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Blog  ·  August 14 2023

Understanding Closing Costs

What Are Closing Costs?

Closing costs are charges paid to various entities during the course of a real estate transaction. These costs are paid at the closing of the transaction (with the exception of inspections). Closing costs can range broadly, but usually coming in at 3-9% of the sales price of the home. BOTH Buyers and Sellers have closing costs, but they go towards different items. Here are some of the most common closing costs in a real estate transaction.

Common Closing Costs for Buyers

Home Inspection and Sewer Inspection
When a buyer chooses to get a home inspection, they must use a licensed inspector to evaluate the condition of the home. Buyers also usually want a pest inspection, which searches for evidence of termites and rodents. Another common inspection is a sewer inspection, which involves running a camera down the sewer line to determine what condition it’s in. These fees are paid at the time of inspection.

Lender Fees
These can include an appraisal, credit report, loan origination fees, prepaid interest, and private mortgage insurance. Lenders will order an appraisal through a third party. This third party sends a professional appraiser to take a look at the home and determine how much the property is worth and ensure that it matches or exceeds the agreed-upon sale price. The appraisal is usually paid for up front, but other fees are paid for at closing.

Escrow Fees
The fee for using an escrow company’s services. This is typically split evenly between the buyer and the seller. This is paid at closing.

Homeowner’s Association Fees
Fees for the HOA include prorated association dues, resale certificates, and various other miscellaneous fees. These are paid at closing.

Property Tax
The escrow company will calculate what the Buyer’s share is of the prorated property tax and collect that at closing. (Since taxes are usually collected twice a year in April and October, closings that occur in other months usually result in a charge to the Buyer and a credit to the Seller -- if taxes have already been paid for that half of the year).

Lender’s Title Insurance Policy
Buyers and lenders have separate title policies. The buyer pays for the lender’s title insurance policy when a mortgage is being obtained. This is paid at closing.

Recording Fees
The fee paid to the local city or county to update public land ownership records.

Surveys & Other Feasibility
The cost of a survey to confirm the property lines of the home. These aren’t very common in residential home transactions but are common in larger land (or waterfront) and commercial property transactions.

Common Closing Costs for Sellers

Excise Tax
In Washington State, this is a graduated tax on the sale of real property.
State portion: 1.10% on any portion of the sales price of $525,000 or less;
1.28% on any portion of the sales price above $525,000, up to $1,525,000;
2.75% on any portion of the sales price above $1,525,000, up to $3,025,000;
3.00% on any portion of the sales price above $3,025,000

Loan Balances
Any balances due from a mortgage loan on the subject property, or a home equity line of credit will be paid off at closing.

Real Estate Fees
Sellers usually pay a commission to the listing agent and often they also offer compensation for the Buyer’s agent. These fees are paid when a real estate sale closes.

Utility Payoffs
Sellers pay off the final utility bills. Escrow must collect these as part of closing if they are lienable and Form 22k is included in the transaction.

HOA Dues

Any outstanding homeowners association dues must be paid off at closing (because they are lienable).

Septic Pumping & Inspection

In most parts of Washington the Seller is expected to have their septic system pumped and inspected prior to selling their home. The process varies from county to county, but the cost is often upwards of $1,500 once all of the fees are added up, so it’s important for Sellers to budget for this expense.

Title & Escrow Fees

Sellers pay for half of the escrow fee in a typical real estate transaction and also purchase title insurance that shows they have the right to convey the property to the new owners. Sometimes they also pay additional fees on behalf of Buyers who are using a VA loan.

Resale Certificate

Required when Selling a condo or a home in a Common Interest Community. This fee must be paid in order to order the resale certificate, which is usually prepared by the company managing the Homeowners Association for the community.

If you’d like to find out more about what the costs are for buying or selling a home, reach out to one of our brokers and start a conversation! Need a referral to a good lender? We can help you with that too.