Jan 9

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 lawyers or non-lawyer employees of title companies. BARNES, WALKER, GOETHE, PERRON, & SHEA, PLLC, a law firm, and its affiliated title company, Barnes Walker Title, Inc., both act as closing agents. Typically, the closing agent also researches the title of the real estate involved and provides the title insurance. When sellers are preparing to sell real property and buyers are preparing to buy property and to borrow money, they should consider the cost of the sale, purchase and/or loan when negotiating the real estate contract or the terms of the loan.

Generally all the costs of a real estate sale and purchase can be negotiated and paid by either the seller or the buyer. Following are explanations of some of the major closing costs, and who typically pays them and how to calculate them:

1. Deposit. Although not a cost, the buyer needs to consider that sellers typically require that a deposit be placed in escrow when a seller and buyer sign a real estate contract. This deposit is then delivered to the seller if the buyer does not close. If the buyer closes the transaction, the deposit is not considered a cost because the deposit is subtracted from the purchase price as a credit in determining the balance that the buyer must pay at closing. A seller needs to consider whether a large deposit is needed to: (a) compensate them for the amount of time the real estate is taken off the market between the signing of the contract and the closing, if the contract does not close, (b) ensure the buyer has the wherewithal to close, (c) deter the buyer from not closing, and (d) cover the seller’s expenses incurred in preparing to close, if the buyer does not close. A buyer, on the other hand, needs to consider the fact that a deposit typically does not bear interest and may not be returned if the buyer does not close.

2. Real Estate Commissions. The real estate commission is compensation paid to the real estate agents for the work performed by them in marketing, showing, and negotiating the real estate contract. Real estate commissions of the listing and selling real estate agents are typically paid by the seller, are agreed upon with the real estate agent and set forth in a listing agreement, and are calculated by multiplying the sales price by the commission percentage. Commissions range generally from 6% to 10% depending upon the sales price and whether the real estate is residential or commercial and whether a business is involved.

3. Documentary Stamp Tax on the Deed. This is a tax paid to the State of Florida at the time of recording the deed and collected at closing. It is calculated by multiplying the purchase price by 0.7%. This tax is typically paid by the seller.

4. Documentary Stamp Tax on the Promissory Note. The documentary stamp tax on promissory notes is paid upon recording of the mortgage which secures the note and is collected at closing. This tax is calculated by multiplying the amount of the promissory note by 0.35% and is paid to the State of Florida. This tax is typically paid by the buyer/borrower.

5. Intangible Tax on the Mortgage. Intangible tax on mortgages is paid to the State of Florida upon recording the mortgage and is collected at closing. This tax is calculated by multiplying the amount of the promissory note by 0.2%. This tax is typically paid by the buyer/borrower.

6. Survey. A surveyor marks the boundaries of the real property that the buyer is purchasing or the borrower is mortgaging with iron pipes, rods, or concrete monuments and then prepares a certified drawing of these boundaries and the location of any structures on the land, which is the survey. A survey allows the buyer to ensure that he or she is receiving the actual land which he or she bargained for in the contract with access to public roads and without encroachments or excroachments. Surveys for lots in subdivisions typically cost $200.00 to $300.00. The cost for a survey of acreage depends upon the size of the tract of land. Buyers typically pay for surveys.

7. Origination Fees or Discount Points. These are fees paid typically by the borrower to his or her bank in consideration for being given the loan. These fees are expressed in percentages of the amount of the loan and can range between 0% and 5%. They are calculated by multiplying the loan amount times the discount point or origination fee percentage.

8. Appraisals. Banks, and sometimes sellers and buyers, require appraisals to be done to ensure that, in the bank’s case, the land and structures upon which it is lending money have adequate value to secure and ensure repayment of the monies loaned and, in the case of a seller or buyer, to determine what the value of the real property is for purposes of entering into a contract to sell or purchase it. Most often, appraisals are required by banks and paid for by the buyer/borrower.

9. Document Preparation Fees. Normally, no fees are charged for the real estate documents normally needed except for loan documents and unusual documents required by the contract or called for by the nature of the transaction. Thus, document preparation fees are typically paid to banks for loan documents and typically range from $0 to $300.00.

10. Termite Inspection Fee. Typically, the buyer of real estate has any houses and other buildings located on the property inspected by a termite company to determine if there is a termite infestation or damage. This fee is typically paid by the buyer and ranges from $25.00 to $35.00.

11. Recording Fees. Recording fees are typically paid for by the buyer and equal $6.00 for the first page of each document which is recorded in the Public Records and $4.50 for every page thereafter. Instruments and documents which are typically recorded in real estate transactions include the deed, mortgage, and satisfactions of mortgage.

12. Title Insurance. The providing of title insurance is generally required in all real estate sales and loan transactions and involves a review of the title of the real property involved and the providing of insurance to the buyer and/or the buyer’s lender against:

a. Mistakes in the research of the title;
b. Mistakes in the preparation of real estate documents;
c. Mistakes in the preparation of legal descriptions;
d. Foreclosures;
e. Judgments and other liens which the buyer unknowingly becomes responsible for by
virtue of purchasing the real property;
f. Undisclosed encroachments or excroachments of structures on the real property over
easements, setbacks, and boundary lines;
g. Unpaid taxes;
h. Survey mistakes;
i. Undisclosed, nonbeneficial easements;
j. Claims of ownership or a right to use the real property by third parties;
k. Forged deeds;
l. Unpaid mortgages; and
m. Even a seller’s lack of ownership of all or part of the property being sold.

Title insurance costs generally consist of four components; the premium, a search fee, an examination fee, and a closing fee. Title insurance is issued to both buyers, borrowers and lenders. Title insurance for a buyer is calculated based upon the sales price or appraised value, and title insurance for a lender is based upon the loan amount. Title insurance for the buyer is often paid for by the seller, and title insurance for the lender is generally paid for by the buyer. You may calculate the cost of title insurance from your purchase price or loan as charged by the Barnes Walker companies, together with your other closing costs, by downloading the Barnes Walker Real Estate Closing Costs Good Faith Estimate software from this website.

For further information on what you need to know about closing costs, please contact BARNES, WALKER, GOETHE, PERRON, & SHEA, PLLC, 3119 Manatee Avenue West, Bradenton, Florida, 34205. Telephone: 941-741-8224. Facsimile: 941-741-8225. email@barneswalker.com