Selling your home on the real estate market involves different cost and fees. One of the most important is the closing cost, which is the fee charged to transfer real estate property when the sale is completed. Knowing the closing costs in California for a typical real estate transaction will help you make the best-informed choice over whether this type of sale is the best for you to pursue.
It should be noted that the closing costs are normally paid from the buyer as part of the purchase price. Therefore, it is technically not fees that must be paid out-of-pocket. Rather, it is deducted from the agreed payment for purchasing the property. This assumes that the buyer does not owe more than what the property is worth.
What follows is an outline of the closing cost, what it entails, and the details that go into the process. Keep in mind that closing cost within the state of California will vary depending on certain factors. But what follows will give you a general idea of what is involved.
The closing costs in California can be broken down into six different fees. All fees are associated with the final transaction of the real estate property and include the following.
- Commissions
- County Taxes for Transfer
- City Taxes for Transfer
- Escrow costs
- Title Insurance
- Miscellaneous
As you can see, there are a considerable number of fees for you to pay when closing the sale. Since most of the fees have been a part of the real estate transaction process, they are routinely handled by the professionals involved. It should be noted that there may be other fees that are part of the buying or selling process that are normally handled outside of closing, but may be included for other reasons.
If you use a real estate agent as part of the selling process, then they are owed a commission for the completion of their services. In California, the typical commissions range from 5% to 6% based on the selling price. Keep in mind that such commissions can be negotiated as part of the selling process.
The percentage is a little misleading since the commission is usually split between the brokerage that is hired to sell your home and the brokerage that the buyer uses to find and negotiate the best price for the home.
In addition, if you use a real estate company that charges a flat fee or one that offers a discount brokerage, you can pay a lower commission rate depending on the sale price of the home. Of course, if you do not use a real estate agent as part of the selling process, then there are no commissions due.
However, selling a home without a real estate agent on the traditional market means that you are missing out on valuable services that might sell the home at a higher price than what you can accomplish on your own. This means that even with a 6% commission, you might get a significantly higher price that more then covers what is owed to the real estate agent. Plus, most commissions are tax deductible, so you can get something back after paying the commission.
The agent provides their experience, marketing, and negotiating abilities to help garner the highest price possible for your home. The good real estate agents will on average get a higher selling price compared to homeowners trying to sell the home on their own. There are exceptions of course, but they tend to prove the value of the real estate agent in most circumstances.
Sometimes known as the documentary transfer taxes, these are the fees provided to the government for making the changes necessary to show a title has been transferred on real estate within their city or county.
It should be noted that while every county in California has a transfer tax, not every city has one. There is also the possibility of the city and county governments being the same which eliminates one of the taxes.
For all counties in California, save for San Francisco, the tax is $1.10 per $1000 of the sale price. So, a million-dollar sale would result in a transfer tax of $1,100. The tax in San Francisco is considerably higher and based on the sale price. The range starts at a minimum of $5 per $1000 sale price for property sold that is worth $250,000 or less and goes up to $25 per $1000 sale price for properties sold worth $10 million or more. Selling property in San Francisco means paying a considerably higher transfer fee.
As mentioned before, not all cities in California have a transfer tax in place. Plus, the transfer fee can vary considerably between cities that have this form of taxation. You will need to check with your local city government if selling property on your own. Or, if you are using a real estate agent, they should have that information available to you.
The fees as charged by the escrow company will depend on different factors, most notably the sale price of your home. An escrow company is charged with holding the money or purchase for the home until the sale has been completed. Escrow companies are a neutral or third party created out of the necessity to have a trusted source for holding money as part of a sales process in real estate. Basically, the buyer does not get the property and the seller does not get the money until all aspects of the sale contract have been completed.
The escrow company will charge a fee for their services. You will see this fee on the settlement statement. There is no set price across the state, it may vary somewhat between escrow companies. But in California a typical escrow company will charge a flat fee of $250 plus $2 for every $1,000 of the sale price.
This means if your home sells for a million dollars, the escrow fee will be $2000 plus $250 for a grand total of $2,250. Again, the fee may vary somewhat between escrow companies within the state of California, but not by much in most cases.
But who pays the escrow fees? The answer will depend on the county in which you live. Sometimes it is the buyer, sometimes it is the seller, and sometimes the fees are split 50/50. Since the fees are usually part of the purchase price, it can be calculated as part of the sale. But then again if you are not using a real estate agent or simply overlook the escrow fee, then it is coming out of someone’s pocket depending on the laws in the county from which the sale is made.
This is a necessary part of the transaction process as the insurance protects the buyer in case the title itself is not sound. If the buyer is obtaining a mortgage or loan to purchase the property, then getting title insurance is mandatory.
For example, is if someone else claims to be the owner of the property after it has been sold. This normally happens when there are liens against the property that have not been paid. Depending on the contracts that have been signed, the lien may provide some claim of ownership by the lender. The title insurance protects against such circumstances.
However, unlike escrow fees there is no set cost for title insurance as the price can vary depending on several factors. To get a ballpark figure, you can take the final sale price and multiply it by .00225. The result will give you a figure that should be close to the cost of the title insurance. If you are working with a lender to obtain a mortgage, then they should tell you the price or at least the calculation that needs to be made in order to set the price for the title insurance.
What If I Want to Avoid Closing Costs?
If you feel that you don’t want to worry about closing costs, you have an option to work with house buying company like to sell your house.
When you sell your house for cash to a real estate investor:
- You can close escrow as fast as a week
- They pay for all closing costs
- No repairs needed before selling
- No obligation for a consultation
At Get Fair Home Offers, we buy any houses in Southern California. We’ll be sure to make a competitive, no-hassle offer on your house. If you like our offer, we will close escrow as soon as possible with local trusted escrow company. We’ll take care of all fees, cleaning and any repairs.
Call us at (626) 817-3351 or fill out the short form below and find out how much we can offer for your house!