Posted by HisHughness on 9/5/04 1:20pm
Msg #7421

Purchase closings

In Texas, purchase closings have to be done in the title company office or an attorney's office. I have done only a few, all of them VA repos. So, I am not that well acquainted with purchase closings. I have some questions which I wish those of you who have experience in this area would answer.

1. Generally, what percentage of the price of the home are the total closing costs, including the real estate agent's fee?

2. If closing costs are to be split, what is the usual split between purchaser and seller:
a. A percentage of the total costs; or
b. Each paying specific costs.

3. How often are closing costs split?

4. How are needed repairs normally handled:
a. A lump sum deducted from the purchase price; or
b. Seller agrees to pay for any repairs within a specified period after sale.

I have a relative who has posed the these questions to me, and I cannot answer them other than through my own home purchasing experience.

Reply by Ninna Mantooth-Lopez on 9/5/04 4:16pm
Msg #7432

My experience: With 10 years working for a Louisiana real estate attorney 1983-1993... and 8 years in Arizona, as an escrow branch manager... before becoming an independent contractor, I'll try to answer some of your questions. I've been out of the loop now for a little while, but I can't imagine that much has changed... since not much changed during my 18 year career when it comes to closing costs.

"1. Generally, what percentage of the price of the home are the total closing costs, including the real estate agent's fee?"

Typically, the total real estate agent commission is 6%... with 3% going to the listing agent and 3% to the selling agent. (Of course, I'm sure you knew this.) I've seen this differ time to time... such as with vacant property the typical agent fee is 10%... and in some cases (including my own), I negotiated with my realtor to only pay 4% on the sell of my home. As for closing costs, it is my opinion that there are too many variables to consider to be able to effectively "estimate" closing costs.... such as the lender (and we all know how widely lender fees can vary), what type of loan, (i.e., VA, FHA, conventional), and as for the title and escrow fees, you must consider the state you are in. These fees vary widely depending upon if it is an attorney-only state or not. Recording charges also vary widely state-to-state and in most states, county-to-county. (or in my case, parish-to-parish).


"2. If closing costs are to be split, what is the usual split between purchaser and seller:
a. A percentage of the total costs; or
b. Each paying specific costs."

In my experience, when closing costs say "split"... they are split 50/50, with the exception of some costs that a buyer may not be allowed to pay... such is the case with some fees when the buyer is obtaining a VA loan. Excluding fees that a buyer may not be allowed to pay, "split" means 50/50.

"3. How often are closing costs split?"

In my experience... I would say that closing costs were "split" probably about 30% of the time... while about 50% of the time, the seller pays the closing costs. 15% of the time, I would run across the seller or buyer paying a fixed dollar amount of closing costs... and the remaining 5%... well, it's usually some weird calculation that a realtor with a very large ego came up with to confuse the person trying to complete the hud.


"4. How are needed repairs normally handled:
a. A lump sum deducted from the purchase price; or
b. Seller agrees to pay for any repairs within a specified period after sale."

I've almost never... in fact, can't remember a time, where I had a contract where a buyer agreed to have a seller pay for and complete repairs post-closing. Almost always, the repairs were done and paid for prior to closing. There were some cases, where a buyer agreed make the necessary repairs himself for a fixed dollar amount. This dollar amount was credited to the buyer and debited from the seller's proceeds at closing.


OK, that was fun... it made me conjure up some memories of my escrow days. I hope it helps you.

Reply by Andy_WA on 9/5/04 4:23pm
Msg #7433

Its been a while since I left the real estate profession so my answer might not be as precised, but in general from my vivid memory for WA.

1. RE agent commission typically run 5 percent for new construction and 6-7 percent for pre-owned home (included in the list/sell price). The closing cost is estimate at about 3-5 percent of the purchased price on top of the agent's fee.

2. Closing costs are normally split 50/50 between buyer/seller for general title/escrow related fees.

3. Other than splitting the cost in question #2. I think seller pay all closing cost if its a VA purchase, and if negotiated for conventional purchase.

