Turning a profit on your home isn’t as simple as it might seem: Homesellers are on the hook for these closing costs in California. —-
California homeowners looking to upgrade from their starter home to more permanent digs may be surprised by the amount they’ll owe at the end of the sale: Closing costs in California typically range from 6% to 8% of total home sale price.
“I always recommend that sellers reach out to a real estate agent to get an estimated settlement statement … so they can kind of get a ballpark on what those transfer costs are going to be,” advises Donny Piwowarski, an expert real estate agent in Northern California who has sold close to 650 houses.
To help you out, we did the legwork for you and spoke to Piwowarski about closing costs sellers are customarily on the hook for.
California sellers cover these closing costs
While some closing costs are negotiable, California home sellers almost always pay for the following eight closing costs:
1. Mortgage payoff
Nationally, the average duration of homeownership is just eight years. In California, this number trends closer to 10 years when analyzing major metro areas like Ventura County (11.1 years), San Jose-Santa Clara (10.7 years), Los Angeles-Orange (10.3 years), and San Francisco-Oakland (10.6 years).
Considering that most mortgages have 15-year or 30-year terms, many California sellers must pay off their remaining mortgage when they sell their home. If your selling price is higher than the price you purchased it for, you’ll use the money from the sale to pay off your mortgage — and ideally pocket what’s leftover!
2. Property taxes
Property taxes can be a dizzying closing cost to calculate due to how they are billed. Property taxes in California are due twice a year in December and April, and the seller is responsible for paying taxes up until the closing date. Piwowarski provides a hypothetical example:
“If the property is going to close by the end of April, and let’s say the seller has already paid the April … obligation for the property tax bill. They would get essentially a credit for a portion of that. Then the buyer would get the remaining balance. It would get prorated at the closing table.”
The same is true of the opposite: If you sell your home in June, you cover property taxes up to June at the closing table.
The buyer’s lender typically calculates who owes what property taxes, but it’s a good thing to be aware of before sitting down at the closing table.
3. Loan reconveyance fee
Once you’ve paid the mortgage balance, you’ll receive a reconveyance deed as proof. Lenders typically charge around $100 for this documentation — which, by the way, you’ll need to prove to the county that your lender no longer has claims to the property.
4. Reconveyance recording fee
The county’s recorder files the reconveyance deed in the county’s records. As compensation for their labor, county recorders charge a fee to record the reconveyance. In most instances, the fee is nominal, around $3 per page.
5. California documentary transfer tax
In addition to property taxes, all home sellers in California pay a state documentary transfer tax. The state charges a tax on the transfer of real property titles at a rate of 55 cents per $500 of the closing cost. Since it is a state tax, it applies equally to transactions in every corner of California: The rate is the same for home sellers in San Diego where the median home price is $650,000, as it is for sellers in Sacramento where the median home price is $395,000.
6. County transfer tax
County transfer taxes are yet another fee that sellers may have to pay at closing, depending on the property’s location. Counties leveraged these taxes on documents that grant, transfer, or convey real property.
Sound familiar? It should. These taxes are essentially the same as documentary transfer taxes, except that home sellers pay them to the county, not to the state. As such, the rate of taxation varies from county to county. For example, in Los Angeles County, where the median home price is $715,000, sellers are on the hook for a tax of $1.10 for every $1,000 of the property’s selling price.
7. Real estate agent commission
The average agent commission in California is 6%, split evenly between the buyer’s agent and the listing agent. The seller pays for both agents’ commissions. This 6% can translate to a pretty penny when the median price for a single-family home is over $750,000; 6% on a median-priced home could be as much as $45,000 out of the seller’s pocket at closing.
But Piwowarski says not to let this number scare you when you’re hiring an agent at the start of your home sale:
“The most common mistake I see is that sellers focus so much on commission, and they tend to [hire] the lowest bidder, not understanding that if you hire someone that is so quick to drop their commission, you’re hiring someone that’s not going to put a lot of effort into trying to maximize the sale of your home.”
Trust us: You want a top agent at your side during your home sale. Data from HomeLight’s market research shows that the top 5% of real estate agents sell homes for as much as 10% more than the average agent.
8. Escrow fee
Most know that when their sale is in escrow, they’re in the homestretch. But what exactly does that real estate jargon mean? Escrow is the limbo period between accepting an offer and closing. It’s when the buyer’s money and key paperwork enter into an escrow account — an impartial, third-party account that holds these items until the deal is complete. Escrow officially ends in closing when all funds have been disbursed.
In California, most home sales are finalized in escrow. The state does not regulate escrow fees, and they can vary case to case based on the complexity of the transaction and liability involved. Typically, companies charge a fee based on a percentage of the home sale price; however, some companies charge a flat rate.
