Real Estate Closing Costs Demystified

Often times, sellers and buyers will not understand what the term, “closing costs” means, what closing costs include, who pays for them and how much they will be? “Closing costs,” are expenses and/or monetary adjustments, over and above the purchase price of the property, incurred by sellers and buyers in transferring ownership of a property. In transferring the ownership of property, the seller and buyer will incur these closing costs at the time of the actual closing. In order to ensure that a closing goes smoothly, a buyer and seller should always try to understand and become well acquainted with the various closing costs associated with their particular transaction as well as not hesitate to ask their attorney, lender and/or broker any questions pertaining to any aspect of their transaction. These costs include:

The seller's usual closing expenses are:

• attorney's fees ± $700.00-1500.00 depending upon the time involved and the issues that may arise
• Massachusetts tax transfer stamps currently @ $4.56 per thousand of the selling price
• recording costs of instruments necessary to clear title ± $3-500.00...see Registry Fees
• Cit of Boston Fire Dept Inspection Certificate $50.00
• Condominium 6D and Master Insurance Certificates ± $150.00...see condominium rules & regs
• real estate broker's commission typically ± 4-5%

The buyer's usual closing expenses include:

• attorney's fees typically ± $700.00-1500.00...depending upon the time involved, the issues that may arise and the services listed below
• cost of title examination, survey/plot plan and municipal lien certificate
• cost of preparing mortgage documents, including lender attorney's fee
• recording deed, mortgage and municipal lien certificates ± $3-500.00...see Registry Fees
• lender fees such as bank application processing fee, obtaining credit report, appraisal, points, tax service fees, flood certification fees, title insurance premiums, escrow accounts for the payment of regular disbursements such as taxes and homeowner’s insurance and private mortgage insurance...ask your lender for a " Good Faith Estimate"

While a buyer’s closing costs are generally paid at the time of the actual closing for escrows and for lender, attorney and transfer fees, some lender costs such as appraisal, credit report, points, rate lock fees and prepaid legal fees must be paid in advance. The client should be prepared to pay approximately $500 - $1,000 for these “application” fees exclusive of any points because points, which are finance charges, depend upon the amount of the actual loan. Although closing costs vary with the type of loan program, quality of an applicant’s credit status or type of property, they average 2 to 3 percent of the purchase price.

All residential loan applicants receive a “good faith” estimate of closing costs within three days of application in accordance with the Real Estate Settlement Procedures Act. It is important to note, however, that just because the lender is the party who prepares the estimate, not all closing costs are charged by the lender. The lender is merely preparing an estimate of the costs a buyer may incur when purchasing and is not required to list all potential costs nor does the lender know what all the final costs are actually going to be.  The estimate is an educated guess based upon past experience and type of loan program.  Some things will be left out.  It is always necessary to anticipate that actual third party costs (such as title, appraisal, taxes, and recording fees) will be greater than the estimate.

For more information or questions, please contact:

THE LAW OFFICES OF JOHN M. IACOI & ASSOCIATES
Lewis Wharf , Bay 228
Boston , Massachusetts 02110
Telephone: (617) 723-3777
Facsimile: (617) 723-7876
E-mail: jmi@iacoi-law.com