4. In order to justify repairs, a professional home inspection is neccessary (buyer pay).
a. If a lump sum is to be deducted, the purchase price is then re-negotiated.
b. If repairs are to be done by seller, they must be done prior to closing (buyer should set a deadline for completion of repairs as rate lock may expire or interest is being incurred on the loan).

Reply by HisHughness on 9/5/04 5:29pm
Msg #7438

Thanks, Ninna & Andy. The relative was thinking that total closing costs normally run around 14%. I told him that seems extraordinarily high. He's buying a house for his daughter that is priced at $140,000. At 14%, that comes out to $19,600 closing costs, which seems really inflated to me, even considering that it includes a 6% commission for the agent. The question is whether he should tell the seller he'll pay $135,000-140,000 if the seller pays all the closing costs.

Reply by Bobbi in CT on 9/6/04 10:44am
Msg #7466

Purchasing in what state ???

In CT each side pays its own "costs." Buyer would pay its lenders costs, tax and homeowners insurance escrows. Real property taxes are paid in advance, so an Oct 1 closing means buyer reimburses seller for taxes paid through Dec 30, also any prepaid sewer, water, town service fee charges. Unless agreed in writing when looking, buyer does not pay any of real estate commission (range 5-6%), seller pays all. Buyer pays for home inspection, title abstract, title insurance policies (owners and lenders coverage is given at no additional costs), recording of buyers deed and mortgage, buyers own attorney (usually also serves as lenders attorney so buyer saves on legal fees).

Seller pays real estate commission, own lawyer's fees (draws up sale documents and takes care of paying off liens and mortgages, calculates adjustments), recording fee for any releases, and State and Local conveyance taxes (based on sales price, higher the price = higher taxes).

Repairs: There's a catch if buyer is getting a mortgage. Customary once home inspection done for buyer to ask seller to make and pay for "substantial" repairs Prior to Sale. Seller and buyer attorney or through real estate agent negotiate big issues; i.e., if seller will even agree to or say, "take house as is or go away." Number crunching problem with reducing sale price or "credit for septic system repair" at closing. In CT I have never seen a lender allow a straight "credit from seller" on HUD-1 without explanation or proof of what credit was for; i.e., looks like an inflated sales price just so buyer can get mortgage without PMI. Downsides: Reduced sale price means re-calculating loan-to-value, which could result in over 80% LTV and lender underwriter or secondary market purchaser requiring mortgage insurance. Credit at closing for repairs could lead to underwriter requiring lender escrow from BUYER's funds for repairs (CT 1.5x cost of repair) and proof repairs made. Means buyer has to come up with extra $$ or seller has to "kick back" under the table. In a cash deal doesn't matter.

Why would seller agree to pay UNKNOWN buyer's closing costs versus known higher sale price? What I often see is seller sells for $135,000 and agrees to pay UP TO $5,000 of buyers' costs for loan. Seller wants to be sure not paying for buyer's escrows, extraordinarly high points or bank fees, "added fees" that get kicked back to buyer after closing, or buyer getting Cash Bank on HUD-1 at purchase, which no lender wants to see. Also, seems to go down well with lender if HUD-1 shows buyer still has 20% equity in new home (deposit), not an issue if costs to buy are paid by another party because buyer has enough equity that unlikely to easily walk away (foreclosure). Seller comfortable because it's a "known" number, $5,000 maximum OK and seller happy if less, which shouldn't matter to buyers as it's still "all costs paid."

Reply by sue on 9/6/04 11:41am
Msg #7473

I've done several recent personal purchases and my total costs (bank fees, title costs, recording costs, transfer taxes, etc) have almost on the dollar been 6.5% of the sales price. You should be able to call a local title company (local to where the property area is) to get an almost exact estimate on insurance, endorsements, and recording costs. The bank should give a very accurate estimate of costs (if you use a broker I personally feel that's when the costs vary significantly at closing). I went direct through my lender and the costs were EXACTLY what they estimated, other than the per diem interest total. I also think cost splitting depends on the area. I've done some 'signing purchases' that are prepared out of the area and the costs aren't divided pursuant to local custom.