THE ULTIMATE GUIDE: THE TRUE COSTS OF SELLING A HOME IN SOUTHERN CALIFORNIA
Before we dig in, you should know that we have compiled internal data from hundreds of transactions and checked and cross-checked the figures below to make sure we have an all-encompassing and accurate list of the most of the common costs a seller faces when selling a home or rental property in Southern California. The contents of this page not only include standard closing costs, but other costs that are often overlooked by sellers. We continue to update this overview in an effort to be as accurate as possible with all statements and figures, however, some items may have changed or differ from customs in your local market and you should always contact a local real estate professional for the most accurate overview.
If a property fits our buying criteria, we are willing to work with a seller on any of the strategies or options outlined below. When working with us, sellers don’t pay any commissions, fees, transfer taxes, etc. - we pay all of the closing costs. We can close on a day of the seller’s choosing, and if desired, in as little as 5 days from an accepted offer. We buy properties 100% as-is and never ask the seller to make any repairs or improvements. We even buy properties with rooms full of leftover items that sellers don’t want to deal with. If a seller has other wants or needs, we do what we can to help, regardless of the situation. If your property fits our buying criteria, we can have a no-obligation offer for you in 48 hours. To get started just fill out the short form on the righthand side of this page and we’ll get back to you shortly. Feel free to take a look around our site to learn more. We’d love to hear from you!
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Below is a list covering the typical closing costs that show up on the seller’s closing statement along with a handful that don’t, but take dollars out of a seller’s pocket just the same. When all is said and done, the costs below typically add up to 7.5% to 10% of the sales price. This information does NOT include taxes owed to the government or state due to any gain from sale. If you think you are facing a large gain, we have some creative ways for you to legally defer taxes and create a long-term monthly income stream. If this interests you, just give us a call.
Closing Costs and Other Costs To a Seller in a Typical Transaction
2. Escrow Fees
3. Title Insurance
4. Termite Inspection
5. Addressing Items that Show Up On Buyer Inspection Reports
6. Home Warranty
7. Documentary Transfer Taxes
8. Natural Hazard Disclosure
9. HOA Related Fees (If Applicable)
10. Pre-Sale Repairs and Upgrades Recommended by Agents
11. Holding Costs
12. Other Items that Impact a Sellers Net, But Aren’t “Costs” Incurred
13. Miscellaneous Location-Specific Items
14. Your Time!
In Southern California, the real estate commissions for both the listing agent and selling agent are paid by the Seller. Although slightly counter-intuitive, the “selling agent” is the agent representing the buyer. The commission amount is typically based on a percentage of the sales price and is commonly 5% to 6%, however, this figure varies slightly based on price range and location. Typically, the commission is split 50/50 between both agents (commissions are actually paid to the employing brokers with a net amount paid out to the agent after the brokerage company takes it’s cut).
Example: An agent and seller agree on a 6% commission to sell a home listed at $500,000. Assuming the home sells for the list price, and that another agent is representing the buyer, the total commissions paid by the seller will be $30,000 ($500,000 x .06). $15,000 will be paid to each broker.
Some listing agents will offer to list a property with a reduced commission if they are able to find a buyer that they represent in the purchase. When this occurs, the listing agent becomes a “dual agent” and the fee may be reduced to 3% or 4%. Dual agency is rare in residential transactions.
In the majority of transactions in Southern California, sellers and buyers pay their respective escrow fees, most of which, are based on the purchase price. Like most professional services, the Escrow fees will vary depending on which company is selected. As a rule of thumb, a base fee of $150 to $350 is charged regardless of the sales price, and an additional $1.50 to $3.25 per thousand dollars of the sale price is added.
In additional to the escrow fee, other miscellaneous fees include documentation fees ($50-$200), wire fees ($20 to $50), archive fees ($50 to $150), and fees for each loan that must be paid off prior to close of escrow ($40 to $70).
