Seller Closing Costs & Estimated Net Proceeds
How much are closing costs when selling a home? In this video, Zach McDonald discusses seller closing costs and how to calculate estimated net proceeds.
Hey, I’m Zach McDonald, your real estate agent with Real Property Associates. And in today’s video we are going to talk about seller closing costs and estimated net proceeds. Sellers often ask me, what does it cost to sell my home? And this question comes more often from somebody who has never sold a home before or it’s been a really long time. And in this video I wanna talk a little bit about the costs to sell your home. And those costs are called closing costs. The first closing costs you’re gonna have as a seller is real estate agent commissions. These commissions are going to be negotiated with your agent before listing the home. Now typically these commissions are gonna be somewhere between five and 6% of the purchase price, depending on the agent you’re working with and other factors. Now, the way that commissions are broken down, at least in Washington State, is you’ll agree to pay the listing firm a commission and then they will share a portion of that with the buyer’s agent’s firm.
So typically, if it’s a 6% commission, 3% traditionally is going to be shared with the buyer’s agent firm, the agent that brought the buyer. Settlement costs are gonna be the second cost you will have as a seller. The first part of those settlement costs are gonna be your escrow fee. And this fee is gonna pay the escrow company who is going to be in charge of the money and the contract and the signing part of the transaction on the backend. And this fee is gonna be split 50 50 typically between buyer and seller. And then you’ll have the title insurance policy, which is going to be again, uh, a split fee typically between buyer and seller. The buyer’s gonna pay for the lender’s policy and then you will end up paying for the buyer’s title insurance policy. And then you’re also going to have pro-rated property taxes.
These are gonna be any taxes for the period of time that you have owned the home that you haven’t paid those property taxes for. So for example, if you lived in the home from, you know, January until March and then you sold it, you’re gonna be responsible for a portion of those taxes in that six month period. Even if you are planning to be moving out of the house before the next property tax payments due, you will be responsible for the taxes in the portion of that period that you lived in the home. The last settlement cost that you’ll have as a seller is gonna be the excise tax. And this tax is a tax on the sale of your property and it’s going to be based on the sale price. I recently did a video on the changes to the excise tax rules in Washington, and I’ll link up that video down below. I think you’ll find it helpful if you want to get really educated and really far into the weeds of how that all works. But just know that you’ll have an additional tax on the sale of the property
As part of your settlement costs. The third closing cost you’re gonna have as a seller is your mortgage payoff. So most people are going to have at least one mortgage that needs to be paid off at closing. If you don’t, congratulations, that’s really awesome and you’re gonna get to take home a lot more of the sales proceeds. But if you’re like most people, you’re going to have at least one mortgage. The escrow company will facilitate the payoff of your loan prior to closing. Now, if you have other loans on the property, maybe you have a second mortgage or you have some kind of a home equity line of credit, a heloc, those will also need to be paid off prior to closing. Additionally, sometimes there are other payoffs that are needed, and the most common would be something like a contractor lien. So I encountered this, uh, not too long ago with a client where the owner of the home had not paid for work that was done.
And so that company had put a lien on the property, which is essentially a claim of ownership, saying, Hey, when this property sells, this debt needs to get paid off. And part of the title process is the title company researching that and then finding those different payoffs that need to get paid. And so that company had to be paid before we could close on the sale buyer. Paid closing costs are gonna be the fourth cost you might have as a seller. Now in Washington state, it’s not super common, especially in the Seattle real estate market, to have sellers paying buyers closing costs if the market’s less competitive or it’s a tough property to sell and the buyer really needs the help. Sometimes there are reasons that the closing costs are worked into the sales price and there are different ways that can happen and different reasons that might happen.
If you’re interested in learning more about that, I have another video linked up down in the description where I go into a lot greater detail on how to negotiate those closing costs into a sale might be interesting if you are a seller and you’re watching this video to see kind of what a buyer might be thinking as well. The fifth and final set of closing costs, or we’ll call it a bucket of closing costs, is going to be just a junk drawer, a miscellaneous bunch of different costs that all add up a little bit. You’re going to have, if you own a condo, you’ll have HOA dues that might need to get paid off. You may have a special assessment that’s been levied and you might, might or might not have agreed to pay, uh, all or a portion of that off prior to closing. You’ll also have some document prep fees and some recording fees. Those are pretty minor. Those other two that we just talked about are gonna be usually bigger. And then if you are offered a home warranty to the buyer, that might also be one of the costs. But overall, the big focus on this section is going to be, you know, do you have a condo that has a special assessment or homeowner dues? Oh, really quick. There’s one other that I forgot. The other cost that you might not think of is any prep work that you did prior to selling your house. So when you’re going through this list, you’ve got all these closing costs, but then you also have the cost that you put into the house prior to selling and to get it ready for market. So that would also be a cost that you’ve already paid but would come out of your final proceeds in the end. Now, the real reason that people ask about seller closing costs and are curious about seller closing costs is because they wanna know how much money they’re gonna walk away with. So the first part of that is going to come down to what’s the sales price of the home, and then you’re gonna deduct those closing costs from the equation and that’s gonna give you your final net proceeds.
Now, as a real estate professional, one of the things I provide for clients is a market analysis, and that’s where we look at comparable sales. We study the market, I do market updates, so I’m always studying the market, but we take into a consideration recent sales that are similar to the home, the market conditions, and then we come up with that estimated value and discuss the different strategies for that list price. Now, ultimately the sales price comes down to what do a buyer and a seller want to agree on. So your house is ultimately worth what somebody wants to pay for it, and you’ll agree to. So that ends up meaning that sales price, you deduct these closing costs from that equation, and then you come up with the net proceeds. And so I also will prepare an estimated net proceeds worksheet prior to listing the house.
So we’ll do that market analysis first, and then we will base our estimated net proceeds off of our target list price and maybe even a couple other potential sales prices so that you can see what you will potentially be walking away with. Because as we know, that’s the primary concern. What am I going to walk away with? I hope you found this video on seller closing costs and estimated net proceeds helpful for you. And if you would, please do me the favor and give this video a thumbs up. And if you know somebody that could benefit from this information, please consider sharing with them. Bye for now.