Check
out this explanation of closing costs and how they will affect you as a
seller. Many buyers negotiate the closing costs saving themselves
thousands $$. As a seller, you need to be VERY aware of closing
costs and how they will impact your bottom line on the sale:
Closing
costs are those costs incurred in the settlement of the real estate
transaction. They include, but are not limited to: Deed
Stamps, Intangible Tax, Note Stamps, Attorney's Fees, Recording Fees,
Survey, Title Search and Title Insurance, and fees required by Lenders
such as Loan Origination Fees, Discount Points, Tax Service, Flood
Certification, Title Insurance Endorsements, VA Funding Fees, etc.
In the State of Florida, as in much of the United States- it is customary
that closing costs are prorated as follows:
Buyer: Customary to pay all closing costs associated with taking
title to the property.
Seller:
Customary to pay all closing costs associated with delivering marketable
title to the property.
BUYER
As
a general rule, most of the Buyer's closing costs are related to the loan
they will be procuring (if any). In many cases, if a Buyer is not
getting a loan, the Buyer's closing costs may be as low as a fee of $10.50
to record the deed in the public records. The fees charged by
lenders may include the following:
- Mortgage
Origination Fee
- Mortgage
Discount Points
- Wood
Destroying Organism Report
- Appraisal
Fee
- Tax
Service
- Document
Preparation Fee
- Mortgagee
(or "Lender's") Title Insurance Policy
- Title
Insurance Endorsements
- Flood
Certification Fee.
Of course, if the Buyer is utilizing other services, such as an attorney
or home inspector, the Buyer must pay those fees as well.
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SELLER
The Seller
customarily pays those costs associated with delivering good and
marketable title to the Buyer. These costs typically include:
- Title
Search
- Owners
Title Insurance Policy
- Survey
- Recording
fees for Seller's Satisfaction of Mortgage (if any)
- Other
costs for services chosen by the Seller such as the Seller's
attorney's fee.
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TITLE
SEARCH. The title search is necessary to determine if the Seller
has the ability to convey "marketable title" to the Buyer.
"Marketable Title" means that the Buyer, once he or she has
purchased the property, would be able to sell or market the property,
without a title defect or "cloud" hindering materially their
ability to do so. The Title Search consists of a Title Abstract and
Title Examination. In the Title Abstract, each document in the chain
of documents leading back to the "root title" to the current
owner is located and photocopied. When compiled, these documents are
called "The Abstract". They include deeds, mortgages,
judgments, liens, Covenants and Restrictions, Easements, and any other
document affecting the subject property. Once the Abstract is
complete, a qualified Title Examiner conducts the Examination by
inspecting each document to make sure that it complies with formality of
execution, recordation, and other requirements to insure its legal effect.
So long as documentation is not found which "breaks" the chain
of title, the Title Search may the be utilized to obtain a Title Insurance
Commitment from a State Licensed Title Insurance Underwriter.
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TITLE
INSURANCE. Whenever title is transferred to property, there is
always a risk that the Seller did not have a perfected title to the
property and that the Buyer may encounter difficulty or costs associated
with selling the property or curing title defects. In a worst case
scenario, the Buyer could find that he or she actually has no marketable
title to the property and that another person or entity has a prior claim,
mortgage, lien, or even right of possession to the property. Title
normally is transferred in Florida by General Warranty Deed, which means
that the Seller "warrants" or guarantees good title to the
Buyer. However, many times the Seller may not be around anymore to
back up this "guaranty" or may no longer have the financial
ability to do so. Title Insurance is protection against these types
of risks. If you are borrowing money to purchase property from a
bank or other institutional lender, that lender will almost always require
that they be issued a "mortgagee" or "lender's" title
insurance policy that insures the bank against any losses due to title
problems. It is important to know that this "mortgagee" or
"lender's" policy does NOT protect or insure you as the owner of
the property- it is protection for the lender only. Normally, the
lender's title insurance is issues simultaneously with issuance of an
"Owners" or "Fee" title insurance policy which
protects you as the owner of the property.
In short-
in Florida, a Warranty Deed is not a guaranty that you have good or
marketable title to your property. Only by purchasing an
"Owners" title insurance policy can you be guaranteed and
insured marketable title to the property. Therefore, it is customary
in the State of Florida that the Seller pays for issuance of the Owners
Title Insurance Policy that is given to the Buyer, along with the Deed at
closing. These two items together insure and guaranty a new owner of
property that they have clear and marketable title to the property.
