Real estate sale transactions are quite a complicated
production. Unless you buy and sell real
estate with some frequency, you will be blown away by the all the associated
expenses. For starters, there is no
specific list of closing costs. The
principal ones will be covered here.
Second and, for the most part, there are no laws that say who pays the
closing costs in a real estate transaction.
It boils down to what the buyer and seller agree to. With respect to certain closing costs, there
are traditions and customs that prevail in a Texas transaction and, in those
cases, there are certain expenses that the buyer almost always pays and certain
expenses that seller almost always pays.
A seller customarily pays a real estate commission if the property is
listed with a broker. He will pay for
title insurance for the new owner. In
those rare instances where a buyer pays for his title insurance, he has the
legal right to chose the title insurance company. The cost of title insurance is based on the
price of the property being sold. The
seller provides a warranty deed. The
seller provides tax certificates showing that taxes on the property are current
or if there are back taxes due. If the
seller has to pay off a mortgage he bears the expense of the preparation of
lien releases. Sellers pay taxes owed on
the property from the first of the year through the date of closing.
A Buyer paying cash usually has few closing costs. He pays to record the deed in the public
records and will pay one half of the cost to close the sale. If a buyer is getting a loan he can expect to
pay for an appraisal, credit reports, loan origination fees, usually a survey
if not going through a local lender, the preparation and recording of any
documents pertaining to the loan. He
also has to provide title insurance for the lander, although lender’s title
insurance is very inexpensive. With
respect to surveys and the purchase of unimproved land there is no clear custom
as to who pays for a survey. Whatever
the buyer and seller agree to will be the controlling factor. If a buyer plans on using a non local lender,
such as an out-of-town mortgage broker or an Internet lender, the closing costs
can be significantly higher. Do not be
fooled by the come-on ads that say “No closing costs”. This just is not true. Those costs will somehow be buried in the
loan causing a higher effective interest rate.
If an FHA or VA (government-type loans) is involved, there are certain
expenses associated with the purchase that federal law will not allow the buyer
to pay and the seller will have to pay them.
What usually happens with this type of loan is that the price will be
pushed back up to cover these expenses and the buyer pays them in the end
through his mortgage payments. Sometimes
a buyer will not have money to cover closing costs and the costs will be tacked
onto the purchase price of the property.
This mechanism can drastically increase the amount of interest a buyer
pays over the life of the loan. The
reality is that a buyer with good credit will virtually always be better off
looking for financing in his home town.
Whenever a buyer and seller are transacting between
themselves, they should have an attorney draw up a contract so that who pays
for what does not become a point of contention at the closing table. Banks and title companies will often require
the parties to get a contract so that disputes do not happen at the closing
table.
