Know Your Closing Costs Or Else A Shark Will Eat You

Homebuyers looking to save money will try to buy without an agent and deal directly with the seller’s broker, but beware, they feed on your weaknesses, ignorance, fear, and money.

Recently my fiancee and I were making offers on a house. As part of the negotiations we tried to see if the seller would cover the closing costs. The seller’s broker, who up until this point had been really cool and on the level, asked which costs we were talking about. I mentioned transfer tax. NYC charges 1.425% of the sale price, and New York State charges $4 per $1,000 of price. Since it was odd that I even mentioned this, the broker immediately honed in on the fact that I didn’t have all the closing cost terminology under my belt and hemmed and hawed about how that was typically a buyer cost and the seller wouldn’t pay it. We didn’t come to terms on the final price and perusing the broker’s site later we found a whole section on closing costs, and on the broker’s very own site it listed transfer taxes as a seller cost.

We didn’t get jacked, but we could have if we hadn’t done our research, which is why this Good Morning America story, “Save Thousands on Closing Costs” is pretty valuable. Check it out if you’re thinking about buying, or if you’ve already bought and want to see if you were smart or not.

(Photo: egarc2)

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  1. Radi0logy says:

    All I know is that when we closed, our “estimated” closing costs and “actual” closing costs were off by about 3 thousand dollars. Of course, not in our favor.

    They will screw you if you can and there’s not much you can do about it.

    • AnxiousDemographic says:

      @Radi0logy: There is one very important thing you can do: Cancel the transaction on the spot. The fact is that an estimate off by that much is certainly bad faith.

      The people you are dealing with are counting on your reluctance to cancel, and so they try to take advantage of you by pulling last minute crap. A willingness to walk away shifts the power back to you, because you’re the one with the money they want, that’s how they make money.

      Now I’m not a lawyer or anything, but I did stand up during a re-fi closing when an extra $1000 showed up, and they followed me out the door offering to “waive” the suprise fee. Only then did I return to the table.

      • rpm773 says:

        @AnxiousDemographic: If I’ve plunked down part of my down payment as a deposit already, though, I’d probably want to know what my options are on getting it back before getting into a poker match like that at the closing.

        • AnxiousDemographic says:

          @rpm773: I agree 100%, know your options before you go into the closing. My experience was a re-finance, so deposit was not an issue. I had a laywer look over the paperwork and called her during the closing when the bottom $$$ amount was different.

          I think having your own lawyer is an absolute must for what is typically the largest purchases we ordinary people will ever be undertaking. I do mean “your own”, a bank’s lawyer is not the same, in fact, worse than no lawyer at all.

      • ariven says:

        @AnxiousDemographic: Yup, they tried that on my re-fi this year. It started at over $2k, and in stages of about $500 a shot kept getting lower as I told them on each call that “sorry, I can’t afford to pay that, thank you but go ahead and cancel”.. after 2 weeks they got the hint and went with the originally agreed on zero cost.

    • princesspineisendangered says:

      @Radi0logy: You are supposed to get a final GFE and a preliminary HUD 24 hours prior to the closing. APR fee must be within $150.00 of the GFE.

      • edesignway says:

        @princesspineisendangered: I think the new ruels are now 72 hours. When I closed last month there were a slew of issues that came up on the day of closing. I told the lender and my realtor to stick it and threatened to bring in my lawyer. Once they took me serious, re-worked everything, they said by law 72 hours we could close because of HUD and GFE rules.

  2. VaMPKiSS1 says:

    An important thing to note about New York Transfer Tax- often when buying new construction from developers, they try to pass on this seller’s cost to the buyer. In this kind of flat market you can typically push that back onto the developer where it belongs, but that’s when it’s important to keep an eye out for that. On existing construction it’s usually a seller expense. But if you get it pushed on you from a developer when you first buy, you’ll end up paying twice if you move later!

  3. Tim says:

    It always makes me chuckle when someone tries to jack the executive editor of Consumerist.

    You should pull a “Do you know who I am?” next time someone tries this.

  4. chortik says:

    grammor check: “could of”

  5. fonetek says:

    I got about 3 grand back at closing. I loved my attorney!!

  6. Cheri says:

    We worked with a buyer’s agent when we bought our first house. He told us our exact closing costs, down to the penny. We had a cashier’s check for that amount. However, somewhere along the line, someone flip-flopped the change. There’s a big difference between $xxxx.18 we had the check for and $xxxx.81 that was expected. No one realized this until the papers were all signed. The sellers were okay with losing out on the $.63, but the lawyers were uncomfortable with that. So everyone in the room was going through pockets and purses to get the exact change. It was very funny. I think the last penny came from the receptionist.

