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Closing Costs 


The bundle of fees associated with the buying or selling of a real estate are called closing costs. Certain fees are automatically assigned to either the buyer or the seller by local custom. What many do not know is that all of the cost and their allocation are negotiable.

 

Buyer Closing Costs:


When a buyer applies for a loan, lenders are required to provide them with a good-faith estimate of their closing costs. The fees vary according to several factors, including the type of loan they have applied for and the terms of the purchase agreement. Likewise, some of the closing costs, especially those associated with the loan application, are actually paid in advance. Some typical buyer closing costs include but are not limited to:

  • The down payment (not a fee, but a prepayment of funds to close)
  • Loan fees (points, application fee, credit report)
  • Prepaid interest
  • Inspection fees
  • Appraisal
  • Mortgage insurance (typically 1 years premium plus an escrow of 2 to 4 months) 
  • Hazard insurance (typically 1 years premium plus an escrow of 2 to 4 months) 
  • Title insurance (this fee is based on the purchase price)
  • Documentary stamps on the note
  • Attorney’s fees

Seller Closing Costs:


If the sellers have not yet paid for the house in full, the sellers’ most important closing cost is satisfying the remaining balance of their loan. Before the date of closing, the escrow/title officer will contact the sellers’ lender to verify the amount needed to close out the loan. Then, along with all other fees or outstanding debt related to the property, the original loan will be paid for at the closing before the seller receives any proceeds from the sale. It is common for the Seller to pay part or all of the Buyer Broker’s commission. In order to be allowed to use Multiple Listing, the Seller’s Listing Broker must offer compensation to the Buyer Broker, but it may or may not be the same as the commission required in the Buyer Broker Employment Agreement, leaving an overage or a shortfall to be adjusted for the closing. Neither broker can renegotiate the other’s commission. Other sellers’ closing costs can include but are not limited to:

  • Listing & buyer’s Brokers’ commissions
  • Transfer taxes
  • Documentary Stamps on the Deed
  • Title insurance (based on the sales price of the property and in Florida it is based on a "Promulgated Rate"*)
  • Property taxes (prorated)
  • Attorney’s fees

Negotiating Closing Costs:


In addition to the sales price, buyers and sellers frequently include closing costs in their negotiations. This can be for both major and minor fees. For example, if a buyer is particularly nervous about the condition of the plumbing, the seller may agree to pay for the structure’s (house’s) inspection.

Closing Expenses:

By the same token, a buyer may want to save on up-front expenditures, and so agree to pay the seller's full asking price in return for the seller’s paying all the allowable closing costs. There is no right or wrong way to negotiate closing costs; just be sure all the terms are written down on the purchase agreement’s addendum.

At the closing, certain costs are often pro-rated (or distributed) between buyer and seller. The most common pro-rations are for property taxes. This is because property taxes are typically paid in November (at a discount) of the year for which they were assessed.

ie: If a house is closing on December 31st, the sellers will have lived in the house a full tax year) and will have to pay the full amount of taxes for that year (unless they paid at a discount in November, but if the closing occurs in June, halfway thought the tax year, then taxes equal to the number of days since January 1st of that year will be collected from the seller and given to the buyer as a credit at closing (pro-rations). Of course the buyer will need to pay the full amount of taxes at the end of the year to the county. They did after all receive the seller’s portion of the taxes at the closing.

Pro-rations:

Prorations are one of the most misunderstood part of the Settlement statement, if you have any concerns please do not hesitate to ask.

You will be provided with a draft copy of the settlement statement before the closing. If you are the seller this can be provided subject only the pro-rations discussed above a few days before closing. Buyers must wait until the lender provides us with their closing fees to get a complete estimate of their costs, but this should be available at least 24 hours before the closing date