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Home sellers always have something in common, they all want to know, how much will it cost to sell my house?
Especially after they took all that money (as well as time, energy and effort) on getting a house ready to sell. Which is mandatory in today’s real estate market.
A common mistake that many Massachusetts home sellers fall into when putting their home up on the market is thinking that the price they sell their home for represents the amount of money they can expect to receive after closing.
We hate bad news more than anyone, but today we’ll be discussing why the “listing price” is not what you can expect to take to the bank….even if the buyer agrees to pay exactly what you ask for.
Without further delay, let’s dig in…just don’t shoot the messenger ok?
Closing costs. Yep, they exist, and they will dip into your listed price and projected payout. But that doesn’t mean they can’t be managed and planned for.
The trick is to get a good estimate of what those costs will be ahead of time, so you know how much you’ll end up with at the end of the day from the sale of the house. Getting a handle on closing costs early on can also put you in a better position to negotiate with the buyer.
First, What Are Closing Costs?
Closing costs are those costs that must be paid at closing; the point of your sale at which ownership of the house officially changes hands. These costs include things like attorney’s fees, the real estate agent’s commission, and taxes. Some closing costs are fixed amounts, while others are a percentage of the price of the house or property. These costs can also range in price (being either higher or lower) depending on whom you hire and your unique circumstances or situation.
While it can be difficult to define a precise estimate of the associated closing fees ahead of time, once you know the details of the sale, you should be able to calculate a closely representative accounting of what you can expect.
Typical Closing Costs for Sellers in Massachusetts
Closing costs vary somewhat from one state to another. As noted, which of these costs the seller is responsible for also varies from sale to sale.
In Massachusetts, there are five major closing costs typically paid by the seller:
- The real estate agent’s commission, usually 5% to 6% of the price of the home.
- The real estate attorney’s fee, usually between $800 and $1100.
- State excise tax stamps, set at roughly 0.456% of the price of the home.
- Smoke and carbon monoxide detector certificate, roughly $50-$100.
- Septic expenses (if applicable), roughly $800.
Usually, there are about $350 of other charges that add up as well, such as discharging any remaining mortgage or the safe, overnight delivery of documents, and, if you are a member of a homeowner’s association, any fees related to transfer of membership.
Let’s look more closely at these five charges.
The Real Estate Agent’s Commission
Retaining a real estate agent is optional (and very costly) — you can sell your home yourself and avoid paying the commission.
Real Estate brokers in MA will typically want to charge a commission of about 6% of the selling price of your home. This cost is for them to list your house for sale in the MLS and other marketing as well as getting home sellers through the process successfully. If you need the assistance in selling a home then hire an agent, if you are savvy and can handle it as a Massachusetts FSBO then be sure to read about Flat Fee MLS as a listing option.
Do You Want To Sell a Home in Massachusetts?
If you want to save at least 50% of the Realtor commissions, check out our Flat Fee MLS Listings in Massachusetts…
The Real Estate Attorney’s Fee
Usually, both the buyer and seller have an attorney to help with the closing process. One main reason is that there are risks associated with the sale—circumstances that could delay or cancel the sale or increase the cost. Each lawyer’s job is to transfer as much of that risk as possible to the other party.
Your lawyer can also explain relevant legal matters to you, do some of the legwork of making financial arrangements, and draw up the legal documents involved with the sale. If you can’t be present at the signing, your lawyer can also sign paperwork on your behalf.
Again, retaining a lawyer is not strictly necessary, it’s just a very good idea.
State Excise Tax Stamps
Massachusetts has what amounts to a sales tax on real-estate. Note that the “stamp” in “excise tax stamp” is the same kind of stamp that became such an issue in the run-up to the Revolutionary War. The basic idea is that certain documents need to be stamped to prove that the tax has been paid.
Although the excise tax is generally 0.456% of the sale price of the home (meaning that for every 1000 dollars the buyer gives you, you must give the Commonwealth of Massachusetts $4.56), the actual amount can vary between counties. Also, additional fees may apply for properties on Cape Cod, Nantucket, or Martha’s Vineyard.