    • Snakeophelia says:

      @Cheri: I was in the same boat when I bought my first house years ago. I was going to arrive at closing with a check for $xxxx.00, and that was all I had. Luckily, no one fudged the change, or I would have been out in my car looking under the seats, trying to scrounge up some pennies. That check was literally my last cent until the next payday.

  7. calchip says:

    You should file a formal complaint with the real estate board in your state. If indeed it is normal for the fee to be paid by the seller, then the agent lied to you and that is a violation of his real estate licensing.

    Additionally, in most states, the real estate agent has a responsibility to represent both the buyer and the seller fairly and equitably. In many states, if the buyer has no agent, the agent for the seller has a fiduciary obligation to treat both buyer and seller honestly and fairly.

    I have been very successful at working with a buyer’s agent (who, by regulation, represents *only* your interest, and has a fiduciary responsiblity to you, even though his/her commission is paid by the seller) and having the agent rebate a portion of his/her fee back to me after the transaction. On my last home purchase, the rebate to me was $5,000.

    I also carefully review the closing estimate, and then, additionally, insist on reviewing all the loan and closing documents 48 or 72 hours before closing; I’ve been able to get thousands of dollars removed simply by bitching about them. Unscrupulous lenders will add all sorts of bogus fees… “appraisal review fee ” of $500, “document preparation fee” of $300, this sort of thing. All of it is BS and all can be removed if you stand your ground.

    • oneliketadow says:

      @calchip: While I’m sure the agent should represent the buyer and seller equally, I think you’d be wise to consider who is getting paid by whom. If you’re not paying them, they’re not working for you.

      • GearheadGeek says:

        @oneliketadow: Buyer’s agency is a special case on that one. They are in fact being paid by the seller, but if a buyer they represent doesn’t buy the property, they get nothing. This leads to an ethical gray area (filled with real estate agents) in which they do have some incentive for you to close the deal whether or not it’s truly in your best interests, but they have to at least represent your interests well enough to keep you in the game.

        When I bought my first house, for example, my agent wanted to set the price range of houses we’d see by “doing the numbers” to see how much I could borrow. As it happens, one of my degrees is in finance and I had already “done the numbers” including those all-important budget numbers, and knew how much I could comfortably afford to spend a month (significantly less than a mortgage company was comfortable with me spending a month.) I humored him to a point, and he was very surprised when I told him the numbers while he was still clicking away at his desktop calculator. He learned quickly though, and eventually did a good job of finding what I told him I wanted.

      • calchip says:

        @oneliketadow:

        In California, the real estate regulations are very explicit that in a single agent transaction, the agent must represent the interests of buyer and seller equally.

        Now, 99.999% of agents I’ve met in California don’t know the regulations, don’t follow them, lie their asses off about everything, are lazy as fuck, and do as little as humanly possible… but that’s what the law says :)

    • webweazel says:

      @calchip: insist on reviewing all the loan and closing documents 48 or 72 hours before closing;

      HAHAHAHA! That’s funny!

      Our first house, we went to closing, and the broker said she didn’t have all the paperwork ready and we would have to reschedule. We said, okay, but if there’s any costs or fees for YOUR screwup involved, YOU’RE paying them. This nimrod was madly faxing them over as we were sitting at the table. (And we spoke to her EVERY DAY for a week beforehand to make sure it was a go.)

      Second house, they couldn’t execute the idea (their OWN IDEA, might I add) of faxing copies to me, in a different state at the time, having me sign and notarize the paperwork and overnight it back to them, so my hubs could go to the closing table the next day. We even had a power-of-attorney already filed, WITH the closing attorney, just in case. At the last possible minute, I had to pack up the dogs, cats, baby, and drive 16 hours OVERNIGHT to make it to the closing table on time. Made it with 1/2 hour to spare. Then, the paperwork showed up 1/2 hour late into our closing time. (Thank you, Wells Fargo.)

      We asked for copies a few days early for both of these, and they flatly refused. They said the paperwork will not be finalized until the DAY OF closing, as they had to do a full pull credit check that day. To make sure we didn’t buy three brand-new Cadillacs the day before closing. Yes, one of them actually said that.(!)

      But at least the Good-Faith estimates did not change on us at the last minute. Some actually went down!

      And WHO exactly are we supposed to negotiate these padded fees with and ask for receipts from? I’m not grasping the “who” from the article.

