In real estate, closing cost refers to the total amount of money due at time of purchase. This cost is usually equal to a small percentage of the total purchase price but can vary based on state, county and other factors. Sellers handle a portion of the closing costs which can sometimes be even higher than what the buyer pays. What exactly do sellers have to pay for at closing? Here are some of the most common costs to plan for:

Agent Commission

Real estate agents on both the buyer and seller side earn a commission in a home sale. The amount can depend on the market but it’s always split between the agents on either side of the transaction. In most cases, the seller is the one paying. This means that if you’re selling your home you should expect to pay out around 5-6% of the purchase price at closing unless you negotiate with the agents for lower commission rates. This is definitely the largest seller expense at closing. Keep in mind that the role of the real estate agent is to help you navigate the home buying or selling process from start-to-finish; guiding you through preparing the house for sale, properly marketing the home, receiving and reviewing all details of offers, negotiating contracts and repairs, ensuring timelines are met from all parties, and maintaining communication throughout the entire process.

Mortgage or Loan Payoff

In order to sell your home you need to pay off any remaining balance on your mortgage. Your budget should include funds to cover the remaining balance and any prorated interest. Some lenders also charge a fee for early payoff or pre-payment, so it’s important to investigate that ahead of time to avoid unpleasant surprises. Go over the terms of your loan carefully so you’re prepared.

Taxes

There are a couple of tax expenses sellers should prepare for, including property tax. If you have not paid your property taxes in advance, you’ll need to budget for the prorated amount through the date of the sale. Another tax expense for sellers is title transfer tax, in which your local or state government will charge a fee for switching the title over to the buyer. You should also know about capital gains tax if you’re making a significant profit on the sale. Typically, this is only something investors need to worry about, but homeowners have the same rules. Consult a financial advisor or tax attorney to confirm your situation. Note: Property Taxes are paid in arrears and unpaid taxes are usually paid out of the sales proceeds at closing and coordinated through the title/escrow company.

Utilities

Don’t forget that you’ll need to pay off your utility bills on the home when you sell it. Even if you haven’t been living in it, you’ve probably had the electricity, water and other utilities active throughout the selling process. This cost should be simple to budget for, however. You can use your monthly bills as a guide to estimate how much you’ll owe for utilities at time of closing. Check to see if there are any additional fees related to equipment or early termination of contracts so you can factor them into your budget as well.

There are lots of other miscellaneous expenses that make up closing costs for sellers. The above are the most common, but you might also have costs specific to your situation. Planning for and identifying all the potential costs before closing day will help make your home sale as smooth as possible for everyone involved.

Home Repairs

Most sellers will want to take care of needed home repairs prior to listing the property for sale. In some cases, that is not possible or feasible for the seller. As part of the purchase process, the buyer will be conducting inspections that may identify repairs that they might request the seller to correct. To avoid being surprised by defects identified through the buyer's inspection, a seller could have a home inspection performed prior to listing the home for sale. Correcting defects prior to listing the home for sale could help negotiate a better sales price.