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Who Pays Transaction Costs?

By Robert Irwin
A big question for many "by owner" sellers is who is going to pay the transaction (also called "closing") costs? Even if there's no commission involved in the sale (because, after all, you're selling by owner), there are other costs. These include Title Insurance, Escrow charges, attorney fees, loan fees and so on. Who's responsible for these?

Many sellers would prefer to simply answer, "Let the buyer pay for them!" That perspective, however, probably is not shared by many buyers and it could keep a seller from making a deal. Does that mean, then, that the seller should shoulder the burden of these expenses? Most sellers would not like that very much.

There needs to be a more equitable way of handling the closing costs.

In conventional deals (using agents), the transaction costs are usually handled as a matter of local tradition. In some areas the buyers pay them. In other locales it's the sellers. And in other areas there is some sort of split. Any agent or escrow officer can tell you how it's usually handled in your neck of the woods.

In all areas of the country, however, the closing costs can be negotiated between buyer and seller. If you're selling your home "by owner," my suggestion is that you either follow the tradition in your area, which many buyers undoubtedly already know and may be prepared for. Or, you try the following split which I've found is usually considered equitable by both parties:

SPLITTING THE TRANSACTION COSTS

The idea here is that once you have a buyer who's ready, willing and able to purchase your home and you're ready to draw up and sign a sales agreement, you bring up the topic of closing costs and suggest the following split. Most (although not all!) buyers will look at this and agree with it. If there's agreement, you can quickly move forward to close the deal.

  • Title Insurance - Since this protects the buyer (and lender) and not the seller, the buyer should reasonably be expected to pay for this. In order to make the deal, however, you as the seller may be willing to pay half the cost.
  • Escrow Charges - An escrow is necessary to close the deal and both buyer and seller benefit, so the charges should be split down the middle.
  • Attorney fees - It depends on whose attorney and what he or she does. If the attorney draws up the sales agreement and other documents, then it benefits both parties and the fee should be split. On the other hand, if the attorney advises you, it's your cost. If the attorney advises the buyers, it's theirs.
  • Loan fees - These are normally charged to the buyer. After all, it's the buyer who's getting the new mortgage. They include points and other fees.
  • Pro-rations - These are split pro-rata between buyer and seller
  • Title clearing costs - Clearing title is the sellers' responsibility and you should pay for the costs.
  • Other fees - You can arbitrarily split them down the middle. OR, you can be big about it and pay them yourself - usually they are small.

TIP

Remember that all of these fees can be negotiated. If it's a seller's market and there are lots of buyers out there, you may demand, and get, the buyer to pay all the closing costs. On the other hand, if it's a buyer's market, you may want to pay those costs yourself in order to hook a buyer into purchasing your home.

Robert Irwin is the most prolific real estate writer in America having produced over 100 published books in the field. His TIPS & TRAPS McGraw-Hill series has sold well over a million copies and his FOR SALE BY OWNER KIT and FIND IT, BUY IT, FIX IT and other books have been strong sellers for Dearborn.

In addition Irwin writes a regular real estate column for The Wall Street Journal online and is introducing a new weekly column for Owners.com.

Irwin has sold his own property "by owner" and during over 30 years in the business has been a broker and consultant to lenders, agents, buyers and sellers.

He can be reached through his website RobertIrwin.com.

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