What are the closing costs for selling my home?

A common question that people have when selling their home in North Texas is "How much will it cost me?". Let's explore what you can expect to pay and why. While we can't tell you exactly what you will pay, this article should allow you to get a reasonable estimate of the cost.

Property Taxes

One cost that can vary greatly is the property taxes. In Texas property taxes are paid in arrears. This means that you pay the taxes for the year at the end, usually by January 31st of the following year. Because of this, the seller has to pay the buyer for the taxes from January 1st until the day of closing. For instance, if the property taxes are $8,000 and the closing occurs on March 28th then the seller will give the buyer $1,906.85. This can be figured by dividing the property taxes by 365 days ($8,000/365=$21.9) and then multiple this by the number of days between January 1st and the day of closing ($21.9x87). As such this amount can vary quite a bit if you are closing early in the year versus later.

One thing to keep in mind is that in the last quarter of the year the law requires the entire tax amount to be paid to the taxing authority at closing. So if you close after October 1st the title company will charge the seller the entire tax amount and then the buyer will be charged from the day after closing until December 31st and this amount will be credited back to the seller. 

To further complicate matters, be aware that the tax amount isn't often finalized until October so the amount that this is all based upon is often just an estimate that might not be completely accurate. We will discuss this further in a subsequent article.

Another common question regarding property taxes is "What about my escrow account?" Most homeowners have their taxes and insurance escrowed with their mortgage company. The mortgage company then pays the taxes on their behalf. This account holds your money and as such will be delivered to you by your mortgage company after the home sells. Expect it to take a month or two though. This can create another wrinkle in things for any closings at the end of the year. If you close in December then there is a chance that your mortgage company will have already paid the taxes for the year in which case the title company will not need to withhold these funds from your proceeds. In this case you will still receive a credit for the buyers portion.

Title Company Charges

The escrow fee is the amount charged by the title company for managing their end of the closing process. This amount can vary depending on the title company but is overall smaller than a lot of the other charges. Expect to pay anywhere from $400-800 for this. 

Another title company charge you will see is document preparation or sometimes referred to as just attorney fee. This is the cost of paying an attorney to draft the closing documents and deed. Typically a few hundred dollars. 

You will also pay approximately $50 for a tax certificate. The title company will have to get a certified copy of the taxes owed on the property which is what this fee pays for. 

Expect to also pay a recording fee for the deed. This amount is different for each county. $25 or so is pretty typical. There might also be a courier fee paid for the delivery of the deed to the county. 

Sometimes you might pay a notary fee or remote closing fee. This charge of a couple hundred dollars is charged for the convenience of closing at the place of your choosing instead of having to go into the title company to close. Not all title companies charge for this service. In today's busy world a number of title companies have started including this as a value add. Depending on lender approval, some title companies may do closings via Zoom or even just a Docusign or other esignature service, although these options are not common. 

Another title company cost that we will discuss in the next section is Title Insurance.

Title Insurance

Title insurance is another significant cost although who pays for this is up for negotiation. Traditionally this has been paid for by the seller but in a hot sellers market buyers often pay this fee in order to make their offers more competitive. The cost of this is based upon the purchase price of the home and is set by the State of Texas. For the average home expect to pay between $1,500 - $3,000 for this. The formula for this is pretty complicated. See below.

Depending on requested endorsements, there might be additional fees for title insurance. The main endorsement is survey coverage. The basic insurance premium does not include coverage for property boundary issues. Adding that endorsement will typically cost a couple hundred dollars. 

To learn more about Title Insurance, see this article.

Home Owners Association

If you live in an HOA then you can expect to pay additional fees at closing. As with title insurance, these fees are negotiable but the majority is almost always paid for by the seller. The main fee that you will pay is the document delivery fee specifically for the resale certificate. In 2021 the Texas Legislature passed new laws placing restrictions on this. It is now capped at $375 and $75 for it to be updated. These will typically be paid before the HOA will deliver the docs so expect to pay it as soon as any repair negotiations are completed. You might also have to pay a rush fee in order to meet negotiated deadlines since a lot of HOA's like to take forever to deliver the documents.

HOA transfer fees are also common. These are often several hundred dollars, but some charge in the thousands. Some HOA's will also add additional fees just because they can. 

PID and MUD

If your home is located in a Property Improvement District or a Municipal Utility District then there will typically be a transfer fee for them also. There is no set rate for this but will typically be in the thousands. 

Mortgage Payoff

If you have an existing mortgage, the remaining balance will be taken from your proceeds and paid to the mortgage company. Not really a closing cost, but something you will still pay. 

Home Warranty

In Texas it is very common for a seller to buy a Residential Service Contract (home warranty) for the buyer. This is negotiable so you might not always pay it but if you do expect around $500-600 although it could be higher if your home is large/luxury or if you have a swimming pool. 

A lot of sellers don't see why they should have to buy a warranty for someone else. While this thought is reasonable, I recommend buying one. Think of it as liability insurance. When you sell a home I am sure you do everything to deliver a home in good condition with everything working but the reality is that things break. Imagine if you buy a home and 2 months later the dishwasher breaks. Your natural reaction is that the seller scammed you or hid a defect. While that most likely didn't happen most people go to that line of thinking. If the buyer has a home warranty then they a can just pay a small service charge and get the dishwasher repaired or replaced. Now they are no longer angry at the seller. On the reverse, if they don't have a home warranty they might accuse you of not disclosing or trying to hide a defect and they might even consider suing. $500 is a small price to pay to reduce your liability for future lawsuits. 

Concessions

While not standard, it is not uncommon for the seller to pay some of the buyer's closing costs. They can be negotiated for a variety of reasons but the most typical is in lieu of needed repairs. Instead of the seller completing minor repairs they may just offer the buyer a blanket amount of money. In that case the money will go toward the buyer's closing costs. While there isn't a set amount there are caps. For instance, if the buyer is using an FHA loan than they are limited to 6% of the purchase price as concessions. Another cap is the amount of the buyer's closing costs. If the buyer's closing costs are $10k then they cannot receive $11k. In that situation though, the buyer might increase their closing costs in order to get the full $11k. This can be done by buying points to lower their interest rate or buying additional years of the home warranty or upgrading it. 

Broker's Commission

The last closing cost you can expect to pay is also commonly the largest. The broker's commission is the cost of hiring an agent to represent you in the sale of your home. Your agent will likely share this commission with the agent that represents the buyer. The rate can vary significantly. There is no standard broker commission. Of course, if you sell your home yourself you might not pay this at all. But if you do, you can expect to pay anywhere between 4% and 8% of the sales price of the home. Every brokerage sets their own rate and some firms like ours have varying rates depending on the level of service and marketing you want. For instance, if you want top marketing with 3D virtual tours, aerial photographs, HD Video Tours you can expect to pay more than if you just want basic photos for your listing. 

Anything Else?

While not completely exhaustive, this article outlines what closing costs you can typically expect to see. But the reality is that every transaction is unique so you might see other charges depending on certain circumstances. Make sure you use a REALTOR® who understands these fees and how best to negotiate to limit the amount you will pay. If you have any questions or are interested in buying or selling a home please reach out to us.