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Wednesday, July 11, 2012

What Are the Buyer & Seller Costs Associated With Buying or Selling a Home?

[Published July 12, 2012, in the Denver Post]

Here in Colorado, we’re blessed with relatively low costs of buying and selling real estate. Aside from the commissions paid to real estate professionals, the only major cost to a seller is title insurance, which can run $1,000 or more, but is reduced by up to 50% if there was a title insurance policy issued on the same property in the prior three to six years. Title One of Colorado offers a 50% discount up to six years after the prior title policy was issued.

Here in the Front Range, at least, there are no transfer or sales taxes on the sale of homes, unlike in many states, just a 0.01% recording fee.

Other costs to a seller are minimal. One of the largest might be the fee paid to the HOA management company for a status letter and HOA documents and for transferring the home on their records. I have complained about these fees in the past, which can run up to $500 and are thoroughly unjustified. Hopefully the legislature will outlaw such fees someday.

There are other deductions for the seller at closing, but they aren’t costs of selling.  The biggest, aside from the mortgage, is the property tax pro-rated to the date of closing. There is also a water escrow to pay the water bill.

Lastly, there is the fee paid to the title company for closing the transaction — typically about $350, split 50/50 between buyer and seller.  The lowest fee I’ve seen is from Ascendant Title, which charges only $125 — $62.50 per side. If there’s a loan to pay off, there will be a fee charged for delivering that payoff to the lender, and another fee (typically $40) for assuring that the lien is released by the public trustee.

That’s about it. In other states you might pay for legal representation to buy or sell a home, but that is unusual here in Colorado, where licensed real estate professionals are granted limited legal authority to interpret and explain the state-approved forms used in real estate transactions.

On the buyer side, you pay no real estate commissions or title insurance or HOA transfer fees (unless specified in the contract, which I’ve never seen). Your only significant expenses are related to any mortgage you get, but if you pay cash, you pay almost no fees at all other than your half of that closing fee, which could be as little as $62.50 at Ascendant Title. Of course, you will have paid for inspecting the home (say, $350) and getting an appraisal (say, $400), and maybe a sewer scope (say, $100) or radon test (say, $150), but not much else — except those loan-related costs, which amount to 2% or so of the loan amount, more if it’s an FHA loan or you borrow more than 80% of the purchase price..

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