  8. nnj says:

    Potential corruption in housing? Nooooo. Always let the buyer beware…even if the house has granite counter tops, wood floors and stainless steel appliances.

    Thanks for giving the heads up for all possibly uninformed potential buyers out there.

    • oneliketadow says:

      @nnj: Blasphemy! My wife makes me watch the Home Depot Porn Channel all weekend and therefore I know that those 3 things (granite, hardwood, and stainless) are all that matter in a house.

      That’s the main reason why we redo our counter-tops and floors, and buy new appliances every 4 years: I want to be stylish without wasting money on stupid stuff like replacing shingles.

  9. GearheadGeek says:

    Is there really any savings to be had by an unrepresented buyer? Since the seller is paying, and has agreed to pay a certain percentage of the sales price to the seller’s agent (who is obliged to share that with a buyer’s agent) all you do by buying without your own agent is pad the pockets of the seller’s agent.

    The Realtors have used their lobbyists and the exclusionary, anti-competitive structure of MLS to make sure they get their pound of flesh on nearly every sale. Since the buyer’s agent is paid by the seller, I think smart buyers should have an agent.

    • rpm773 says:

      @GearheadGeek: There sure is. You don’t have to get your agent a card with a thank you gift after the closing!

      Actually, what you wrote is what I thought as well. We had to an sign an agreement stating we would cover up to 3% of the cost of the house as payment to our agent in the event the seller’s agent didn’t. But as it was explained to us, usually the seller’s agent shares either 2.5% or 3% with the buyer’s agent. So the risk was just having to cover .5% difference, which in the end we didn’t have to do.

      • GearheadGeek says:

        @rpm773: I have generally considered 3% of the sale price of the house more than adequate thanks for the agent’s services. ;)

        • Sudonum says:

          @GearheadGeek: Ditto, if’s its a good agent, especially for a first time buyer. And if it’s not a good agent then find yourself a good one, which is especially easy for a buyer, especially in this market.

    • QuantumRiff says:

      @GearheadGeek: My dad was a real-estate agent when I was born, 31 years ago.. He hasn’t worked in the industry in probably 27 years.. but he has always kept his license. Last time he bought a house, he found it himself, and contacted the sellers agent. That sellers agent was insistent on closing that he get 6%, since he represented both parties.. He never did jack for my dad, and he whipped out his license and saved 3% on a $500,000 house..

  10. casualreader says:

    In NY state, the ‘buyers’ agent is a myth. All agents are paid from the sellers commission (usually 6%). If deal directly with the sellers agent, all it means is that he/she gets the total commission instead of splitting it with another broker/agent.

    Both agents are paid by commission when the sale is completed, so nobody is on the sellers side.

    Almost always worth the cost of having an attorney (the only one looking out for your interests in case something goes wrong)

  11. solareclipse2 says:

    Sounds like your realtor was a little off on the estimation. Our realtor was extremely close on the costs, our actual costs was less than his estimate which is always pleasant but our realtor has been doing this for a long time so he has things pretty much down to a T.

  12. AlexJP says:

    Relief is in sight. New regulations effective January 1, 2010 mean that closing cost estimates now need to be much more accurate and spelled out on the good faith estimate.

    Here is the form lenders need to fill out for you: [www.hud.gov]

  13. Cant_stop_the_rock says:

    When you negotiate to have the seller pay the closing costs, you’re essentially giving up some room to negotiate on the price of the house. The bottom line is what the seller cares about – whether it comes out of cost of the house or the closing costs is irrelevant to him. Because of this you’re effectively rolling the closing costs into your mortgage; it’s generally a sign that the buyer isn’t in the proper financial situation to buy the house.

    You should know what closing costs you’re expected to pay, but you should also know that if you need someone else to pay them, you may be making a poor financial decision.

    • GearheadGeek says:

      @Cant_stop_the_rock: That helped fuel the housing frenzy… people buying houses they couldn’t afford, essentially padding the prices and rolling those expenses into the mortgage. It *HURT* to buy my first house, even with my parents chipping in for some of the costs as a gift to me, because I didn’t want to finance any more than I had to (and was not quite a year out of grad school when I bought it.) It was worth every penny, but I bought it to be my home rather than a rung on the housing ladder. I’m happy I sold it to friends who are raising their family there when I had to move for work… and 15 years after buying that right-sized 75-year-old house, I live in another that’s just 30 years younger and only slightly larger in which I have actual equity. Looking at your house as a home you can afford and enjoy leads to much more happiness than looking at it as a piggy bank.

