House Selling Costs
Learn The Truth About These Hidden Costs
If selling your home through a real estate agency is something you prefer to do, be aware of possible hidden house selling costs that some real estate agents don’t fully disclose.
Disclaimer: Information in this blog post is meant to be used as a helpful guide and for educational purposes only. It is not to be taken as legal advice. If you have a question about California regulations and selling your home, contact a skilled lawyer in your state.
Before you list your home for sale, you would have hired and signed a contract with a real estate agent where you would have agreed to pay a commission for the agent’s services. A customary real estate commission fee is 6% of the sales price. Add this to the hidden house selling costs below and you can see how you will pay 10% of your sale price in fees and commissions.
As customary, before you can sell your home to a buyer who is obtaining a loan from a lender, you are required to purchase and install smoke alarms in all bedrooms as well as carbon monoxide detectors in hallways and common living areas and brace the water heater. More requirements need to be met for FHA loans but that will be discussed in another blog.
The Contract
A real estate agent will use the California Association of Realtors (C.A.R.) Residential Purchase and Sale Agreement (RPA) form as the contract to sell your house. Within this contract, there are 53 items listed as terms of purchase and allocation of costs that you and your agent will negotiate with the buyer. Of these 53 items, 14 of them are items that specify how the costs of the transaction will be allocated between the Seller and Buyer. Negotiating on these many hidden house selling costs of sale transactions adds to the slow process of reviewing offers and revising counteroffers until both parties can agree.
You may be asking yourself what these items could be that most sellers are not aware of before they decide to list their home for sale with a real estate agent. Many of these house selling costs are part of what is referred to as Closing Costs.
Below we break down the Closing Costs for Selling your home.
Costs for Reports
Typically, Sellers pay 100% of the costs for:
Natural Hazard Zone Disclosure Report (NHD): In the state of California, sellers are required to provide buyers with this statement. It informs buyers whether the home is located in certain natural hazard zones such as flood risks, dam breach inundation zone, earthquake fault or seismic zone, and hire fire risk or wildfires zone. This report can also include environmental information like radon gas exposure, airport-related noise, and former military training area, to name a few. $50 to $100
Owner’s title insurance policy: This policy is a form of indemnity insurance that protects lenders and homebuyers from financial loss and related legal expenses in the event there is a defect in title to your property. It’s a one-time premium paid at closing and the cost is relative to the purchase price. For example, a $700,000 sale price in LA County could be $1900 to $2200. Some possible defects this insurance covers include improper execution of documents, mistakes in deed recording, fraud, undisclosed or missing heirs, and unpaid judgments, liens, and taxes.
Government-required inspections or reports: Some cities and municipalities require their own officials to conduct a physical on-site property inspection before a sale is completed. They charge their own fees for the service ranging from $52 to $400 and up. Many cities in Southern California like Pasadena, Los Angeles, and Azusa, have certain requirements to close escrow called “Presale Inspections”. These may include specific inspections to ensure compliance with city ordinances such as garage condition, parking impact, mandated low-flow toilets, water heater strapping or permitted modifications.
HOA fee for preparing disclosures: When selling a condo or townhouse that is part of a Home Owner’s Association (HOA), the seller is required to provide the buyer with all documents pertaining to the HOA for review. Some of this includes Governing Documents, including Articles of Incorporation and Bylaw, Covenants, Conditions and Restrictions (CC&Rs), budget reports, financial statements, Regular fees, and any unpaid fees, Unresolved violations, Any pending or settle litigation and 12 months of board meeting minutes. Fees can range from $200 to $600 and up.
Home Warranty plan: Sellers are expected to offer the buyer a full one-year warranty plan for financial protection in case major appliances, home systems such as air conditioning or pool equipment, break down. Typically the cost for this is $300 to $600.
Termite Report and damage repair: Termite inspections are not required to sell a house in California, however, most lenders require them. Since most buyers will be obtaining financing to buy your home, this report and damage called out in Section 1 will be your responsibility. While inspections cost between $75 and $150, the cost to repair the damage could be in the thousands.
Transfer Fees
County transfer tax/fees: A real estate transfer tax is a fee you pay to a state, county, or municipality to transfer ownership of real property within the jurisdiction; it’s also a way to collect revenue. In California, the county transfer tax rate is 0.11% of the sales price.
City transfer tax/fees: Some cities such as Los Angeles, Riverside, and San Francisco collect their own city transfer taxes at their own rates. Los Angeles County alone has five cities — Culver City, Los Angeles, Pomona, Redondo Beach, and Santa Monica — that charge additional fees ranging from $2.20 to $4.50 per $1,000 sales price.
Transfer of HOA fees: When selling a condo or townhouse that is part of an HOA, there will be a fee to cover costs the HOA management incurs when transferring the ownership records from the seller to the buyer. Some charges can be associated with preparing and distributing documents, updating names in databases, changing security codes and amenities passes, and other administrative costs. There is no fixed fee for this.
Escrow Fees
Escrow is an integral part of the home selling process. Escrow is a legal arrangement where a third party temporarily holds money and property until all terms of the sales agreement have been met. In addition, escrow ensures that all timelines are met, and all required paperwork is submitted correctly. They are responsible for all paperwork getting property signed, filed, and recorded with the County. Escrow fees can range from $2,000 to $4,000 and up. In Southern California, it is customary for the seller and buyer to split the total cost of escrow equally.
Closing Statement
After you sell your house, the escrow company will provide you with a final closing statement itemizing all the charges you paid for through your profits as well as prorations and adjustments. Until your home sells, you are responsible to pay all property taxes. This will be prorated on a daily rate and taken out of your sales profits. Any Supplemental Property Tax and back property taxes will also be paid in full from your sale proceeds.
Itemized Title and Escrow charges will be listed to include, but are not limited to, wiring fees, compliance fees, settlement agent fees, sub escrow fees, and order demand.
In California, if you do not live in the home as a primary residence for a minimum of two years, and if you inherited this property, not in a Trust, then you are subject to Individual State Tax Withholdings of at least 12.3% – also comes out of your proceeds. These house selling costs can reduce the amount of your real estate earnings by quite a bit.
Sell Your Home with a Direct Home Buyer
When you sell to a direct home buyer, like us, Fast Home Buyers, you will not incur any of these house selling costs or allocation of costs to pay for. We use the same C.A.R. RPA contract, however, we only use 4 of those 53 items to negotiate with you: Purchase Price, Close of Escrow, Expiration of Offer, and Initial Deposit Amount. That’s it. No closing fees, escrow fees, home warranty plan, or commission fees, and no repairs or cleaning are needed. Just cash in your hands within seven days.
Each of the 53 items is the potential to not agree in negotiations and lose a buyer. This means that you lost time because now you have to start finding a new buyer and negotiating all over again – and hope it doesn’t fall out.
Save both time and money and sell directly to Fast Home Buyers as a direct home buyer. We don’t need a termite inspection or a home warranty. We will pay for all report fees and transfer fees. We will pay for the escrow and title. And there are no commission fees for selling direct. At the close of a sale with us you won’t receive a closing statement showing you how much money you spent. You will just receive a wire transfer from a trusted escrow company with your money.
