Closing Cost Concerns

Published by peter | Filed under Buyer / Seller Tips

I recently came across a question by a reader who was wondering “who pays the closing costs in a real estate transaction.” This question, or a form of it, is answered by real estate professionals on each and every transaction that occurs.First of all, closing costs are the fees, costs, and taxes (over and above the price of the property) that occur when real estate is transferred from one party to another. The conveyance of real estate is initiated and directly by a contract for sale and purchase, and closing costs should be specifically identified in this document. So how do you know who pays what?Real estate closing costs are identified in the sales contract. The short answer to the question of who pays for closing costs is really quite simple. Whomever the contract identifies as the party who must pay the fee is the party who must pay the fee! The contract between the buyer and the seller in real estate is purely negotiable on each and every point, therefore there exists no reason why a seller cannot pay discount points on the buyer’s loan nor a reason why a buyer cannot pay the taxes on the transfer of the deed.Local custom typically rules the allocation of closing costs in home sales.  In the State of Florida, we have an interesting phenomenon among REALTORS® that seems to be North / South separator. In North Florida, it is typical and customary that the Buyer pay for title insurance in the real estate transaction. The opposite is true in Central and South Florida, where I have heard many a REALTOR® say that “the law requires the Seller to pay for title insurance!!!”You can imagine then, when a South Floridian decides to sell their home in South Florida (paying for title insurance in the transaction) in order to move to North Florida (and then pay title insurance again on the new home). This has angered more than just one transferee. But the fact is, this is a negotiable point, both in South Florida as well as in North Florida.Just because something is customary in an area does not mean that a creative solution cannot be implemented. In the example of title insurance, this is something that the lender requires (and every buyer should obtain title insurance) in order to safeguard its investment in the property. There is no law that requires home sellers to pay for an insurance policy for a buyer.Contract experts can save you money in a real estate transaction. The moral of this who story is that you should work with a real estate professional who is an expert in understanding people and understanding the use of the contract as a piece of the negotiation strategy. Anybody that tells you Party A has to pay for Closing Cost “X” is not an expert in using the contract to save you money. Remember, ‘typical and customary” ways to handle things are fine for many occasions, but sometimes shaking it up and being creative are the way to go.