    • LastVigilante says:

      @Cant_stop_the_rock: The fiancée and I are buying our first house, and we requested the sellers cover the closing costs of $3000. Basically they’re just giving us $3,000 cash back at the closing table, our closing costs are going to be under that, so we just pocket the rest. In this market it is pretty much assumed that the sellers cover closing costs. They are also paying for the home warranty to cover the appliances for 1 year. Either way, it didn’t inflate the final agreed upon price, we came right in around the same prices as other recent comps in the subdivision, which we would also assume included the closing costs from the sellers as well.

      Its also worth noting that your mortgage bank’s closing costs are negotiable as well. You can usually save a few hundred there by talking down their usually inflated “underwriting fees” or “application fees” as well.

      • Cant_stop_the_rock says:

        @LastVigilante:
        The “market” doesn’t matter – if they were willing to give you $3000 back at closing, they would have been willing to take $3000 off the purchase price.

  14. humphrmi says:

    I agree, I cannot stress enough working with a buyers agent. And the sellers agent & buyers agent are required to split the agent fees at closing, which are paid by the seller (at least, in Illinois.) So it behooves buyers (again, at least in Illinois) to have a buyers agent.

    Some For-Sale-By-Owners refuse to pay buyers agent fees, and in those cases you have a choice of either pressing them harder to pay them, or pay your agent out of your own pocket.

    Once you have a buyers agent and agreement as to compensation, you must rely on them (and they should be competent to provide) closing fees. They will usually only estimate for you, because some fees are finalized on closing day – but the difference should not be in the thousands of dollars. And negotiating fees should start with the contract offer (which your buyers agent should handle for you) and continue through contract negotiations and review (which your attorney, which you MUST ALSO HAVE or risk getting ripped off) should do for you.

    Speaking of buyers attorneys, I know a lot of people espouse either forgoing or going to the “do-it-yourself” route, but I also encourage buyers to get an attorney, even for very strait-forward, seemingly uncomplicated closings. A seller with a shrewd attorney may try to slip in fees for the buyer to pay at closing, and without an attorney reviewing your closing docs, you will likely miss them. And, BTW, your buyers agent cannot do that (legal document review at closing) for you. Again, at least, in Illinois.

    And, finally, IANAL.

    • Cant_stop_the_rock says:

      @humphrmi:

      I think whether you (normally) use an attorney varies by state. Here in NJ we typically use them, in some states the agents handle everything. I won’t complain about the $750 we spent on our attorney, because she got us $1200 back because of issues with a house that was being sold as-is.

    • FatLynn says:

      @humphrmi: IANAL, but I believe you can get one for a closing for less than $500. Worth it.

      • humphrmi says:

        @FatLynn: Yup. Mine was $10 from a legal plan through my work, which was also well worth it. In my case the seller tried slipping in some fees. My attorney, who I thought was kind of quiet and passive through the negotiation process, ended up pounding his fist on the table, all red-faced, when the sellers attorney tried sliding in an extra fee to us, and wouldn’t relent. They ended up going into another room at the closing office, from which we heard much yelling, and then the attorneys returned and announced that the seller was relenting on the fee. I was astounded. Saved me a couple of thousand bucks.

  15. rpm773 says:

    We had a great agent, who had what our closing costs would be very early on and fought to get us an $8000 sellers credit for work needed on the house. I couldn’t have imagined going through that process without her.

    My sister, on the other hand, didn’t have an agent. She worked through the agent of the seller, who happened to be the builder of the home that languished on the market for several months after it had been completed. She did not enjoy the process, and felt she was bullied by them into making some concessions.

  16. LJKelley says:

    Mortage Loan Officers will aslo try to cheat you out of money, they will sign you up for more percentage points than they disclosed to you so that you get the target rate they did advertise to you. They unethically look at your bank balances to see what can be accomplished in regards to you handing over as much money as possible and thus giving the Loan Officer/Originator the highest bonus. Now not all are unethical, but beware you can get screwed on your loan closing costs as well not only just the real estate transaction. My boyfriend works from Wells Fargo Home Mortgage and has in the recent past seen this kind of behavior.

  17. wgrune says:

    This being a buyers market, I think you should be able to get the sellers to pay closing cost no matter what.

  18. catastrophegirl chooses not to fly says:

    having my own real estate attorney and my own buyer’s agent saved me a good bit of money – the seller’s agent kept trying to put off the repair request and when my agent suggested the seller’s agent get her own estimate, she did and it turned out her inspector advised a new roof on that half of the house. which they did, to the tune of $8k. and i ended up getting $92 back at closing where my costs were overestimated.

