While many closing fees are fixed, real estate closing attorneys will often negotiate who pays them, working with buyers and sellers to reduce out-of-pocket cash due at closing. Closing costs, or the fees paid to complete a real estate purchase, must be paid before title to the property is transferred to the new owner.
What are Closing Costs
Buyers new to real estate purchases are sometimes surprised by the unexpected fees and cash due at closing. These fees, known as closing costs, are a standard part of every real estate transaction and can represent a significant expense. On average, Illinois has the second highest closing costs at about 1.85 percent of the purchase price, or, $1,850 in closing costs for every $100,000 in price.
Closing costs include fees such as:
- Title search and transfer costs
- Real estate commissions
- Title insurance
- Pro-rated property taxes
- Prepaid interest to mortgage lenders
Lowering Closing Costs
While some closing fees can be negotiated, others cannot. For example, transfer and property taxes are not subject to negotiation and are statutorily fixed. Real estate closing attorneys, buyers, and sellers can use several methods to identify and reduce other costs, including:
- Negotiation – While sellers typically pay real estate commissions and buyers pay the remaining closing costs closing, these are subject to negotiation. If a property has been on the market for an extended period, a seller may be motivated to pay some or all of a buyer’s costs. Conversely, an exceptional deal on a property might induce a buyer to assume more of the closing costs. Successful negotiations require an understanding of the local market, the closing process, and associated fees.
- Mortgage selection – Lenders may be willing to eliminate cash paid out at closing by wrapping closing costs into the buyer’s mortgage. The costs are then paid as part of the monthly mortgage payment and not at closing.
- Timing the closing – By scheduling a closing as close to the end of a month as possible, buyers can reduce interest charges and pro-rated property tax due.
Understand the Closing Process
Using these methods, and others, advantageously requires an understanding of the real estate closing process. With advance preparation, buyers and sellers can more effectively negotiate closing costs, reduce out-of-pocket cash due at closing, and ensure that their real estate transaction is completed without delay.
