What You Need to Know About Real Estate and Loan Closing Costs

Closings are meetings in which documents are executed and funds exchanged to implement the terms of a real estate contract and or loan agreement for purposes of conveying and mortgaging real estate. Present at such meetings are sellers, buyers, real estate agents, loan officers, and the closing agent who conducts the meeting. In Florida, closing agents may be attorneys or non attorney employees of title companies.

Typically, the closing agent also researches the title of the real estate involved and provides title insurance. When Sellers are preparing to sell property and Buyers are preparing to purchase property or obtain financing, the cost of the sale, purchase, and loan should be considered when negotiating the contract or loan terms.

Most closing costs are negotiable and may be paid by either the Buyer or the Seller. Below is an overview of common closing costs, how they are calculated, and who typically pays them.

1. Deposit

Although not a closing cost, Buyers typically deliver a deposit into escrow when a real estate contract is signed. If the transaction closes, the deposit is credited toward the purchase price. If the Buyer fails to close, the deposit may be forfeited.

Sellers may require a deposit to compensate for time off the market, verify the Buyer’s ability to close, deter non performance, and cover expenses incurred prior to closing. Buyers should remember that deposits typically do not earn interest.

2. Real Estate Commissions

Real estate commissions compensate listing and selling agents for marketing, showing, and negotiating the transaction. Commissions are typically paid by the Seller pursuant to a listing agreement and are calculated as a percentage of the sales price.

Commission rates vary depending on the transaction and market conditions.

3. Documentary Stamp Tax on the Deed

This tax is paid to the State of Florida upon recording the deed. It is calculated by multiplying the purchase price by 0.7 percent and is typically paid by the Seller.

4. Documentary Stamp Tax on the Promissory Note

This tax is paid upon recording the mortgage securing the note. It is calculated by multiplying the loan amount by 0.35 percent and is typically paid by the Buyer or Borrower.

5. Intangible Tax on the Mortgage

The intangible tax is paid to the State of Florida upon recording the mortgage. It is calculated by multiplying the loan amount by 0.2 percent and is typically paid by the Buyer or Borrower.

6. Survey

A survey identifies property boundaries, access, and improvements. It helps Buyers confirm they are receiving the property described in the contract and identify encroachments or access issues.

Surveys for subdivision lots typically cost a few hundred dollars, while acreage surveys vary by size. Buyers typically pay for surveys.

7. Origination Fees and Discount Points

These fees are paid to lenders in exchange for providing the loan and may range from zero to five percent of the loan amount. They are calculated by multiplying the loan amount by the applicable percentage.

8. Appraisals

Lenders typically require appraisals to ensure the property provides sufficient security for the loan. Buyers or Borrowers usually pay for appraisals.

9. Document Preparation Fees

Document preparation fees are typically charged by lenders for loan documents and may range from zero to several hundred dollars. Standard real estate documents are generally included in the closing process.

10. Termite Inspection Fees

Buyers commonly obtain termite inspections for structures on the property. These inspections typically cost a nominal fee and are usually paid by the Buyer.

11. Recording Fees

Recording fees are paid to record documents in the public records. Fees are charged per page and are typically paid by the Buyer.

12. Title Insurance

Title insurance protects Buyers and lenders against defects in title, errors in documentation, undisclosed liens, survey issues, forgery, and other title related risks.

Title insurance costs include the premium, title search, examination, and closing fees. Buyer’s title insurance is usually paid by the Seller, while lender’s title insurance is typically paid by the Buyer.

Conclusion

Understanding closing costs helps Buyers and Sellers make informed decisions and negotiate effectively. Because costs vary by transaction, consulting with a closing agent early in the process can help avoid surprises at closing.

Source: Barnes Walker Educational Series