  19. zzxx says:

    I live about 90 minutes NW of NYC in a small town where everyone knows everyone else. All of the real estate agents are rich housewives who live in the town. They are all friends with each other. The attorneys are also friends with each other. When it came to negotiations I expect that my agent and my attorney to fight my battles. They didn’t, citing that they wanted to ‘maintain decorum’. I just consider that laziness. When I hire an agent or an attorney I want to see an adversarial relationship, not a friendly back-slapping one. I negotiated all of the terms of my 2004 house purchase. I was my own engineer. The seller tried to pull a few fast moves but I found out about them. Then I did my own fast moves and got away with them. My attorney was displeased with my ‘arrogant attitude’ and the fact that I was ‘all business’ and the fact that I negotiated every point, some even for $100.00. I told him that I am cheap. I told him that if he doesn’t care about $100 he should give me a discount off of his own fee.

    The bottom line is….When you buy a home it is your money on the line. The ladies who are real estate agents are all friends with each other and all they care about is churning the market. The attorney that you hire is good only to properly fill out the paperwork. In a self-contained town like my own beware even of the engineer. He might be friends with the seller!!!! Negotiate everything. Be a pain in the butt, especially if you are a buyer now. Don’t be meek. You are not trying to make friends. In a moment of frustration during the purchase of my house my attorney blurted out, “You are just like me.” I told him, “Thank you.” That was proof that if the attorney was buying his own house he would negotiate like a tiger. When he is hired by me he is a wimp who fills out paperwork.

    When I was buying the house I told my wife to never tell anyone how hooked she was on the house and how much she loved it. We even hatched a plan to ‘love’ another more expensive house, throwing the realtors and attorneys off of the trail. It worked perfectly. The realtors, attorneys, engineers, and loan brokers all know each other. They are like co-workers!!

    This would not happen in NYC because of diverse number of people in the industry but this collusion is not restricted to small towns. This creeps into many suburbs.

    In the end it is your money. Negotiate hard. It is time for buyers of anything to be very bold and get screaming deals. Just be prepared to walk if you do not get what you want. If you see a house that you fall in love with never let anyone know beyond your significant other.

    • catastrophegirl chooses not to fly says:

      @zzxx: that’s the most important thing i found too: be prepared to walk.
      i had concerns about the roof before i made the offer or got the inspection because of visible sags so i took an option in my state where i could put a non refundable extra $500 deposit on top of the good faith deposit that gives me until ‘named date x’ to walk away and only lose $500.
      it let the buyers know i was serious about the house but that i was willing to walk if things went wrong

  20. floraposte says:

    I ran into this problem too, and my lawyer failed me because he was more interested in retaining the good graces of my seller’s attorney than in representing me.

    On the other hand, my realtor cordially loathed the seller’s realtor and happily went above and beyond to put the screws to him even after the closing when it began to be clear that my seller was misrepresenting what had been done and what would be done.

  21. feckingmorons says:

    Spend the few hundred dollars on a lawyer that will represent you. The money you spend will be returned several times over.

  22. Nytmare says:

    In PA the transfer tax is split between buyer and seller.

    Doesn’t make sense to me that a seller would have to pay the tax on a house though, since a buyer pays the sales tax on everything else in the world.

  23. AgitatedDot says:

    Yeah closing fess are crap. I refinanced and on the last day I showed up and the final price went up by about $5000. But I figured I was going to save more than that by locking in a really low rate I went for it.

  24. GreatWhiteNorth says:

    Don’t think you are protected by have a lawyer do the paperwork for you… I purchased a house and used a realestate lawyer for the paperwork and upon checking the details found that the vendor was trying to claim thousands of dollars in “heating oil”… money they wanted me to pay… for heating oil that didn’t exist since the house used natural gas… Lawyer missed this little slight of hand detail and I caught it… Lawyer didn’t want to persue a refund of this money saying it was my fault for not seeing it earlier… My reply was simple… You were hired to ensure the process was all correct and legal… you failed, you pay or I talk to the law society and have you screwed… he paid.

  25. neilb says:

    We sold without an agent–we would buy without one too. You do, however, have to pencil in about $400 for a competent and experienced lawyer to review the offer contracts, review the additional paperwork, and attend the closing. $400 is WAY cheaper than agent fees–but you have to know the area and business well to do this because you are missing an agent’s experience (from staging to identifying typical problems). If you can do those competently on your own then you can save a few grand (or lose a few grand less, as it was). We did.