What Expenses to Expect as a Seller in a Real Estate Transaction

Don’t Be Caught By Surprise: What Expenses to Expect as a Seller in a Real Estate Transaction

Dave was a For Sale by Owner client. In deciding to sell his home himself, he was sure he would be avoiding closing costs. In fact, he was quite sure he would walk away with the full sale price of his property, since he owned it out right with no mortgage. However, prior to closing, he received his closing disclosure from the attorney’s office handling the sale reflecting over $8,000 in closing cost deductions. In shocking disbelief, he calls the attorney’s office asking, “Dude, Where’s my money? I shouldn’t have any closing costs!”

This story is oh-so-common in my world. If you are a seller, I suggest you don’t “count your chickens before they hatch”, per se, as Dave did. You know, where you’ve calculated in your mind how much you will walk away with after closing. Because in most cases, people are quite surprised that it’s not as much as they thought it would be. Let me tell you why. 

There are several fees a seller incurs in the sale of their home. In Dave’s case, he only anticipated a realtor commission fee, and since he didn’t have a realtor, he expected not to have any closing costs. However, Dave was vastly mistaken. In addition to realtor commission fees, there are several other items you can expect to be responsible for paying as the seller. Below is a list of common fees a seller will incur in the seller side of the real estate transaction:

• Realtor Commission Fees. I’ve started with the one Dave actually did know about. This is likely the biggest chunk of your closing costs. Typically, the realtors in a North Carolina real estate transaction split a 6% commission fee, but that isn’t always the case. Although the agents can agree to do the split unevenly, it usually means that each agent will receive 3% of the sale price of the property. Even if you are a seller without a realtor (for sale by owner), as Dave was, you are still going to typically be responsible for paying the buyer’s agent commission fee. A commission agreement outlining your agreement to pay the buyer’s agent commission fee is something that is entered into at some point during the process of the buyer agent making you an offer on the home. In fact, many buyers are reluctant to purchase from a seller who isn’t willing to cover their agent’s commission fees. Because if the seller doesn’t cover the buyer’s agent fee, then the buyer must do so. So, as an incentive to draw in a buyer, it’s very common practice the seller pays the buyer’s commission fee. And if your property was ever on the MLS (Multiple Listing Service) that very likely obligated you to pay the buyer’s agent fee at closing.  As an example, on a $200,000 home, the seller would have $12,000 of their proceeds given to the realtor(s) to split at a 6% commission rate, or $6,000 (3%) if there is only a buyer’s agent. 
• Property Taxes. If taxes are currently due, the seller will pay the taxes that are currently due, which will then be prorated between the buyer and seller.  In essence, you will only pay the portion of taxes for the portion of the year you’ve owned the home. So, if you sold your home August 20th, your taxes would be prorated with the seller paying from January 1^st until August 20^th and the buyer paying August 21^st to December 31^st.  If taxes are not yet due for the year, the seller will give to the buyer their share of the estimated taxes for that calendar year.
• Home Owners Association (HOA) fee. This is usually the other major surprise to sellers. Yes! Most HOA’s charge you some type of fee in conjunction with the sale of your home. Typically, it’s called a “transfer fee” or “HOA statement fee”. No matter what it’s called, the bottom line is that there is a fee involved from your HOA in the home selling process and it can very well be more than what you pay in HOA dues. The HOA management company determines the amount of that fee.
• Excise Tax. Sometimes called a transfer tax or revenue stamps charged by the State of North Carolina and payable to the county for the privilege of selling your home in North Carolina.  Yes, a tax—for selling your home! In NC, sellers pay a tax to the register of deeds when interest in real property is conveyed to another person. The tax rate in NC is $1.00 for every $500 of the purchase price. So, to calculate what this would be you take the sale price of your property and divide it by $500. That means for a house that costs $200,000, you would pay a $400 excise tax.  It’s just math.
• Attorney Fees. Pretty self-explanatory here, but the attorney who’s handling the real estate transaction will charge you a fee for their services. If you are a seller and haven’t chosen your own attorney, then you will, by default, use the buyer’s attorney to prepare and execute your seller documents and do the various other necessary things that need to be done in order for there to be a legal transfer of your real estate to your buyer. This fee varies depending on the office; Shepard Law, PLLC currently charges sellers a $475 settlement fee. 
• Mortgage Payoff. This one is usually no surprise to sellers. If you have a mortgage on your property, it will have to be paid off at closing. The biggest thing to know here is the payoff for the mortgage is different (usually a greater amount) than what you see when you log into your account to see your mortgage (loan) balance. Because the payoff amount takes into account all fees and interest the bank is collecting to accept the entire payoff of the loan. So, the bank calculates the payoff amount once a payoff is requested by the attorney’s office handling the closing.  The bank then requires the payoff to be wired or sent by overnight delivery, which is a fee that you are responsible for paying.  If you have an old HELOC or other such line of credit, that will show up and will need to be paid and closed.  (even if you don’t remember taking out a HELOC on your property)
• Due Diligence Fee. If your buyer paid you a due diligence fee, this amount is deducted from your payout. That’s because the due diligence acts as a deposit towards the purchase price of the property. So, this money you received in advance must get reduced from your payout. 
• Seller Paid Closing Cost. If you agreed to assist the buyer(s) with their closing costs, then whatever amount you agreed to give them is deducted from your payout. This is agreed upon in the offer to purchase contract. Meaning, when a buyer presents you an offer to purchase your home, they will ask for seller paid closing costs in that offer to purchase contract. So, make sure you are reading the fine lines in that contract so as to not get caught by surprise at the closing table. 
• Judgments.  If any judgments show up in the state database against you (or someone with the same name as you) they are automatically a lien on your property and have to be paid before you can pass good title to your buyer.  If, however, they don’t belong to you (this happens a lot with common names) you’ll be asked to swear under oath that they aren’t yours and then won’t get paid.
• Title Curative.   If anything shows up on the title search that is your responsibility to remove from the title of your property it will be your responsibility to pay for the attorney’s time in “curing” that title defect.  Any problems must be handled before you can close, and unfortunately the attorney can’t work for free just as you can’t at your job.

Whew, that was a lot, right? Well, now you can see why our good friend Dave was so shocked.  But the good thing is that the next time you sell your home— you won’t be! Here at Shepard Law, PLLC, we do our best to make sure our sellers are aware of what’s ahead of them. If you are a seller (especially a FSBO) seeking an attorney to represent you with your real estate transaction, we invite you to contact us to learn how we can assist you!