Title
Insurance must be purchased from a title insurance underwriter that is
approved by the State of Florida Insurance Commission. Once your
title search is completed, the title insurance company will issue a
"commitment" to insure the property. The commitment will
include any title exceptions for the property as well as any requirements
that must be met for issuing the policy. Typical exceptions include
Covenants and Restrictions, easements, encroachments, rights of the state
or federal government to submerged lands or jurisdictional wetlands,
navigational servitude rights of governments (for properties fronting a
navigable waterway), and any unrecorded encumbrances or liens.
Typical "requirements" include execution of affidavits by the
Buyer and Seller that they have not done anything to cause a lien to be
put against the property, execution of a valid deed and/or mortgage to the
property, and a "Gap Affidavit" to be executed by the buyer and
seller stating that they have done nothing since the title search was
performed to cause a lien against the property. If there are any
"clouds" or "defects" found in the title search, then
the Title Commitment will require that they be cleared prior to issuance
of the policy.
HOW MUCH
DOES TITLE INSURANCE COST? The rates for title insurance are set by
the State of Florida Insurance Commission. That means that title
insurance costs the same- no matter where you purchase it from- this rate
is called the "Promulgated Rate". Most "Settlement
Agents" are also title insurance agents. Most commonly, a
"Settlement Agent" is either a Real Estate Attorney or Title
Insurance Company. Many people have a misconception that title
insurance or closing services are more expensive from an attorney's office
vs. a title company- in most all cases, this is simply not true. A
Title Agent is free to charge over and above "Promulgated Rate"
for title insurance, but very few do so. All settlement agents,
whether they are an attorney office or title insurance company, are
required by law to charge a reasonable "settlement fee".
This fee ranges from a low of $75 to a high of $250 for most settlement
agents. As a rule of thumb, settlement fees vary more geographically
than they do between attorney offices and title insurance companies- in
other words, it is incorrect to say that title companies charge lower
settlement fees than attorney offices as a general rule.
Title
insurance rates in the State of Florida are $5.75 for each $1,000 of
coverage from 0 to $100,000, $5.00 for each $1,000 of coverage from
$100,000 to $1,000,000, $2.50/$1,1000 from $1M to $5M, $2.25/$1,000 from
$5M to $10M, and $2.00/$1,000 over $10M.
Click
Here for a Chart of Title Insurance Rates.
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Other
Title-Related Charges. A typical
charge for the Title Search, which includes the abstract and examination
is $150.00. Complicated searches may require higher search fees.
If you are borrowing money to purchase, the lender may require additional
endorsements to the title insurance policy issued to the bank. These
endorsements typically always include an ALTA 8.1 endorsement, which
guarantees the bank that there are no environmental liens against the
property from the federal government. Other endorsements may include
an ALTA 5.0 (For Properties having a Homeowner's Association), ALTA 6.0
(for adjustable rate mortgages), a Navigational Servitude Endorsement (for
properties abutting a navigable waterway), and a Florida Form 9
Endorsement (for properties located in a platted subdivision).
Typically, the ALTA endorsements are approximately $25 each, and the
Navigational Servitude Endorsement and Florida Form 9 Endorsements are 10%
of the Promulgated Rate for the title insurance.
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SURVEY.
The survey is an important document that defines the boundaries of your
property, locates any structures on the property, and identifies any
easements, building restriction lines, or right-of-ways. If you are
borrowing money to purchase property, a survey less than 90 days old must
generally be provided to the lender at the loan closing. If you are
paying cash, it is up to you whether or not you choose to get a survey-
but doing so is highly recommended. Typically a surveyor will
"flag" the corners of your property so that you may actually
visit the property and identify the boundaries. You may ask the
surveyor to also flag easements or other features of the property that may
interest you. It is very important to know what you are buying- and
the survey is your connection between what is on paper, and what exists in
reality. Surveys are never required for condominium purchases, and
on many refinance transactions your lender will allow you to use an old
survey provided no additional improvements have been constructed on the
property, or no changes have been made to the outside dimensions of the
structures that existed when the old survey was done. A survey for a
typical ½ acre lot with no complications should run approximately $175 to
$250. Larger properties, or properties that make it difficult to
survey the property (such as a swamp or other water body) will require
much larger survey fees. When purchasing a property, ask the seller
for a copy of their survey and get your new survey from the same surveyor-
doing so may save you money.