Who pays for the fee, though, can depend on where in California your home is located. In southern California, the seller typically pays the fee, while in parts of northern California, it’s customary for buyers and sellers to split the fee. Discuss local protocol with your agent early on in the selling process to ensure you’re in the know.
Sellers may also cover these closing costs
Some closing costs are negotiable, and the state of the market may be the deciding factor in who ends up footing the bill. In a seller’s market where inventory falls short of buyer demand, sellers have more leverage in negotiations — thus, they may be able to pass off some of these closing costs on buyers. Conversely, in a buyer’s market, the number of homes for sale exceeds available buyers, and buyers have more leverage to persuade sellers to take on these costs.
City transfer tax
Cities, like counties and the state, can leverage taxes on property sales. Like county taxes, these taxes vary depending on where you live.
In a city like San Francisco, where the median home price is $1,390,500, the city transfer tax would cost a whopping $10,428.75. Cities calculate the tax in varying increments depending on the overall price of the home. For our example of the median-priced home, the tax rate is calculated at $30 for each $500 of home value. But it can be as little as $2.50 for each $500 of home value if the home is worth $250,000 or less.
This policy would give the homeowner protection if someone were to sue and allege that they had a claim to the home from before the current owner had purchased it. Though this may seem like an unlikely scenario, the American Land Title Association reports that there are issues with as much as 25% of all residential real estate titles. Luckily, title insurance pays to remedy these problems.
There are two forms of title insurance in any home sale: a policy that protects the buyer and a policy that protects the lender. In California, buyers pick up the tab for the lender’s policy, while sellers pay for the owner’s policy that protects the buyer’s equity.
California is prone to several types of natural disasters, and many homes from the Los Angeles to San Francisco areas require disaster, fire, flood insurance, or some combination of them. If a seller is looking to entice a buyer, it is not uncommon for the seller to pay for the policy through the year.
Just how enticing this concession could be to your buyers (and just how costly it could be for you) depends on your home’s exposure to potential natural disasters. In an earthquake-prone area like San Francisco’s Nob Hill, earthquake insurance alone could cost as much as $2,207 per year.
HOA and condominium dues
Considering that there are over 49,000 HOAs in California, there’s a good chance you might be one of the more than 14 million people living in an HOA community. And if you’re selling your home, you may have to shell out extra money to settle up your HOA obligations.
When you sell, you’re responsible for disclosing your HOA obligations and any outstanding balances, thus ensuring that they understand and can meet the obligations of the association. In addition, you’ll need to pay the HOA transfer fees, which can cost upwards of $800.
California is not one of the 19 states and the District of Columbia that require a real estate attorney at closing, so if you have a straightforward sale, you probably won’t have to deal with one. However, if you’re selling a home during a divorce or need to resolve a complex title issue before closing, you may need to hire and pay for a real estate attorney.
The price for a real estate attorney varies depending on location. For example, in Los Angeles County, the average cost for a real estate attorney is about $350 per hour, which sits towards the higher end of the national average of $150 to $450 per hour.
An overview of the cost to sell in California’s major cities
So you want to sell your home in California, and you’re still unsure just how much you’ll end up paying in closing costs? Don’t worry; you’re not alone. The calculations can get foggy when you factor in the spectrum of tax rate formulas for different counties and cities, not to mention HOA fees or other concessions.
To provide you with some reference points, HomeLight calculated how much it costs to sell a home in some of California’s biggest cities. Our averages weigh in median home prices, current housing industry fees and taxes, and recent home improvement cost data.
San Francisco: $111,084 on average
San Diego: $51,649 on average
Los Angeles: $47,639 on average
Riverside: $42,525 on average
Sacramento: $34,154 on average
Estimate your net proceeds no matter where you live in California
Use HomeLight’s Net Proceeds Calculator to estimate your home sale costs and net profit. And even if you are based in one of the major cities above, the Net Proceeds Calculator can help you get a more exact estimate of your net proceeds by allowing you to make additional allowances for home improvement, staging, and other concessions.
You’ll review your closing costs on the settlement statement
At the end of closing, you’ll receive a settlement statement, an itemized list of fees and credits that shows your net profit. If you followed Piwowarski’s advice and requested an estimated settlement statement at the start of your home sale, the numbers should come as no surprise.
Whether or not you took his advice, though, carefully read through the settlement statement and prepare any questions for your agent. This is your last chance to make sure everything is in order and address any outstanding concerns. Once you’ve determined each item on the statement is accurate, you can start to finalize the closing process.
Header Image Source: (Joseph Barrientos / Unsplash)
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