The Seller will normally pay to provide the buyer with a CLTA Homeowner’s Title Insurance Policy for the protection of the new buyer to insure a clear title with no liens from individuals, companies, government entities or claims of ownership by others. This title policy will also provide information on any existing easements on the property. These are rights retained by others to enter onto your property, and usually relate to utility companies which may have sewer, phone or electrical lines running under the property. The title company will typically have exclusions to what they will insure against, some of which are negotiable, but the general intent is to insure the new seller against future, currently unknown claims that arise on title that may affect their interest.
The price of this title policy varies with the purchase price. The base policy fee is typically between $500 and $1,000 plus anywhere from .15% to .35% of the purchase price (if doing the math on a calculator multiply the selling price by .0015 or .0035). A sale price over $750,000 will likely be on the low end of this range. These costs are reduced by about 15% to 20% if a title policy has been issued to the seller within 5 years. Other miscellaneous charges include sub-escrow and wire fees, if the seller has an existing mortgage which typically cost between $100 and $250.
Most homes in Southern California have active wood eating pest infestations. An article by the L.A. Times reported 60% to 80% of homes are infested and 90% (!) of the inspections that show an infestation are the result of a home sale transaction.
In a typical sales contract in Southern California, a termite inspection and work needed to be performed for Termite clearance is the seller’s responsibility. The inspection itself isn’t too pricey, usually between $100 and $300, however, the damage control and pest remediation can be quite costly. Some of the major costs that are common include: replacing major roof components, tenting the house, accessing and replacing major structural members, and removing and replacing drywall and roofing material after repairs have been made.
If a buyer is buying the property with a loan, almost all lenders will not fund a loan until they see a clear Termite report. What this means for sellers is: Even if you are selling a home “as-is”, most advisers will recommend the seller cover this cost.
Addressing Items that Show Up On Buyer Inspection Reports
Most purchase contracts used in Southern California have a clause that states the property is being sold “As-Is” regardless of what is discovered in these inspections. While this is an appealing concept for a seller when they enter first enter into a contract, what often happens, is a buyer hires an inspector whose job it is to find flaws...and they usually find many that come as a surprise to sellers.
The two most common inspections are general property inspections and termite inspections and more often than not, these reports reveal items that require immediate attention and cost a seller thousands of dollars to fix. These findings usually include items nearing the end of their useful life, broken items, or items that do not comply with current code. When lenders are involved, inspections are even more thorough, and if one of a wide range of common issues is found and it impacts habitability, even slightly, the property may be a no-go for that lender and other lenders.
In our experience, the findings on inspection reports usually come as a shock to a buyer and they panic. They conclude that they need to mitigate the bad news either by receiving a price reduction or having each and every item fixed. Most buyers and their advisers (agents, attorneys, family, etc.) will recommend the buyer get a credit from the seller for the cost to replace or repair these items, or force the seller to replace all of the items prior to completing the purchase. This is almost always a point of contention because not only does it cause major delays, but the costs to fix the problem quickly get out of hand and need to be done to everyone’s satisfaction. In cases where fixes are major, the city may have to get involved and major systems such as plumbing or electrical may have to be brought up to current codes and then inspected and approved by the city, which is yet another cause for delays of days, weeks, or months.
A Home Warranty policy is typically good for one year and covers any necessary repairs for items such as heating and air conditioning systems, plumbing and electrical systems and appliances. This policy is not required to be purchased by a seller, however, most buyers expect them and most agents will advise their buyer-clients to request them from a seller. These warranties generally cost from $350-$800.
Documentary Transfer Taxes
In most areas of Southern California home Sellers pay all of the Transfer Taxes. County taxes are approximately $1.10 for $1,000 of the sales price. Transfer taxes at the city level vary widely and can greatly exceed County taxes.
Natural Hazard Disclosure
A Natural Hazard Report is a 3rd party report required in every home sale transaction. They typically cost between $100 and $150 and cover items that brokers and sellers are legally required to disclose if the property being sold lies within one or more state or locally mapped hazard areas. The law specifies that the six (6) required hazards be disclosed on a statutory form called the Natural Hazard Disclosure Statement (NHDS). Some of the required risks include: flood hazard area, high fire area, earthquake fault zones and Megan’s Law disclosures.
