Who pays for what?

There are numerous fees in every real estate transaction – appraisal, credit report, impound reserve, loan origination, lender, prepaid loan interest, prorated property taxes, escrow, title, deed, notary, recording, processing, underwriting, insurance, attorney, real estate, taxes, inspections, Homeowner Associate, Broker (if applicable), document preparation, courier, wire transfer, city inspection — and it can be confusing knowing who pays for what. In addition this can be different in the area of California the property is located.

Buyers and sellers need to be clear on which fees each will be expected to pay and which ones will be divided. To add to the complexity, buyers and sellers can negotiate the payment of any fees and expenses as part of the Purchase Agreement. Normally, the party that benefits pays the fee.

Escrow – the third party agent that accepts, holds and disburses funds and documents for the transaction – is paid by the buyer in Northern California and the seller in Southern California. Often the fee is split between both parties.

In Northern California, the buyer pays the title search fee (the review of public records to research any previous liens or property problems). In Southern California the seller customarily pays this fee.

Title Insurance protects both parties as well as the lender against any encumbrances, defects or previous claims to the property. This normally benefits the buyer; in Northern California the buyer pays for this. The seller pays in Southern California.

Buyers usually pay the notary and recording fees for trust and grant deeds. Sellers pay in the case of a reconveyance deed (when paying off an existing mortgage).

The seller normally pays documentary transfer tax and city transfer tax. In the case of foreclosures or bank-owned properties, the buyer may be required to pay the transfer taxes.

Whichever party hires an attorney is responsible for their attorney fees.

The buyer normally pays for inspection reports – home, roof, pest control, pool, etc. They also choose who does the inspections. The buyer also pays for any loan-related fees.

A home warranty can be purchased by either party, but is usually offered by the seller.

Real Estate Agent fees – commissions – are paid out of the sale proceeds of the home. This is often (but not necessarily) split evenly between the buyer’s agent and the seller’s agent. The commission is often 6 percent, but is negotiable.

Each home purchase is different, but the buyer’s agent should provide the buyer with a “Buyer’s Net” sheet (or Estimated Buyer’s Cost report) which details the total cash outlay for down payment, fees, etc. Sometimes, the seller will pay the buyer’s closing costs (up to a certain number or percentage). Closing costs can vary from 2-8 percent of the sales price of the home (loan fees, title, recording, etc.).

The numerous fees in real estate transactions are negotiable and can have a significant impact. Be sure you know who is paying for what.

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