OPINION

Understanding fees means fewer real estate surprises

Stuart Jeffares
Guest Columnist
Stuart Jeffares

If you have ever bought or sold a house you probably already know that the price of the house is not the only figure you are likely to see on your closing statements, but what are all those other costs? Let’s make it a bit more manageable by dividing the conversation into two areas: real estate associated costs and financing related costs. Because of the sheer number of potential charges, I will only discuss the most common real estate closing expenses in this article.

First, lets look at pro-rata costs. The most common pro-rata costs are property taxes and association dues. The important thing to understand with pro-rata costs is that you are essentially reimbursing the seller for costs that they have paid in advance but will not benefit from. In some communities trash collection could also be a pro-rated expense.

Essentially, the opposite of a pro-rated cost is an escrowed cost. The water escrow is the most common. The water escrow sets aside money for costs incurred but not yet paid. The escrow is used to settle the seller’s portion of the water bill with any remaining portion refunded back to the seller.

Government costs include transfer tax and deed recording fee. Real estate transfer tax is an assessment imposed by both the State of Michigan and the county in which the property resides. It is charged as a percentage of the sales price and the seller is responsible. In most cases, transfer tax in Michigan is $3.75 per $500 of the sales price for the state portion and $.55 per $500 for the county. Recording fees are charged by the county to enter the deed into public record. An interest in real property (real estate) must be recorded for it to be valid. The amount of the fees vary by county, however, Oakland County’s recording fee is $30 per document.

Title related fees vary by company and are related to being able to deliver a clear title to the purchaser. A clear title means that there is no question as to legal ownership of the property. The cost most directly tied to this assurance is the title insurance that insures there is clear title. The title company will also pass along charges for acquiring, via overnight delivery, a precise payoff amount from the seller’s lender and a fee for the wire transfer from the buyer’s lender. Document preparation fee covers costs to prepare the documents for the closing. A relatively new fee that is becoming more common is a Tracking Fee. This fee is charged to cover the verification by the title company that the seller’s mortgage was in fact discharged subsequent to the receipt of the required payoff amount. Finally, it is commonplace for the title company to charge a fee to facilitate the actual closing.

The last major source of real estate associated costs are those linked to the brokerage. The most obvious is the commission due to the broker for satisfying their contract with the seller by finding a willing and able purchaser. However, most brokerages have an additional fee today that may be tagged with a variety of different names including administrative fee or compliance fee. This fee helps to cover costs associated with fulfilling the ever-increasing number of regulatory requirements. In the local area this fee runs around $200-$400.

Of course, there are other less common fees existing. If you are unsure of your potential closing costs ask your agent for a “net sheet” that breaks down the different costs that are added to/subtracted from the transaction amount to arrive at a “net” estimated amount required/received at close. The more you understand the various closing fees the less surprises you are bound to have during your transaction.

Stuart Jeffares is a Birmingham-based Realtor and residential builder who writes a periodic column about the industry. He welcomes feedback at: TheJeffaresGroup@gmail.com