HOA Related Fees (If Applicable)
If the property is part of a Homeowners Association (HOA) there are almost always fees charged by the HOA for document preparation and work required to change records to reflect the new seller. The seller is required to provide HOA documents for the buyer’s review, including the CC&Rs (Conditions, Covenants, and Restrictions), board meeting minutes, and articles of incorporation. The HOA charges a document preparation fee to assemble this paperwork. When all is said and done, these items can cost a seller between $250 and $700.
Pre-Sale Repairs and Upgrades Recommended by Agents
Making some repairs and/or upgrades to a house prior to putting it on the market make sense from a financial standpoint. The work done to the property may attract more interested buyers and prospective buyers may pay an increased sales price that covers the cost. One could also make the argument (after the fact) that a certain upgrade was the reason a specific buyer paid what they did.
In our experience, before spending a dime on anything, a seller should do extensive research on recent sales in the area to determine the demographic of the most likely buyer for their property. Once they are somewhat confident in who will be buying the house, they can make an educated guess as to the what repairs or upgrades make sense, prior to marketing the house for sale.
Most buyers have very specific taste and they would prefer to their own products, paint colors and fixtures. Most buyers in today’s market also appreciate the opportunity to “make the house their own” by putting in some sweat equity. Regardless of what a seller elects to do with the property, items that need attention will end up costing the seller in net proceeds, whether they do them or a new buyer pays less to compensate for their near-term out of pocket costs.
It usually takes between 75 and 120 days for a house to sell, starting from the time a seller makes the decision to they want to get rid of it. Almost 40% of properties that go under contract with a buyer end up falling apart for one reason or another, which can add an additional 45 to 60 days to the holding period.
During this time, the seller continues to pay mortgage interest, property taxes, HOA dues (if applicable), insurance, the cost to run the utilities, etc. These costs are often overlook but end up being the second highest dollar amount, behind real estate commissions.
Other Items that Impact a Sellers Net, But Aren’t “Costs” Incurred
When a seller is trying to calculate their net proceeds when all is said and done there are a few major items that aren’t costs but are pre-existing financial obligations that are tied to the seller’s ownership and are typically paid off directly out of the escrow account using the buyers proceeds prior to close of escrow. That was a mouthful. Here are those items:
Items for Lender being paid off including statement fees, reconveyance fees, and prepayment penalties (if applicable)
Other Liens (Voluntary or Involuntary)
Prorated Property Taxes
Prorated HOA Dues
Miscellaneous Location-Specific Items
Seemingly every year, new regulations and rules pop up that require a seller to get clearance from a certain governing body or environmental regulatory agency if their property is located in a certain area (possibly county, city or natural boundary). If an seller cannot get clearance, or a sign-off that a future seller will be safe from harm, they may be required to provide a buyer with insurance to cover the possibility of future loss. For example, for houses in a “Flood Zone”, a seller may be required to get a Flood Certification which can cost close to $1,000 and based on the findings, may have to also pay for a buyer’s flood insurance policy. In Los Angeles County, a seller is required to pay for a Retrofit Certification, which ensures that certain items are installed properly to handle earthquakes. Like any other inspection, the results may lead to a seller paying thousands of dollars to comply with requirements.
Yes, your time is worth money. How much? That is for you to decide, but you should expect to spend a minimum of 40 hours on a typical sales transactions. This number can increase quickly depending on how lucky you are finding the right buyer and how many weeks the property is on the market. Some of the most time-consuming tasks include: agent interviews, meetings to go over paperwork, property showings on weekends, visits to the escrow office, coordinating with inspectors and/or subcontractors to make repairs or improvements, etc.
So there you have it! We hope this helped to provide you will a better understanding of almost all of the costs you will face in a typical transaction. If you have ANY questions or want to see if an offer from us might make sense to you, just fill out the form the righthand side of this page or give us a call now!
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