Whether you are buying or selling a home, figuring out who pays what fees can be a real source of confusion. In this very busy home market, it’s helpful to understand what to expect if you are entering a transaction. We break down some basics.
Title and escrow fees are two key areas of a real estate transaction. When you are purchasing a home, be prepared when you come to the table with the right information on closing costs.
Here’s what home buyers need to know about title and escrow fees:
TITLE AND ESCROW: THE BASICS
A title company handles needs surrounding title and escrow when you purchase a home. During the real estate transaction, the company will perform a title search to make sure the title to your home is “clear.” (no unpaid liens, errors in recorded documents, etc.) The title company will also provide separate title insurance policies for you and the lender. The owner policy will protect you for the entire length of time you own the home, and the lender policy protects the financial institution/mortgage company during the transaction.
Escrow needs include the management of the funds and documents related to the home purchase. It is important to have a third party, such as a title company, to handle financial information and legal documents to ensure privacy, security, and accuracy.
COST OF TITLE AND ESCROW FEES
Title and escrow fees are part of your closing costs. How much they are can vary by where you live, the property’s sales price, and the financial institution/mortgage company you are working with for the purchase. Typical closing costs amount to about 2% -5% of the purchase price.
Most title companies have a formula addressing how to calculate title and escrow fees. There is a typical base rate to start with, and then a percentage rate per thousand dollars of the purchase price is added.
With title insurance, in particular, additional variables that may affect the cost include state regulations, negotiations with the seller, negotiations within full components of the policy, and any available bundle discounts. Some states have regulations on title insurance policies, including Florida. Homebuyers work closely with the title company in deciding the parameters of the title insurance for your particular property. Around $1000 per policy is a standard average on many home sales.
These are one-time fees that are typically submitted on the closing day.
WHO PAYS?
The buyer pays for the bulk of title and escrow fees during a real estate transaction. The seller will have to pay a certain, usually smaller percentage of the overall closing costs, but it is not uncommon for the buyer and the seller to have some negotiations regarding closing costs.
DISTRIBUTION OF TITLE AND ESCROW FEES
When it is time for the much-anticipated closing day, an escrow officer will distribute the fees and any additional closing costs. These can include:
• Taxes and other fees to the county
• Charges to third party providers including title insurance
• Real estate commissions to the agents
• Loan fees to the financial institution
• Profits from the real estate transaction
Once the funds are distributed, and the closing is complete, the title company that handles the escrow will ensure that all the documents are correctly recorded to the county and any other appropriate local agencies. The official recording is very important because it secures the new homeowner’s legal rights to the home and property.
OTHER REAL ESTATE TRANSACTION FEES
Title and escrow fees make up the majority of fees (outside of the purchase price) when you buy a home. Depending on the property and the home buyer’s needs, other costs may be a part of a completed real estate transaction. Appraisal fees are commonly needed to evaluate the home and ensure it is worth the selling price and to determine the market value.
Additional fees that are often included depending on where you are in the country are:
• charges for a credit report,
• an assignment recording fee to create the official record,
• a closing protection letter (CPL) that covers the disbursement of the funds in the purchase, and
• flood certification
Yes, certain fees are unavoidable but know that some are negotiable. Working with a respected title company, you will receive transparency in communications throughout the real estate transaction to help you through it all.
Ideal Title Agency is committed to working with all participants of the settlement services transaction to help ensure that information is kept as secure as possible. By knowing the threats, asking questions, and practicing good security hygiene, they can work with clients to protect transactions.
Ideal Title Agency continues to offer advice and broad context for real estate agents, buyers, and sellers. Contact them at info@idealtitleagency.com or check out Facebook: facebook.com/idealtitle .
