What are closing costs? Who pays for what?
Posted September 27, 2020 in Real Estate Trends
Keeping in mind that everything is negotiable, there is a custom that is followed nearly all of the time. Usually, the Seller pays the excise tax, the title insurance that insures the Buyer, one-half of the escrow fee, and the Realtor commission. The Buyer usually pays for fees associated with getting a loan and title insurance that insures their lender (unless they are paying cash), one-half of the escrow fee, and the recording fee
The Purchase and Sale Agreement (PSA) form used by most Realtors in the area states that this custom will be followed, and serves as an instruction to the title company on who gets charged at closing. Changes to this customary split of expenses can be negotiated between Buyer and Seller at the time the PSA is signed so that, for example, the Seller could pay some of Buyer’s closing costs, or that Buyer and Seller will pay some costs usually paid by the other.
Let me explain a few line-items:
The way that Real Estate Excise Tax (REET) is calculated changed this year. It used to be the same rate for any sales price: 1.78% of the sales price. Now, it starts at 1.6% for sales up to $500,000, and goes up from there, as much as 3.5% on sales above $3 million.
Title insurance is a one-time payment that insures a Buyer that they are getting clear title, with the cost determined by the sales price, and insures a lender that their borrower is the owner and that they will be able to foreclose in the case of non-payment, the cost of which is determined by the loan amount. It pays the costs of a title company’s tracking of documents (a) recorded (filed) with the County Auditor, like deeds, mortgages, easements, CC&Rs (Covenants, Conditions and Restrictions), and liens for unpaid taxes or child support; or (b) filed in Court cases, like probates and divorces.
Escrow fees, also determined by the sales price, pay the title company for handling documents and money. We draft the deed from Seller to Buyer, and the other forms needed to transfer ownership. The Buyer’s lender supplies the loan documents to be signed at closing. We also hold the Buyer’s earnest money check, the lender’s funds, and the Buyer’s money needed to close until closing, when the funds are used to pay all of the Seller’s debts, all costs and fees, apportion the taxes between Buyer and Seller depending on what time of year it is, and pay the remaining proceeds to the Seller.
Finally, the recording fee is the fee to record the documents with the County so that, next time we do a title search on your property, we know that you are the owner and whether you have a loan on your property. Usually, they are about $250.
If you have questions, please call! We want to be part of your real estate success.
From your friends at Clark County Title,