This Small Request Pays Off Big Time When Buying or Selling a Home

So you’re ready to buy or sell a home — easily the most significant financial transaction in your life. You’re represented by an experienced Realtor and you’ve negotiated a sales price, signed the contractual agreements, and entered the escrow process.

You rightly congratulate yourself on surmounting the major transaction hurdles. Now, you’ll plunge into the due-diligence part of the process — property inspections, document reviews, and possible repair requests.

As a Realtor, I have a secret to ensuring a smooth, drama-free escrow: providing buyers and sellers with a “settlement sheet” long before the clock ticks down to the close of escrow.

Known respectively as a seller’s net sheet and a buyer’s net sheet, these closing statements itemize amounts each party pays or receives in a property transaction. They’re prepared by the escrow officer and presented to both parties in the days before the transaction wraps up so that everyone is apprised of the final costs. Rarely are they provided early in the process … unless you have a proactive Realtor or know to ask for one.

When you are privy to these expenses early on, you won’t be shocked by the myriad, often arcane, costs associated with property transactions. If you’re a first-time homebuyer, it clarifies the costs and mitigates the shock of unexpected expenses. “I didn’t realize we’d have to pony up four months of property taxes!” “What’s a documentary transfer tax, anyway?” 

If you’re the home seller, know that your costs are considerably higher than the buyer’s, so it behooves listing agents to prepare you for the formidable figures. The biggest line item? Commission fees, which are traditionally absorbed by the home seller. The national average is 5 to 6 percent of the sales price, and that pricey item tops the expense list. Then add on 1 to 2 percent for closing costs, perhaps on top of prep and staging costs. It’s easy to see how the final tab could reach 8 percent of the gross sales price — an easily jarring amount.

“I always prepare a seller’s net sheet as quickly as I can for my listing clients whose closing costs are much larger than the buyer’s,” says Mary Pat Anderson, a Palm Springs agent with HomeSmart Professionals. “An itemized list of the home-selling costs averts any last-minute unhappiness, and my clients always appreciate this financial heads-up.” 

So, what exactly do these two documents detail? Let’s start with the more daunting seller’s net sheet. Components include the following:

1. Sale price: The agreed-upon purchase price representing the gross amount.
2. Mortgage payoff: Any remaining loan balance.
3. Real estate commission fees: A percentage of the final sales amount divided among both Realtors and their brokerages.
4. Escrow fees: Each party pays half for this essential third-party facilitator.
5. Title fees: Seller pays the primary title insurance policy protecting the property against claims on the deed. Title companies also handle and wire the monies.
6. Prorated property taxes: Usually paid on a pro-rata basis depending on the closing date. Because taxes become a lien on property the January before the tax year (July to June), any portion already paid will be credited to the seller.
7. Transfer taxes and recording fees: Varies from state to state. (In California, the tax is $1.10 per $1,000 in value. The national average is $791 total vs. the Golden State’s $1,467.)
8. Home warranty: Invariably offered as a selling incentive to protect buyers against unforeseen repairs. They easily range from $500 to $1,000.
9. Repairs and credits: Includes a termite inspection (usually around $100) and possible remediation, plus any repair credits arising from home inspection.
10. Miscellaneous costs such as attorney fees, homeowner association fees (HOAs), or a Natural Hazard Disclosure document, which is required in California transactions.

It’s a daunting compilation and even the small costs — the electronic doc fee, archival fee, notary fee, and overnight fee — add up quickly. There are many moving parts and players in this effort.

What do you pay as a buyer? Here’s a standard breakdown of the buyer’s net sheet.

1. Purchase price.
2. Loan amount (and loan origination fees).
3. Appraisal fee required by the lender, typically between $500 and $800.
4. Title insurance: A smaller insurance policy protecting the lender’s investment.
5. Home inspection report (price dependent on location/home size).
6. Homeowners hazard insurance policy (required by lender).
7. Escrow services.
8. Prorated expenses such as property taxes.
9. Credits: If seller made monetary concessions.
10. Additional closing costs such as credit reports/notaries.

These empowering tools will give you control over the buying and selling process and ensure a pleasant experience.