Can Any Of The Closing Costs Be Negotiated?
Typically, competition will keep the closing costs to a reasonable number because the reputation of a closing agent will certainly affect the amount of business that is sent their way. More often than not, the negotiation is between the buyer and the seller as to who is going to pay those closing costs versus negotiating with the title company or other entities.
What Are Escrow and Prepaid Expenses In Real Estate?
Escrow are monies that are placed or deposited and it may be right on the contract’s line or it may be additional deposits, depending on different thresholds that kick in. If you have a purchase price of $200,000 and the deposit to be paid upon execution of that contract is 10%, the purchaser is going to have to pay $20,000 to whoever is holding the escrow. There is a fiduciary duty to both parties to hold that money and not to release it until certain conditions kick in. Hopefully, that condition is the closing and that’s when the deposit is actually released to the seller.
Once an inspection has been completed, there may be another $10,000 paid. There are multiple deposits based on the due diligence that is done by the prospective purchaser and those monies can only be released to the seller under certain circumstances. They can only bill you on a return if the deal doesn’t go through to the prospective purchaser under certain circumstances. The contract and the law basically spell out under what conditions the escrow can be released.
The prepaid expenses usually refer to something different. Typically, those apply when you are in financing. The purchaser is financing all or a portion of the purchase price and so the prepaid expenses that would be required by a mortgage company would be the property taxes and casualty insurance. It’s typically 80% of the purchase price or the appraised price, depending on the mortgage they are dealing with, and they would require private mortgage insurance.
Who Typically Pays For All The Closing Costs?
If you take the standard contract that’s used, there is kind of a convention of which party pays for what. For the title insurance, usually, the seller is responsible for paying for the owner’s policy. If there is a lender that the purchaser is using, a lender will require a lender’s policy and typically that comes out of the buyer’s portion, so the buyer has to pay for that. If there has been an appraisal and financing is involved, the buyer would be responsible for that cost. Another expense that would be paid by the seller would be any assessments that are owed to a condo or an HOA.
As far as negotiating closing costs, those can all be negotiated. Even though they are standing within a contract and standard within the industry, you may have a cash deal where there is no financing and the owner is requesting title insurance, and the parties agree to split that or the buyer agrees to pay for it. All of those kinds of things can be negotiated prior to closing.
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