Jim Valentine on Real Estate
There are myriad costs associated with a real estate transaction and it is good to know who pays what along the way.
There are customary practices in most instances, but everything is always negotiable, always. Once in a while, however, circumstances arise that lead to an unconventional cost split. It is good for you to know what is normal and what gets modified to put something together. All in all, how are you affected?
Let’s start with the selling fee, the commission. Traditionally, it is paid by the seller to the listing agent who splits it equally with the selling agent. The fee split is publicly listed so agents know what is being offered to them for selling the home. The amount should have no bearing on what properties are shown to a prospect, the public declaration simply serves to inform the selling agent what fee to write in their contract.
Buyers should understand that they aren’t paying a commission cash out of pocket in such circumstances, but it is truly a cost to them as it affects the seller’s net profit and will influence their decision-making process. Buyers can work with a buyer’s broker agreement and pay their agent for their services. It is important to realize that the payment of a selling fee does not alter the representation. Agents will represent buyer or seller or both according to what their working relationship is in reality, not by compensation.
The three most common closing costs are title insurance, escrow, and transfer tax. There are two types of title insurance, owner’s policy and lender’s policy. Historically the owner’s was split 50/50, buyer/seller in Douglas County, but it has evolved over time to where the vast majority of the transactions have the seller pay for it. That was always the case in the other Northern Nevada counties. Lender’s policies are paid by the buyer/borrower. It isn’t needed for a cash transaction. Escrow is usually split 50/50 as is the Real Property Transfer Tax (RPTT) since the Legislature tripled the tax a few years back.
Inspections are usually paid by the buyer, but sometimes this is an area where negotiations happen. One of the more common such negotiations is the septic system. There are three related costs: locating, pumping and inspecting the tank. Many buyers want the seller to pay for the septic pumping, to remove what was theirs.
Not every transaction has every inspection. Water quality can go either way, buyer or seller. Physical and pest are usually paid by the buyer unless it is a VA loan in which case it is mandated that the seller pay the $125. Once in a while specialists are brought in for a specific situation, i.e.- roof, radon, etc. Such costs are usually borne by the concerned and/or benefiting party. Who pays is to be agreed on.
Loan costs are almost always paid by the one borrowing the money, the buyer. If you have owner financing then the doc prep, collection, and other costs need to be paid. Sometimes it’s split, other times it is negotiated to one party paying for the benefit they receive, i.e. — being able to buy the property. Repairs, too, can be a negotiated allocation depending on how much each party receives, i.e.- splitting the cost of a needed new roof as both parties benefit. Surveys, governmental filings, etc. all cost money that somebody needs to pay.
When there is a question as to who pays for a cost along the way the logic of who benefits from the expenditure usually dictates a course of action. If it both parties directly, split it. If one gains comfort or confidence it can go either way, i.e.- the one seeking comfort can pay for the comfort, or the other party can pay to make them comfortable and stay in the deal. Regardless of the circumstances, remember to look at the cost from the broader perspective of the transaction. Don’t trip over dollars to save a nickel.
There is a lot of emotion and goodwill in real estate transactions, but most people focus on the money. Remember that as you work to achieve your goal – it might help you get there.
When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704 or firstname.lastname@example.org.