Closing costs can vary between closing to closing, and sometimes buyers and sellers are left in the dark about closing costs or why closing can be so expensive. Read on to find out what to expect, and why.
About Closing Costs
Many buyers and sellers have questions about closing costs and who should pay for each cost. Usually the buyer almost always pays for the lender fees, title insurance policy premium, home insurance premium, and recording fees and taxes.
The seller almost always pays for a title search, title commitment, and any effort necessary to clear title. Attorneys and closing agent’s fees are usually split evenly between the parties.
But closing costs can be allocated by contract in any way the parties agree.
Here is a sample list of closing costs that can be associated with a sale, and an explanation of when and why you need to be prepared for them:
Existing Liens. Existing liens are always paid off from the proceeds expected by the seller. There may be very few exceptions for commercial or investment deals between sophisticated parties, and these must be very specifically written into the contract.
Deed and Mortgage Recording Fees and Taxes. In Alabama, most counties charge a base fee of approximately $10.00, plus an additional charge per page, plus a recording tax of $1.00 per thousand as recited by the deed, mortgage, or tax appraisal. Deed taxes are usually offset by mortgage recording taxes. Call your local county probate office to get an exact price, because every county varies slightly.
Property Taxes. Your closing attorney’s office will make sure that all property taxes have been paid that are due, and that any taxes not yet due are prorated as of the closing date.
Preparation of Documents. This fee covers preparation of all documents signed at closing.
Settlement Fees. This is the attorney’s fee for reviewing documents and appearing at closing, usually split between the buyer and seller.
Escrow Fees. These are fees sometimes charged to reimburse the settlement company for Error and Omissions Insurance costs, which are incurred for handling large amounts of money.
Loan Origination and Lender Fees. These are the financing fees charged by lender banks to the borrower, if the transaction requires the buyer to enter into a mortgage. This may include your homeowner’s insurance premium or escrow fees for paying your property taxes on your behalf.
Appraisal. This fee is paid to a professional appraiser, who will go to the property and give an estimate, based on comparable nearby properties and other factors, of what the property should be worth on the open market. Lenders usually require an appraisal, so that they can be sure their risk is covered under the Loan to Value ratio, or “LTV”. This tells their underwriters if they are making a safe enough loan. There are also different types of appraisals for agricultural and timber property, that will show the buyer the value of acreage for each type of property located on a large pieces of land, such as timber, tillable field, grazing field, and water.
Survey. Surveys are usually needed when purchasing a larger parcel of land, or any land with a “metes and bounds” description, to be sure that the boundaries and acreage are true to how they are represented by the seller.
Termite and Wood Inspection. This type of inspection is always equired by lenders, and is always a good idea even in a cash sale.
Home Inspection. Just like termite and wood, this is always a good idea and even in a cash sale.
Environmental Inspections (commercial). A Phase I inspection identifies potential environmental contaminations on a commercial parcel. If a Phase I shows enough evidence of contamination, a Phase II is then conducted.
Structural Inspections. Structural inspections should be ordered for any building that seems suspect for foundation or other structural problems. Sagging floors, suspect cracks, visible wall joists, sticking doors or doors that won’t close, or any odd angles should tip off a buyer that a property needs a structural inspection.
Mold Inspections. If a home smells musty and damp, or visible water damage is apparent, it is a good idea for a buyer to request a mold test.
Title Search and Examination. Title searches are necessary to obtain title insurance. A title search should discover liens and encumbrances, unexpected easements, or missing heirs who might later try to lay claim to possession. These are usually paid for by the seller, in an agreement to transfer “marketable title” to the buyer.
Title Commitment. This document is prepared by an attorney or licensed title insurance agent, that promises to write title insurance for the property if all conditions are met at closing.
Owner’s or Lender’s Title Policy. This is a policy of insurance that promises the insurance company will pay for certain claims if the title search/examiner failed to discover those claims in the public records. It’s a good idea to have this in place to protect your property.
There can be other costs associated with the closing, and every closing is a little different. Make sure to work with an attentive and experienced closing service to ensure your transaction is as smooth as possible. If you ever have a question about a charge on your settlement statement or “Closing Disclosure”, make sure to ask your closing agent’s office for guidance.
The law offices of Cook and Associates provides real estate closing services, with or without realtors’ assistance, as well as a full range of real estate services such as probate, actions to quiet title, help with tax sale redemptions, foreclosures, heir property legal issues, partition by sale, partition by division, and more. If you would like a free copy of the sales contract that we use at Cook and Associates, which includes this list of closing costs in an easy to understand format, call us at 334-356-7879.
- No representation is made that the quality of legal services performed is greater than the quality of legal services performed by other attorneys.