June 20, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

What Are Closing Costs and How Are They Determined?

Q: I’m thinking of selling in the next few months, and need to know how to determine what my closing costs will be as a homeowner. Who determines this?

A. Closing costs for buyers and sellers differ widely. Buyers’ costs include mortgage application and fees, title costs, survey fee, etc. As a seller, you will have a less expensive column in your closing statement (HUD) to be subtracted from the proceeds of your sale. Generally speaking, besides the fee for your attorney, the major costs include the real estate agents’ commission (5-6 percent) and the Real Estate Transfer Tax (RETT). This tax (which many states also charge) is levied on all sellers of property in the state of New Jersey, and collected by the county of the property’s location. The county uses this tax to pay administrative costs for filing the deed in county records and to raise revenue for the county. It is based on the sale price of the house, and your attorney or real estate agent can estimate what that would be in advance if you wish. There are two methods for calculating the RETT—one for regular homeowners, and a second formula used for a discounted rate for senior citizens, those with low or moderate income, etc.

Q. Can I still qualify for the one-time exemption on capital gains tax from the sale of my home? What are the criteria for this exemption?

A. Yes, you can! If you have lived in your home over the last five years or more as your primary residence, you qualify for this capital gains tax exemption as long as the home sells under $250,000 (single homeowner) or $500,000 (two or more homeowners). Consult your accountant for more information on how this will impact your net proceeds from the sale of your home.

Q: If I am buying one home and selling another at the same time, how do I organize the moving details?

A. Another good question—and here’s where it pays to work with experienced real estate agents and attorneys. Because of changes in closing regulations (TRID system), it is very rare now to have two closings in the same day, i.e., selling your home in the morning and buying the next one in the afternoon. A home cannot close without it being vacant and in broom-clean condition, so the seller has to plan on moving out at least the day before if not earlier. If you don’t have another location (home, apartment, etc.) to move to, then the movers will need to keep your belongings on the truck for storage for a couple of days if you are staying locally. If you are moving out of the area, the transport of your furniture and personal items can give you the time you need to close on your house in this area and fly to the other location before they arrive by truck.

Occasionally it is possible to arrange to stay in your home past closing by paying “rent” to the new buyers, based on their per diem costs of mortgage, insurance and taxes. Attorneys can arrange this with a Use and Occupancy Agreement, but this is an avenue of last resort. Many buyers’ attorneys prefer not to allow this type of arrangement.

Q. What happens at final walk-through?

A. The buyers make an appointment to come walk through the house either on the day of closing, or perhaps the night before, so that they can see what repairs have been made that were agreed to in the home inspection, make sure the outside property has been maintained (grass cut, leaves raked, snow shoveled, etc.), check to see if movers caused any damage when removing the seller’s belongings, and to just make sure that everything is in working order. Also, the real estate agents may be asked by the sellers to take the final meter readings for the utilities (gas, water and electric) so that they can get called in after closing to settle their final accounts. Buyers should make sure to call the utility companies to open up their accounts a few days in advance of closing so that the transition is seamless and power isn’t shut off.

For other questions or recommendations, feel free to contact me for more information. I will help you with a comprehensive market analysis (CMA) of your home, and advise you on how to approach preparing it for sale—now or any time in the near future!

By Barbara Ostroth

Barbara Ostroth of Coldwell Banker Residential RE can be reached (201)262-6600 in the office, (201)965-3105 on her cell, or email or visit her on the web at [email protected] and www.BarbaraOstroth.com.

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