12 P.M. PST, July 5, 2016
Contact: Leila Banijamali
San Francisco, California | July 5, 2016
The Closing Costs of A Real Estate Transaction
When a buyer plans to purchase residential real estate, they are typically fixated on two major costs:
- The potential sold price of a home; and
- What the potential mortgage payments may be (for a financed property) or the ROI (return on investment) for an investment property.
Similarly, when a seller sells their real estate, they are typically fixated on only one price: the net amount after all loans and closings costs have been paid.
It is prudent for buyers and sellers of residential real estate to understand closing costs in detail in order to properly arrive at the actual amount that a buyer will pay in addition to the sold price, and what the seller will net from the sold price. Granted, the payment of these fees are typically apportioned according to custom, which varies from county to county. Also, it’s possible to negotiate the allocation of closing costs between the parties in the purchase agreement. Escrow instructions reflecting the final, agreed-upon allocations must be submitted to the escrow officer accordingly so that the correct amounts are withdrawn from the appropriate accounts.
Closing Costs for Buyers and Sellers
Buyers of residential real estate will be responsible for payment of all escrow fees, including title company recording and documentation costs, title insurance premiums, and transfer taxes. Sellers of residential real estate will be responsible for payment of the real estate agents’ commissions, county transfer tax, various inspections and natural hazards disclosures, among some other nominal fees (such as notary and recording). A buyer or seller will typically be independently responsible for costs of the professionals (such as lawyers or inspectors) whose services they engage as part of the transaction.
Sample Breakdown of Buyer Closing Costs for San Francisco Real Estate
Let’s assume that Buyer Bob purchases a house in San Francisco today for $1,000,000 with 20% down and assumes a 30-year mortgage with an interest rate of 3.5%. The property tax rate in San Francisco will be 1.1826% and hazards insurance is calculated at 0.125%. In this example, the buyer might pay $13,820 in closing costs in addition to the 20% down payment, due at close of escrow. Here is the breakdown of costs:
- Prepaid Closing Costs:
- 14 months of Insurance: $1,458
- 4 months of Taxes: $3,942
- 15 days of Interest: $1,191
- Fixed Closing Costs:
- Owner’s Title Policy: $2,368
- Lender’s Title Policy: $1,015
- Escrow Fees: $1,350
- Prorated Property Tax: -$129
- Recording Fee: $175
- Lender Processing Fee: $1,100
- Tax Service: $85
- Flood Certificate: $40
- Appraisal: $350
- Credit Report: $60
- Endorsements: $125
- New Loan Services Fee: $280
- Notary Fee: $60
- Home Protection: $350
Sample Breakdown of Seller Closing Costs for San Francisco Real Estate
Let’s assume there is a seller on the other side of the transaction in our example above. After Seller Sam sells their $1,000,000 condo, and assuming they own the condo outright with no financing, they are going to be left with approximately $932,767. Let’s see how we arrived at $67,103, which makes up Seller Sam’s closing costs:
- Fixed Closing Costs:
- County Transfer Tax: $6,350
- Recording Fee: $150
- Notary: $20
- Natural Hazard Disclosure: $123
- Water Energy Inspection: $300
- 3R Report: $160
- Buyer’s Broker Fee: $30,000
- Listing Broker Fee: $30,000
Closing costs form a significant negotiation point in the purchase or sale of residential real estate. Make sure you are represented by a prudent lawyer or real estate broker who will negotiate diligently on your behalf to ensure a successful transaction for all parties.
*The numbers above are variable in nature and are intended to illustrate hypothetical costs only. Ask your lawyer or real estate agent to assist you with determining your specific closing costs, which will be unique to your transaction.
Bedrock’s Principal Attorney, Leila Banijamali, is a licensed California real estate broker and she represents investors in the purchase or sale of commercial real estate at Bedrock and residential real estate through an affiliation with Vanguard Properties, San Francisco’s top residential real estate agency in the coveted District 9 (SOMA, Yerba Buena, The Mission, Mission Bay, and South Beach). Contact Leila for a complimentary consultation and investor report.