Many people consider closing costs, many different things. Some people might refer to closing costs meaning anything and everything. What they want to know, in the end is how much they walk away with. For instance, if I made an offer for $30,000 for someone’s property and they asked me to pay closing costs, more than likely what they are saying is, “I want to get cash or check for the full $30,000″. Because I operate on a very strict numbers, this plays a lot into my profits in the end.

This may sound selfish, but I assure you, it’s not. I can take certain risks for each situation based on the specifics of a deal. I try to offer about as much as I possibly can to maintain the rate of return I require to operate. Because closing costs fluctuate on a per person/deal basis, it’s not a very good negotiating tool. There are “standard” fees and assumptions you could make. But, there’s nearly no way to pin them down exactly until the day of closing. For me, that’s leaving the deal too exposed.

There are two major components of closing costs. One is he title fees and expenses associated with the administrative portion of the transaction. The second is taxes, judgements and liens.

The fees associated with closing may include appraisals, attorney or settlement fees, flood certifications, inspections, postage, survey, title insurance, title work (search, plat drawing, name search, endorsements, etc). The taxes portion is generally the taxes owed by the seller for the portion of the year they lived in the property. Most loans now days have escrow built in, meaning you are paying your insurance and taxes along with your monthly mortgage payment. If this is the case, your taxes should be about covered up to the point you sell the home. For cases where the home is owned out right, this isn’t the case. If taxes on a home were $2,000 per year and you sold the house in June, you would owe somewhere around $1,000 for the year.

How to get around/negotiate the closing costs, at least when dealing with me, is to focus on the offer itself. If I were to offer $30,000 for a property and we discuss the closing costs up front, we could put some assumptions together. Let’s say we assume there will be a total of around $3,000 in closing (taxes, fees, everything), perhaps I could raise the offer to $33,000. Or, at least make some attempt to help cover your closing (i.e. maybe offer $31,500). What this does is it puts all risks on the table. I can mitigate risks and adjust my projections to fit the scenario. This is opposed to agreeing to pay the “closing cost”, then going to sit down to close and find out there’s a $6,000 lien, plus $3,000 taxes, plus $2,000 in closing fees when I am expecting a total of around $3,000. So, if we’re able to reach an agreement on a property, please don’t take it personally when I say I can’t/won’t pay closing cost. It’s just another obstacle, or possibly a deal killer, for me.

Other common challenges:

• Time consuming & expensive
• You’re expected to do a lot of repair work & preparation to sell
• Buyer usually wants more repairs done (or money allowances) upon inspection
• Buyer usually wants the seller to pay closing costs
• Buyer can always change their mind up until closing & you have to start all over
• Getting an approved buyer takes twice as long in current market & all you can do is wait
• It’s a buyer’s market, so you can never expect your full asking price

 

There are more and I could go on and on. I am not saying there is anything wrong with selling a home the traditional way. It is the ONLY way to get the full potential value out of your home and there are a lot of good real estate agents out there. I am simply saying that not everyone has the time or patience to deal with these things.

To piggy back on to the challenges, there are costs that are associated when selling a house through traditional means (based on $100,000 house):

Commissions & Sales Discounts

• Real Estate Commissions – 6% ($6,000)
• Discount from Asking Price – 5% ($5,000)
• Repairs Required by Inspection – ($2,000)
• Total – $12,000

Holding Costs (6 Months**)

• Title Policy – 1% ($1,000)
• Buyer’s Closing Costs – 2% – 3% ($2,000-$3,000)
• Survey – ($200-$300)
• Total – $3200-$4,300

Title, Closing, & Survey Costs

• Mortgage Payments – $750 * 6 ($4,500)
• Utilities – $100 * 6 ($600)
• Insurance – $50 * 6 ($300)
• Yard Maintenance – $50 * 6 ($300)
• Property Tax – $3,500/12 * 6 ($1,750)
• Total – $7,450 

Grand Total – $22,650-$22,750

**Average Holding Time is 6-9 Months

This lists and the amounts will of course vary depending on the sales price of your home. It just gives you an idea of what you can expect. This is likely a “worst case” scenario, but as with any project, you should always budget/forecast the worst case scenario. These items on this list is not to discourage a seller from trying to sell their house through traditional methods. It’s simply to give a little bit of a visual picture of what to expect. Selling with Houston House Investors, you will know what you’re getting up front. There are no out of pocket expenses, taxes and closing costs come out of the proceeds of the property. You keep whatever the difference is after taxes are paid!