Thursday, August 2, 2007

Who Pays Which Closing Costs?

How do we know who pays what part of the closing costs?

Your question is timely. With the influx of new agents in the real estate industry in recent years some of the traditional closing cost splits in Douglas County have been addressed differently in offers. All closing costs are the subject of transaction-specific negotiation, but there is a “baseline” of how closing costs are treated so one knows if they are being offered “less” or “more” than what they could customarily expect.

One of the biggest costs of a real estate transaction is title insurance. It has long been the custom in Douglas County that the Owner’s Policy be paid equally by both parties, and the Lender’s Policy be paid by the Buyer. Just over the County line to the North in Carson City the policy is that the Seller pay for the Owner’s Policy. Sometimes Carson agents working in Douglas that aren’t familiar with our custom ask in their offer that the Seller pay for the policy. What is happening now is many local agents are providing for the Seller to pay the cost of the policy as a matter of course, not negotiation. Either practice, innocent of malice as it may be, can cause consternation on the part of Sellers resulting in unnecessary negative emotion in the negotiations.

Inspection costs such as Physical, Pest, Roof, Septic, Water Quality, etc. are typically Buyer paid costs. Both sides, however, benefit from inspections – Buyers can consider it “insurance” that they aren’t buying the proverbial “pig in a poke”, and Sellers have the liability relief of having a licensed third-party inspecting the condition of the home. These costs can be reasonably negotiated due to their mutually beneficial nature.

Our Advice: Some folks get upset when they sell if they paid half the cost when they bought and are now expected to pay the entire title insurance cost. What ultimately counts is the net proceeds check you receive. Don’t get hung up on principle issues if the dollars meet your wants and/or needs. Buyers should be advised that the Seller isn’t “getting in their pocket” against what is normal if they counter a customary item in a customary manner, rather they are treating them in a manner they deem to be fair. Having the Buyer pay the entire cost would be seeking a financial advantage. Despite traditional customary practices, it is not unusual these days to see Sellers paying much of the Buyer’s closing costs as an incentive for them to select their property versus another.

Both sides of a real estate transaction are negotiating for their financial benefit. Closing costs can total thousands of dollars so it is important to understand who pays what and why. An understanding of what is customary helps all parties understand how they are being affected financially, good and bad, and keeps unnecessary emotion out of the negotiations.

When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates,, 775-781-5472.


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Jim & Tatiana said...

This is going to be part of a great book some day. Week after week you continue to provide clear, insightful tips, decoding the real estate process. Thanks for the great work.