The most common problems that buyers face when purchasing property is the lack of knowledge of the expenses associated with the transaction. A purchase transaction of residential property has several hidden costs that can add to the heavy cost a buyer has to bear for an immovable asset like a house.
The costs grouped under the head closing costs can make up a visible portion of the purchase cost of a house. On being apprised of these costs, a buyer may find them to make up approximately 5-10 % of the purchase price of the house. A buyer should make provisions for these costs, for a sanctioned home loan amount is disbursed to cover roughly 75 to 90% of the property value of the residence.
The buyer has to cover the remaining portion by making payment on his own or by arranging funds for the purpose. Some of these costs are negotiable and some can be shared between the buyer and seller in the agreed proportion. This article seeks to explain these closing costs and the liability associated with them.
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Are there any closing costs when buying a home for sale by the owner?
Some common closing costs incurred when purchasing a house are:
One of the fees involved in closing transactions is the brokerage fees levied on transactions where brokers facilitate the interaction between buyers and sellers for the sale of the property. Broker services can be availed by buyers to negotiate with sellers on their behalf. This may ensure a better price for the buyer.
Buyers may hire experts to inspect the property for major flaws like faulty plumbing, weak structure, pest problems, loose wiring, etc. It is better to invest in precaution than paying the price of regret.
These taxes may be paid by the buyer, seller or both. The tax is usually payable proportionately because the deal is hardly closed on the stated annual day.
Insurance for the property covers against all possible risks like fire and theft. Often, the first year’s insurance is submitted at the time of closing of the deal. You can always select the lender you want to avail insurance after careful browsing.
Stamp duty and Registration fees
This duty also forms part of the closing amount paid for the property and is borne for registering property documents.
If you have availed the services of an attorney to understand and deal with legal matters on your behalf, the fee paid to the professional forms part of the closing amount paid for the property.
If you availed a home loan to finance your purchase of the house, costs like application fee, processing fee, administrative charges, etc. must also be borne.
What are the closing costs that are negotiable?
Some closing costs can be negotiated to save money:
The selection of a broker whose services come at concessionary rates can save you money. You can also negotiate the price with the broker to reduce it.
Another professional whose services are availed in property matters, you can get the price reduced for the inspection and valuation of your selected house to reduce the quantum of the closing amount.
If you have availed the services of an attorney to deal with legal matters on your behalf, you can negotiate your way to a reduced price.
A selection of a cost-effective insurance option that has near-maximum coverage goes a long way to protect your investment against risks. You need to go along with the lender from whom you have availed the loan amount to purchase the house. Others have diverse options to offer which you can negotiate to your benefit.
The non-mandatory nature of the costs mentioned above is a major reason why they are negotiable.
Who pays closing costs: buyer or seller?
Some closing costs are borne on a mandatory basis, while others are borne on services availed by the respective person i.e. the buyer or seller.
- Expenses like property taxes, stamp duty, registration fees etc. are mandatory expenses that are owed to the Government. These expenses are borne by the buyer or transferee to whom the property was transferred.
- Expenses like attorney fee, inspection fee, brokerage are not mandatory costs to be borne as part of the property transactions. These are costs borne on services availed voluntarily by the parties as per requirement. Thus, if a buyer avails the services of a broker, attorney or avails property insurance, the buyer has to bear the costs associated with these activities. Likewise, it applies to the seller if he chooses to avail these facilities to sell the property for a better price.
The closing costs incurred during a property transaction may cost the buyer a bomb if they are not kept in check. You need to cautiously select the professionals whose services you want to avail and examine the rates on offer. If you know people who have availed the services of known experts and professionals on property matters, it is a good option to go through them to avail services at concessionary rates, if possible.
Even if you receive no concessions on the price, it is always better to go with a known reference. Mandatory closing costs like the taxes are usually non-negotiable and are owed to the Government. They cannot be done away with and you may attract penal action if you try any evasive manoeuvres to avoid bearing these costs. However, there may be agreements between the buyer and seller to determine who bears these expenses at their incidence.
As for home loan expenses like application fee, processing fee, administrative charges etc. you need to carefully browse and compare lending options to ascertain which option is beneficial for you. Closing costs may be incurred on the property transaction but there is a need to keep their quantum in check and save money wherever possible.
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