Understanding Closing Costs Closing costs (seller-paid contributions to buyer’s closing costs) are one of the most confusing concepts of the offer process for buyers and sellers. This is completely understandable because most real estate agents and loan officers do not effectively communicate the net effect to the buyer and seller. Buyers must understand what makes up the closing costs. Buyer’s closing costs are composed of the following: • • • • • •
Here is an example for clarification: A buyer goes to make an offer on a 1 BR condo.The list price of this condo is $105,000. The buyer and their agent determine that the condo is valued at $97,000.
Property tax escrow Homeowner’s insurance escrow Loan fees including rate buy down, if applicable Broker admin fee Title settlement charges Lender’s and buyer’s title insurance
The second thing to understand about seller-paid contribution to buyer’s closing costs is the seller never actually pays the closing costs. They are either financed into the loan or paid out of pocket.
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THE SMART HOME BUYER
