Seller closing costs are the various fees and expenses that are paid by the seller during the process of a real estate transaction. These costs typically paid at the time of closing to facilitate the transfer of ownership to the buyer. In this article, we explore the topic to help you navigate real estate investing better.

Imagine, you are a real estate investor, and your rental property has appreciated in value as planned. While preparing to sell, you’ve already spent money on small repairs and enhancing curb appeal to make the property more attractive to buyers. The final step is selling the property, reinvesting the proceeds into a new opportunity, and perhaps spending a little on a well-deserved vacation.

It might seem that once you sign a sales contract with a potential buyer, all the expenses are behind you. However, that’s not necessarily the case. As you plan how to spend your sale proceeds, keep in mind that the sales price is not the exact amount you’ll walk away with. Don’t forget to factor in potential closing costs.

Yes, selling your property can come with expenses.

Understanding closing costs 

Seller closing costs are the various fees and expenses that are paid by the seller during the process of a real estate transaction. These costs typically paid at the time of closing to facilitate the transfer of ownership to the buyer.

In most cases, sellers don’t pay closing costs out of pocket; instead, these are deducted from the sales price. However, if the property has very low home equity, sellers may need to bring cash to the table to satisfy the lender. For this article, we’ll assume the property is free and clear (i.e., has no mortgage). If a mortgage exists, additional costs, other than just remaining mortgage balance, like prepayment penalties, may apply.

Variations in closing costs

The amount of closing costs varies by country. For example, in some regions, most closing costs are covered by the buyer, leaving sellers with minimal obligations. On average, seller closing costs range from 2% to 10% of the sales price, including real estate agent commissions.

Common seller closing costs

Let’s break down the typical expenses real estate investors may encounter when selling a property:

  1. Real estate agent commissions. This is often the most significant portion of seller closing costs. The seller pays a commission to their listing agent and, in some cases, the buyer’s agent. This amount typically is a percentage of the sale price.
  2. Recording and legal fees. These fees cover the cost of updating public records to reflect the transfer of ownership and may include charges for document preparation and ensuring compliance with legal requirements.
  3. Seller concessions. Seller concessions, also known as seller credits, are amounts the seller agrees to cover on behalf of the buyer. These may include costs of repairs identified during the home inspection or even a portion of the buyer’s closing costs.
  4. Transfer taxes and capital gains taxes. Transfer taxes are imposed by local or national governments to facilitate property transfers, while capital gains taxes payable on the profit earned from selling a property.
  5. Outstanding obligations. Sellers must settle any unpaid property taxes, utility bills, HOA dues, or liens before transferring ownership. 

Additional fees include:

  1. Attorney fees. In some regions, sellers must hire a real estate attorney to review contracts and oversee the closing process.
  2. Owner’s title insurance policy fees. This policy protects the buyer from potential disputes over property ownership after the sale.
  3. Escrow fees. These fees cover the services of a neutral third party who holds the funds and ensures its proper distribution.
Plan ahead to avoid surprises

As previously mentioned, closing costs can vary significantly depending on the country and the party responsible for paying them (buyer or seller). It’s always a good idea to estimate these costs in advance and factor them into your asking price. This preparation helps prevent any unpleasant surprises during the transaction. Real estate investors, particularly those involved in foreign transactions, should consult with real estate agents, financial advisors, or attorneys before listing a property for sale.

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