Sellers, too, have costs when they sell their homes. Generally they come as a surprise at the closing table. I thought it might be worthwhile to take a look at what Sellers should expect to come out of the proceeds on their behalf and why their net proceeds will probably be less than they anticipated.
If a real estate broker is involved, the Sellers will have to pay that commission at the closing. This will reduce the proceeds paid directly to the Sellers.
Whenever there is a mortgage on the property the Sellers will have to pay it off. Their attorney should have what’s called a “Pay off Letter” at the closing. The amount to be paid is invariably greater than the Sellers thought it would be. Let me explain why.
Every monthly payment is divided into payment of principle and interest. The bulk of the payment goes toward interest. Here’s the tricky part. When a payment is made, the interest included is a payment of interest in arrears. In other words, January’s payment reflects the interest for December. If the Seller has gotten a statement from his bank with his payment coupon, the statement tells the Seller the balance of principle owed as of January 1st. But December’s interest is still owed as well. If a closing takes place on January 10th, and the Seller has not already paid his January mortgage due (which is often the case since there is no late payment penalty if paid before the 15th, and, just to make matters more confusing, the payment is often not posted in time if the Seller has made it, and so it is easier to make the payment at the closing) then he owes the principle amount due plus forty on top of the amount shown to the Seller in his last statement and the amount collected to pay off the mortgage becomes a topic of discussion. I try to prepare my clients ahead of time, but the closing table conference invariably occurs nonetheless.
Sellers pay certain transfer fees which are more or less according to the location of the property. In all of New York State there is a transfer tax (also called a fee for the deed stamps) of $2.00 per $500.00. For instance, a $200,000.00 sale will have a transfer tax of $800.00. This amount is reduced, incidentally, if the Purchaser assumes the Sellers’ mortgage. The tax in that instance is paid only on the amount over the mortgage amount, so that if on the same $200,000.00 sale the Purchaser assumed a $100,000.00 mortgage, the transfer tax would be paid only on the $100,000.00 above the mortgage, and would therefore only amount to $400.00.
If the property is located in the City of New York, the Sellers will have to pay an additional 1% in a city transfer tax, so that, in the case of the $200,000.00 sale the Seller will pay an additional tax of $2,000.00. This is not reduced if the Purchaser assumes the loan. In this case, then, the Sellers will pay a total of $2,800. Or $2,400. On the sale, depending upon whether or not a mortgage is being assumed.
If the Sellers have a mortgage to be paid off, there will be a pick up fee payable to the Title Closer of about $150.00. There will also be a charge to record the satisfaction of mortgage which is usually under $100.00. There are additional pick up fees if there are other liens and/or judgements recorded against the property as well as fees for the cost of recording those satisfactions. The amount owed for the liens and/or judgements will also be taken out of proceeds, thus again reducing the Sellers’ net.
If there is no mortgage to be paid off on the property, and no other liens and/or judgments to be satisfied, the Sellers will usually pay an attendance fee to the title closer of about $100.00.
Now, let’s see. The Sellers have satisfied their mortgage, paid the broker, the title company and the appropriate taxing authorities, only one thing is left. The Sellers have to pay their attorney. Don’t forget to thank him or her for a job well done.
