In every real estate transaction, there are associated costs outside the purchase price. I am often asked: Who pays for what? Each county has slightly different customs. For example, for title and escrow costs, Santa Clara County is a “seller pay” county and San Mateo County is “buyer pay.”
Q: Other than the price of the house, what are the main costs associated with a real estate transaction?
A: There are four main categories of costs: (1) title/escrow/closing; (2) selling costs (commissions, home warranty, house prep, staging, etc.); (3) costs associated with obtaining a loan; and (4) costs that would have been paid as part of home ownership (homeowners insurance, property taxes, utilities, homeowners association dues, etc.).
Q: Who is responsible for the title, escrow and closing fees? How much are they?
A: It depends on which county you live in. In Santa Clara County, the seller pays them. In San Mateo County, the buyer pays. The fees (which include title insurance) are based on the purchase price and run $5,000-$10,000 on average.
Every county has a transfer fee, which is usually $1.10/$1,000 of purchase price, usually paid by the seller. Some cities have transfer taxes as well. Some are quite high; for example, Mountain View, Palo Alto and San Jose are $3.30/$1,000 or more. Usually these costs are split 50-50 between buyer and seller. Most cities, including Los Altos, Los Altos Hills and Cupertino, don’t currently have transfer taxes.
Q: Who pays the commissions and the costs to get the house ready for sale?
A: Nearly always, the sellers pay the commissions and the cost of preparing their house for sale. House prep often includes items such as fresh paint, new or updated floor coverings, staging, handyman list, house cleaners and yard cleanup. Depending on the amount of work required to get a house ready for the market, using 6-7% of the sales price for all these costs is a good rough estimate. Ask your accountant, but remember that these “costs to sell” might be used to reduce any potential capital gains liability.
Q: What are loan/lender costs, and who pays them?
A: The buyer pays for all costs associated with obtaining a loan, including lender fees (sometimes called an origination fee), appraisal fee (sometimes higher-value homes require two appraisals) and optional “points,” which are a pre-paid percentage of the loan amount used to reduce the interest rate the lender charges. You can “buy down” the interest rate by paying the lender up-front fees. The lender also will require a separate title insurance policy that names them. The cost of this is based on the loan amount. There will often be recording fees, notary fees and FedEx fees as well.
Q: What are other costs that will be paid at the time I close escrow on a house?
A: There are a number:
• Homeowner’s insurance. The buyer typically pays for the first year’s coverage up-front.
• Property tax. The seller is responsible for the property tax up to the date of the close of escrow. If taxes for the entire year have already been paid by the seller, the buyer will reimburse the seller for the portion of the tax year the buyer owns the house. If property taxes haven’t been paid by the seller yet, the buyer will be responsible for all the taxes, and the seller will reimburse the buyer at close of escrow for the period of the tax year the seller had owned the house.
• Utilities. Sometimes deposits are required or there may be installation costs.
• Homeowners association dues. They are often billed (one to two months) at closing.
Q: How do I know what my costs will be?
A: Your agent or title company can prepare an estimated buyer or seller statement, which outlines the costs for you. If you get stuck and don’t know how to proceed, contact me and I can point you in the right direction.
Owen Halliday is a longtime Los Altos resident and manager of the Sereno office in downtown Los Altos. Email comments, questions and potential column topics to [email protected] For more information, call 492-0062.