do it themselves by rearranging furniture and laying out fresh towels, candles and other decorative items.
Pre-Sale Home Inspections
Pre-sale home inspections differ from traditional home inspections in that they are conducted before the home hits the market. They are not mandatory, but they are recommended. These inspections give sellers insight into the home and allow them to address any issues before they become major problems. If the buyer’s home inspector finds repairs that need to be made, they can ask the seller for a price reduction or require that they be fixed in order for the sale to go through. It’s best to be proactive and address any issues ahead of time.
Pest inspections, particularly termite inspections, are not mandatory under state law, but some lenders require a clean certificate prior to funding a mortgage. Because these inspections are often conducted prior to the sale, sellers typically pay for them.
Costs Paid for by the Buyer
While sellers typically pay for pre-sale inspections, potential buyers are encouraged to conduct their own inspections. Once an offer is accepted, the buyer arranges any additional inspections, during which an inspector examines every nook and cranny of the property. The main areas of focus are the foundation, roof, plumbing, electrical and HVAC systems. It should be noted that most home inspections turn up something, even if it’s something small. It should also be noted that there is no “pass” or “fail” on a home inspection. The results are used as information for the buyer and seller to determine what repairs or re-negotiations are essential prior to proceeding with the sale.
If a potential buyer will be obtaining a mortgage for the property, they are also responsible for any fees associated with the loan. Upfront costs include origination fees, application fees and other administrative fees. Oftentimes, buyers who must carry mortgage insurance are required to pre-pay some of their premiums. Borrowers can also pay points or lender credits, which offer lower interest rates in exchange for higher upfront costs.
Buyers are also charged with paying the appraisal fee. An appraisal differs from an inspection in that it aims to determine a home’s value. While appraisers will certainly take the condition of the property into consideration, they also look at similar properties in the area to get an accurate picture of the home’s true value. The appraisal ensures that the bank isn’t lending more money than the home is actually worth.
Costs Paid for by Sellers & Buyers
Repairs are a cost that are typically negotiated between buyer and seller. If a home inspection turns up issues that need addressing, the buyer and seller may negotiate repairs or a credit to address those issues. Post-offer repairs can range from the minor (broken roof tiles or water damage) to major (electrical systems or HVAC concerns). It is up to the buyer and seller to decide which will be addressed prior to the sale, and a bit of back-and-forth is expected.
Closing costs are another expense typically paid for by both the seller and the buyer. These costs are those associated with the transaction itself, and include various fees and taxes, such as escrow fees and transfer tax. While these costs vary, they average around 2–5 percent of the sale price. The terms of the purchase agreement will determine how these fees are divvied up.
Buying and selling a home are two of the largest financial decisions most people will make in their lives. The process may seem daunting at the outset, but a little information and understanding ahead of time can go a long way in making for a smooth transaction for all parties involved. Whether you’re a buyer or a seller, your real estate agent has your back. Agents have a fiduciary responsibility to their clients, which means they are legally obligated to put their clients’ best interests first.