Closing Costs for Sellers
Here is a list of 9 common closing costs Wisconsin sellers may incur in the process of selling their home:
Mortgage payoff: This is often the largest single expense for home sellers. The amount shown on your monthly statement may not be the actual, down-to-the-penny amount. As part of the transaction, you will sign a form authorizing the title company to contact your lender on your behalf to obtain the exact payoff amount, just prior to closing.
Real Estate Commission: Commissions are often the second-largest expense for Wisconsin home sellers (and largest if your home has no mortgage to pay off). When understanding the commission, realize your real estate commission fee will be divided four ways and split between all agents involved. One part to the Listing Broker, one part to the selling Broker, one part to the listing agent, one part to the selling agent. The Listing Broker normally adds an administration fee for handling escrow and documents.
Title Insurance: Wisconsin home sellers are required to provide proof that they have the right to sell the home to the new buyers. This is accomplished by buying a title insurance policy for the buyer and providing it to them as part of the transaction. Again, this fee will vary somewhat depending on the purchase price of the home. If you can provide your current Title Policy to the Title Company they usually offer a 20% discount to a new Policy. Title insurance policies in the $150,000 price range often cost about $800.
Wisconsin Transfer Tax: The state of Wisconsin charges a small fee for Wisconsin home sales. The amount is equal to $3 per each $1,000 of the purchase price…so the transfer tax on a $150,000 home would be $450.
Deed Preparation: In order to sell the home to a buyer, the seller needs to have a new deed created for the new owner and sign it at the closing. The new deed is often created by an attorney and often costs $75 - $100.
Final Water/Sewer Escrow: This applies only to properties with municipal water or sewer services, so rural property owners can ignore this part. Most utilities, such as natural gas, electricity, cable, phone, and garbage services, are billed to the owner and follow the owner if they move. Municipal water utilities are the only utility that runs with the property and not the owner. Because of this, water utilities can actually create a lien on the property if they are not paid. This would be bad for both the seller and the buyer! Further complicating matters is the fact that most municipalities bill on a quarterly basis for the previous 3-month period. The bill is not “current” until the day of the closing. In order to avoid a lien being filed, the title company usually withholds about $200 from the sellers’ proceeds at closing. This $200 is placed into an escrow account for the purpose of paying off the final water bill when it eventually arrives. The municipality usually reads the water meter on the day of the closing, and the final bill is determined based on that meter reading. After the bill is paid (which can be months after the closing), any remaining funds in the escrow account are sent back to the seller.
7. Prorated Taxes: Property taxes in Wisconsin are paid in arrears. This means that around December each year, we receive a bill for our taxes for the year which is just ending. That’s right: We live in a house all year long without actually knowing what the taxes are on it! For better or for worse, property taxes rarely change a whole lot from year to year, which is helpful when selling a home in Wisconsin.
In most cases, the offer to purchase will indicate that the taxes will be prorated based on the previous year’s taxes. The issue is that when someone buys a house in Wisconsin, at the end of that year they will be responsible for the ENTIRE YEAR’s taxes on that property. Not very fair, especially if they buy the home in December! So the way we usually account for this is to have the seller credit the buyer at closing for the time that the seller actually owned the home. If the closing is on December 1, then the seller would actually credit the buyer at closing for an amount equal to 11/12 of last year’s annual tax bill. As a home seller, be aware that you will need to credit the buyer for the property taxes during the time you lived in the house that year. If you are currently escrowing for taxes, then it will be an expense to you at closing and your lender will mail you a check a few weeks after the closing.
8. Overnight fees / Wire Fees: Sometimes the loan payoffs need to be wired or documents sent via overnight delivery. Wire fees usually run about $30 for these types of transactions at closing. You will also be given alternate options that might work for you avoiding additional fees.
9. Buyer Closing Costs IF NEGOTIATED: You might receive an offer in which a buyer asks you, as the seller to cover some of their closing costs. Don’t be offended if this happens! You may be able to negotiate a higher purchase price to compensate for the added expense. Not every transaction has this expense, but it happens, especially with first-time buyers.