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RECORDING
FEES. Many documents associated with
a real estate closing must be recorded in the Clerk of Court's office in
the county where the property is located. The clerk of court usually
charges a recording fee for filing these documents in the public records.
Once they are filed, they become a part of the "chain of title"
to the property and will appear in any future title searches on the
property. Documents that must usually be recorded include the deed,
mortgage, easement agreements, covenants and restrictions, and any
affidavits or Power of Attorney documents associated with the transaction.
Recording fees are typically $10.50 for the first page of the document,
and $6.00 per page thereafter.
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NOTE
STAMPS AND MORTGAGE INTANGIBLE TAX.
The Florida Statutes provide that if you borrow money when purchasing
property, you must pay a note stamp tax and mortgage intangible tax.
Note Stamps are $3.50 for every $1,000 of the loan evidenced by the Note
(the document where you agree to pay back the bank money on your loan),
and Mortgage Intangible Tax is $2.00 for every $1,000 of the loan
evidenced by the Mortgage (the document which gives the bank a security
interest in your property as collateral for the Note).
For more information on these taxes, you may refer to Chapter 12B-4
"Documentary Stamp Tax" of the Florida Statutes. Click
here to go to the Florida Statutes.
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ATTORNEYS
FEES. In some states, the law
requires that each party to a real estate transaction be represented by an
attorney. In Florida- it is up to you! Considering the amount
of the investment in most real estate transactions, hiring an attorney is
a wise step. In the typical transaction, the Seller pays the Closing
attorney's fee. If the transaction is a cash transaction, then the
Attorney is deemed to be representing the Seller only in the closing.
If the Buyer is getting a loan, then the Closing Attorney will be
representing the Seller in preparing the real estate contract, the
purchase negotiations, and all other matters leading up to the actual
closing. At the closing table, however, the Closing Attorney will
typically be acting as the lender's authorized representative in closing
the loan for the bank. To the extent that there is any conflict
between the Seller and the Buyer's Lender, the Attorney must represent the
lender. If for any reason the Seller decided to pursue legal action
against the Buyer's lender, the Closing Attorney would be unable to
represent the Seller against the lender due to the "conflict of
interest" rules of the Florida Bar. If the Buyer pays the
Closing Attorney's fee, then the closing attorney is deemed to represent
the Buyer up to the point of closing the loan package, at which time the
Closing Attorney is then again representing the Lender in closing the
loan. If for any reason a Buyer or Seller is uncomfortable with the
split representation resulting in the above typical situations, they may
hire a separate attorney to represent only their interest in the
transaction. Therefore, it is possible to have a closing where there
is an attorney representing the Buyer, an attorney representing the
Seller, and an attorney representing the Lender who acts as the settlement
agent and closes the loan. The typical situation in Northeast
Florida is where the Seller pays the Closing Attorney's fee and the
Closing Attorney then represents the Lender for the Buyer at the closing
table.
Most
real estate attorneys are also title agents, and subsidize their attorneys
fees by earning a commission on the title insurance premiums.
A Title Agent who is not an attorney (such as an independent Title or
Closing Company) earns the same premiums. The consumer benefits from
this arrangement in that the title insurance must usually be purchased
regardless of whether an attorney or title company is acting as the
settlement agent, and therefore a Seller or Buyer may gain attorney
representation at a subsidized rate through the title insurance premium
subsidy. Due to this arrangement, most real estate attorneys in the
Northeast Florida area are able to offer the added security and protection
of attorney closings for settlement fees ranging from $175 to $250.
For transactions that are "For Sale by Owner", a higher fee may
apply since the attorneys office may be asked to help with certain tasks
that would normally be handled by a licensed Realtor. The attorney's
office will typically prepare the sales contract for the parties, order
the title insurance and examine the title search, work with the Buyer's
lender in creating the loan package with all associated documents, order
the survey, and coordinate most other closing issues and requirements for
the settlement fee and title insurance premium subsidy. In
short, you can typically close with an attorney office for about the same
(within about $100.00) of the price to close with a title insurance
company. Utilizing an attorney gives the added insurance of
professional and experienced representation at the closing table, the
ability to immediately address legal issues and questions, as well as the
added benefit of malpractice insurance. The Real Estate Attorney is
a valuable resource to the parties in a real estate transaction, and you
should not hesitate to contact one for advice if you are involved in a
real estate transaction and have any legal questions or issues.