Smoke and Carbon Monoxide Detector Certificate
As of this writing, a house, to be sold, must have a certificate proving its smoke and carbon monoxide detectors work. The inspection is done by the local fire department, which charges a fee for the work. The certificate is good for 60 days.
However, the laws governing fire safety change often, so it is best to check on the current regulations well before the sale.
As might be supposed, homes that don’t have septic tanks don’t have septic expenses, either. Those that do have septic tanks must have theirs inspected before sale, according to law. Failing the inspection will not delay the sale, but you must put up the money to fix the problem. Whether the system passes or not, the inspection itself costs money.
It is possible to have the inspection done well in advance of the sale, but since the Certificate of Compliance is only good for two years, do not get too far ahead of the game.
Septic expenses are also called Title V, and the inspectors are called Title V Inspectors, after the legislation requiring the inspections.
Other Possible Seller Closing Costs
There are other closing costs typically borne by the buyer, but since buyers often negotiate to shift some of these costs to the seller, it makes sense to know what these costs are. The following list is not exhaustive, nor are all the items likely to last in the lap of the same buyer. Every sale is different.
- Application Fee Most lenders charge prospective buyers a fee for processing mortgage applications.
- Appraisal An appraisal company must assess the value of the house to make sure the agreed-upon price is fair. Typically the appraiser issues the report to the buyer, not the seller, but you may have some further options if you believe the results to be unfair.
- Closing Fee Also known as an escrow fee, this money goes to a company that serves as an independent party to the sale.
- Courier Fee If any documents must be transported during the loan process, that transportation must be paid for.
- Property Taxes and Mortgage Insurance Buyers are often asked to pay two months ahead on property taxes and mortgage insurance. The money is held in escrow until the payments are due. There are several other types of insurance also typically paid ahead at closing.
- Flood Determination The buyer will need to hire a third party to determine if the property is in a flood zone. The fee for the determination is separate from any actual flood insurance payments. If you have not been required to carry flood insurance when you owned the house, that does not prove the buyer will not—both the definitions used in regulations and the actual likelihood of flooding can change.
- Home Inspection Buyers often arrange for the inspection of the property prior to their actually taking possession. You aren’t likely to pay for the inspection, but will have to negotiate payment for any needed repairs the inspector identifies.
- Specialized Inspections Separate from the home inspection are checks for lead-based paint, termites, dry-rot or other issues that may require an expert eye—and may be legally required in some circumstances. Again, even if you don’t pay the inspector’s fee, you may be asked to pay for the problems the inspector finds.
- Origination Fee Not all mortgages have origination fees. Their function is to cover the lender’s administrative costs. They’re usually equal to around 1% of the total loan.
- Property Tax If any tax is coming due on the property, the lender will want it paid at closing. Traditionally, the buyer pays, but not always.
- Various Fees Various fees may be assessed at the time of sale, to cover tasks, such as recording the sale in local records, or checking to see if anyone else has a claim to the property. Details can vary considerably from one jurisdiction to another.
Closing Costs for Sellers vs. Buyers
Some closing costs are specific to the seller, others to the buyer. In general, buyers tend to have more line-items to pay—that is, if all the various fees and charges for both buyer and seller are listed, the buyer has a longer list. However, the charges for the seller add up to more money, sometimes a lot more money.
But “who pays for what” is largely a matter of tradition and norms, and tradition can be flexible. It’s not unusual for the buyer and seller to negotiate who will pay what costs (or a percentage thereof). Often, the negotiation has the effect of allowing the buyer to pay even less.
As the seller, you have the power to decide how much you’re willing to sweeten the deal for the buyer. Often, a slight reduction on closing costs means more than a similar reduction in the price of the house—meaning that accepting a greater share of the closing costs may lead to a higher overall sale price.
In Closing (pun intended)…
Closing costs are one of those details that make selling a house more complicated than it seems like it should have to be. If you haven’t gone through the process before, selling (or buying) can seem like having to learn a whole new language—but once you learn it, the language is surprisingly easy to speak. And you will never have to be a first-time seller again.