Closing costs can make or break a real estate deal. We talk a little bit about closing costs in our first-time home buyer’s guide, but there’s much more to cover, including:
Let’s get started!
What Closing Costs Entail
Closing costs are the expenses and fees that the buyer and seller pay at the end of a real estate transaction. In Washington state, homebuyers can usually expect to pay between 1%-3% of your home’s total purchase price. Who pays what and how much depends on multiple factors - many of which are negotiated during the home buying process.
Here are a few items that make up your closing costs:
These make up the most common expenses and fees you can expect to pay at close. Depending on your circumstances, there may be fewer or more additional fees included.
How Much Money Should You Set Aside
Closing costs are tricky because they are among the most negotiated items. Even 1%-3% is a wide range when you’re talking about a six- or seven-figure property. For a $600,000 home, that number could be anywhere from $6,000 to $18,000. Closing costs also heavily depend on the skills of your real estate agent and the state of the market, which we’ll get to later.
Nerd Wallet has a helpful closing costs calculator. Check it out!
What Can Be Reduced or Negotiated?
Haggling over the sale price of a property is one thing. Negotiating closing costs and a different beast entirely. Here are a couple of tips and tricks that can help you reduce or negotiate closing costs:
Lock down your lenders
Not literally. That would be rude. Still, you should shop around and compare offers from lenders before committing to one. Your real estate agent because knows a couple good ones.
Get a break down of your loan estimate form
Your loan estimate form includes an itemized list of costs, like your loan amount, monthly payment, and interest rate. It also includes a list of services that you can shop for. These services are based on your lender’s recommendations or preferred vendors (we’ve all got them). If your real estate agent has great relationships with highly competent vendors, they might be working with high-quality, affordable people already. Whether they are or not, you can shop around to find lower fees.
The lender is required to give you your loan estimate form within three days of completing a mortgage application. However, you can always ask for it earlier so that you can start shopping around.
Check for lender rebates
Some lenders offer rebates to existing customers. You can also check with your bank and see if they offer any rebates or discounts if you get a mortgage through them.
Negotiate with the seller
Usually, the seller pays the real estate agent commissions. However, depending on the circumstances (and there are always circumstances), the seller could be coaxed into pay additional closing costs. Consult with your agent to see if this is something that should be brought to the table.
Get a kickass real estate agent
Some agents are really amazing at negotiating. Do your research before settling on which agent you think is best fit for you.
Who Pays What
In a normal market - A.K.A. not the crazy seller’s market that we’re experiencing right now - here is what both the buyer and seller can expect to pay. Again, this is in a normal market and without closing cost negotiations taking place:
Buyer's and Seller's Markets
The rules of supply and demand are rarely more prevalent than in the world of real estate. In a buyer’s market, the housing supply exceeds the demand for them. Meanwhile, in a seller’s market, there’s a high demand for housing but a limited supply of them.
When either of these situations are the case, negotiations for closing costs tend to favor whomever has the market advantage. We’re in a seller’s market currently, which means that the sellers have greater pricing power and that buyers are more likely to offer to pay the seller’s closing costs.
MG Real Estate tip: "No matter what market it is, never concede on the basics, such as a home inspection. Without one, you might find yourself blindsided by costly repairs shortly after becoming a homeowner."
Closing costs can be a pain, but there are plenty of ways to lower or negotiate the amount of money you’ll have to spend on them. For more advice, shoot us a message. We’ll be happy to help you out!
By Anthony Greer
Anthony Greer specializes in content writing and brand messaging development for service-based businesses. www.anthony-greer.com