Closing costs always seem to be a mystery.? Most people say we will just split the closing costs 50/50.? But it?s not that easy! There are certain costs that are traditionally seller?s costs, and certain that are traditionally buyer?s costs.? In?some loan programs it is mandatory that the sellers pick up certain costs. Here are the costs usually paid by the buyer:
- All Loan Fees. These include commitment fees, origination fees, points, credit reports, and lock fees.
- Mortgage insurance.? Or VA funding fees, or rural development fees if required.
- Reserves account.? This is to pay the taxes and insurance as they come due.
- Lenders title insurance.? This is not the Owners Title Insurance paid by the seller
- Home owners insurance
- Inspection fees.? For their home inspection
- Flood review
These are normally seller?s costs:
- Owners Title Insurance
- Property?Taxes up to the closing date
- Assessments? If there are any outstanding assessments for gas lines or pavement etc.
- Realtor?s commission, that?s how I get paid and it is usually split with another Realtor
- Appraisal
- Well and septic inspection
- As-Built survey
- Tax Service Fee
The recording fee, closing fee, and document preparation fee?are usually split equally.
Most of these fees are? negotiable and it is very common that the buyer will ask the seller to pay for their closing costs.? The seller should consider this seriously because doing this may make the deal work as long as the net proceeds are acceptable.
I think the appraisal should be a buyer?s cost.? This would be to the advantage of both the buyer and the seller.? The appraiser actually works for the lender but the lender requires someone else to pay the bill.? In most states, the bill is paid by the buyer because the appraiser is working for the company that the buyer has chosen to use.?
The purpose of the appraisal is to assure the lender that the their collateral on the loan is good.? They need to make sure that the house is basically sound and the value is sufficient to secure the loan should the buyer fail to make payments.? The lender can then take back the house and sell it to pay off their losses.?
If the seller pays for the appraisal, (almost always the case in Alaska), the seller gets to choose the appraiser.? The seller will generally try to choose an appraiser that will be generous with the value.? However if the buyer chooses the appraiser he may tend to want one that is a little more conservative with the value in order to ensure that he isn?t buying an over priced house.
If the transaction falls apart after the appraisal is done, another appraisal my be needed for the next buyer.? Often because the loan program is different the $600 appraisal will need to be redone for another buyer.? At this point the seller is usually in a pretty bad mood because not only did he pay for the original appraisal that didn?t work out, but now he has to foot the bill for another appraisal.
If you think I?m all wet about this leave a comment and tell me why.
February 23rd, 2007 at 6:50 pm
Marty…..
I’m an appraiser in WA State. Are you certain that an appraisal of a residence to be purchased is paid by the ’seller’? From my experience, Federal banking regulations & FNMA standards prohibit the specific hiring of an appraiser by anyone directly benefitting the outcome of the transaction. Most banks now place appraisal requests from a department separate from the ‘production’ person, i.e, the salesperson. Independent Mortgage Brokers are a different situation, however. Your post is the first I’ve seen in nearly 6 years that says the ’seller’ pays for the appraisal…but perhaps AK is different than all other states.
February 23rd, 2007 at 7:35 pm
OK…here is how it works. The seller does not pay the appraiser directly. The lender actually cuts a check to appraiser. But the lender requires someone to reimburse them, and they want that money up front, not at the closing.
In fact usually the lender will not order the appraisal until they recieve the check from the seller. So the seller pays the lender and then the lender pays the appraiser.
Right now, Wells Fargo is about the only local lender ordering the appraisal from another “department”. The third party vendor charges a fee as well, so the appraisal cost increases from $600 to as much as $800 and still the seller foots the bill.
February 25th, 2007 at 4:48 am
Marty -
?I too am an appraiser and Dave is 100% correct! Either the lender or the buyer (indirectly at closing) is responsible for the appraisal fee. . . NOT the seller.
Wells Fargo may be YOUR only “local” (?) lender that is currently separating the appraisal ordering process from loan production . . .but that is definitely the national trend.
The topic of “Appraiser Indpendence” is delt with here: http://tinyurl.com/356t4p
Regulators are concerned about recent exam findings that indicate some financial institutions are IGNORING guidelines dating back to FIRREA that require independence in the appraisal and evaluation functions, and they have recently issued interagency guidance to remind financial institutions about the requirements. Click here for the Interagency Guidance memo for the OCC: http://tinyurl.com/2l9s2a
Brian J. Davis
http://www.OurAppraisal.com
http://www.AppraisalScoop.com (Blog)
February 27th, 2007 at 6:02 pm
For those of you not familiar with our local market here. Yes, the Seller typically pays for the appraisal. It is an oddity and Marty is absolutely right, it makes no sense. It is more of a tradition that has yet to be permanently broken.
The seller pays the appraisal either out of pocket or at closing. Wells Fargo processes all appraisals through a 3rd party ordering system to ensure segregation of both the lender and the realtor’s from the appraisal process. This ensures an independent 3rd party valuation. Under no condition is the seller allowed to pick an appraiser, no can anyone else in the process really.
The spirit of the process is fully intact. It is just the financial responsibility that is a throw-back contrary to most modern markets.
June 13th, 2007 at 12:05 am
[…] The appraiser will determine value. The appraiser works for the lender, but their fee is paid by the buyer…or seller. The appraiser is NOT an inspector and cannot be depended upon to find hidden defects in a house. But if the appraiser does call out a safety problem the issue will almost always have to be addressed to keep the transaction from falling apart. And if the appraisal comes in below the sales price, you have big issue, however, we can usually find a way to work through it. […]