There are some benefits to buying a house in cash, like not needing to get a bank involved to finance the mortgage. However, people worry that paying in cash means they’ll have to find extra money for the closing costs. Cash home buyers in Pennsylvania may wonder what fees the seller has to pay when selling a house.
Because we buy houses Philadelphia residents need to sell fast, we can help you understand who pays closing costs in a cash sale. There are costs traditionally associated with the buyer and seller, so read on to find out if using cash will change the responsibility of any of those fees.
Who Pays Closing Costs During a Cash Sale?
If you want to know who pays closing costs in a cash sale, there’s no set answer. Each deal can vary depending on the value of the property and the motivations of the buyers and sellers.
Sellers may offer to pay the closing costs because they want the property out of their possession. They may need the money to move to a new home or want to stop paying for utilities and property taxes. It’s worth them paying the closing costs to finish the deal without any haggling.
Some sellers also appreciate a cash buyer because they don’t have to worry about a mortgage lender. In some cases, the buyer might not secure a home loan at the last minute, so the deal falls through. There’s no risk of that with a cash sale, so the seller can accept closing costs to finalize everything.
The buyer might have cash for the house price but not several extra thousand for the closing costs. Rather than risk the entire deal, the seller will pay closing costs so they can still accept the full amount of the house sale in cash from the buyer.
Because a sale can involve a lot of negotiation, it’s always worth asking the seller to pay closing costs if you’re bringing cash to the table. They may be willing to handle those fees to expedite the entire sale. However, if you go back and forth on the home value based on the appraisal and inspection, the seller might be less willing to work with you on closing costs.
Do Closing Costs Change for a Cash Sale?
Closing costs change slightly in a cash sale because you don’t need certain aspects. For example, the earnest money deposit is a down payment of one to three percent of the purchase price. You make this deposit to show you’re serious about buying the house. If you’re paying for a house in cash, you don’t need to put down a deposit, so this expense isn’t part of the costs.
Buying a house with cash also means you don’t have to bring a lender into the deal, so there aren’t any expenses such as:
- Credit score check
- Origination fees
- Paying mortgage points
- Processing fees
However, there are still several expenses you’ll have to pay as part of the closing costs. These commonly include:
- Title Insurance
- Title Search
The average appraisal fee is $300. This step is crucial because a licensed professional will inspect the property and ensure it’s worth the selling price. Lenders require an appraisal because they don’t want to loan more money than the property is worth, but if you’re buying in cash, this home value can still work in your favor to secure your investment.
An inspection fee varies depending on the property size, ranging from $200 to $1,000. The inspector looks for different things than the appraiser does, so you don’t want to skip this step, though it’s optional. An inspector will find issues like electrical, plumbing, or structural problems that could cost you more once you’re the homeowner.
You can take the results of the appraisal and home inspection and use them as leverage to try and lower the seller’s asking price, so it’s worth paying the fees to get these documents before you complete your cash sale.
The survey fee can cost anywhere from $500 to $1,000. This process verifies the boundaries of the land so you know what property is yours and what belongs to your neighbors or the city. Having this information can help you with construction projects, like building fences or other structures on your land. Lenders require this, so you might consider it an optional fee.
Title insurance protects your intent to purchase a home, but it’s an optional one-time fee. Since the owner’s title insurance can cost $1,000, depending on the home value, you might want to skip this step in a cash deal. However, it will protect you if there’s something wrong with the property title.
Even if you don’t get title insurance, you’ll have to pay a few hundred dollars for the title search fee. The state completes this step as it changes the property title over to your name. In the process, they check the payment history and ownership records to ensure the seller has a right to sell the property without issues like liens, unpaid taxes, or judgments complicating the transfer.
Escrow fees will vary depending on who’s involved in the real estate deal. If you have an escrow company overseeing the transfer, they charge money to collect your cash and disburse it to the seller while ensuring signatures on all necessary documents. Buyers and sellers usually split the cost of an escrow account since this process benefits them both.
Some title companies have a notary, so you won’t have to pay the fee, but otherwise, you might need to pay $100 for someone to witness the signing of legal documents relating to your real estate purchase.
Does It Make Sense for a Seller To Consume Costs During a Cash Sale?
Closing fees can add a lot of money to the home purchase, but the buyer’s agent can outline the closing costs for the seller. Some people still work with a real estate agent when buying a house in cash, so you’ll consider the realtor fees or agent commission.
Many people also use a lawyer when conducting a cash sale. You’ll have to pay your attorney fees on the real estate transaction.
It’s easy to overlook other fees you’ll take on after signing the purchase agreement, like those related to a homeowners association. HOA fees can kick in as soon as you pay the closing fees on a property.
You also need to consider how much it will cost to take on homeowners insurance and transfer taxes into your name. Some states allow prorated property taxes for the first time a new owner pays for the taxes, but the insurance policy kicks in immediately in full.
During a standard real estate transaction, you could include these expenses in the loan amount. However, without a mortgage loan in play, the total closing costs and move to the new home could put the ease of a cash sale in jeopardy, and sellers are more inclined to negotiate.
In a regular deal with lenders involved, the seller would only have to pay a few fees, like their real estate agent’s commission, half the escrow fees, and any prorated property taxes of HOA fees. However, with the previously-listed additional costs in mind, many sellers take on the closing fees when the buyer is paying cash to simplify the process.
Reasons Why You’d Consume Costs During a Cash Sale
If you want to sell a house fast in Springfield, taking on some of the closing costs may make the deal worth it. You can streamline the closing process when the seller closing costs don’t come from the upfront cash offer. With the average closing costs totaling in the thousands, it could signal the end of a cash deal.
Since there’s less stress without lenders involved, keeping everything manageable by splitting the closing costs between the buyer and seller or asking the seller to take it all on might be worth completing the deal.
A cash offer automatically means the selling process will go faster than when using a lender. A cash buyer can reach a resolution without the additional fees of the standard real estate deal, so even if the seller ends up paying the closing costs, they’ll still make more from the sale than they would with lenders and extra expenses involved.
Final Considerations for Closing Costs in a Cash Sale
If you have a cash offer for a home sale, you can try to negotiate with the seller. While the buyer’s closing costs can be a long list of items, buyers pay the sale price in cash and can negotiate that the sellers pay these expenses.
A cash offer always stands out in a bidding war, so it’s worth negotiating with the seller to see what they’re willing to pay. Cash offers from individual buyers or companies that make offers on as-is properties should at least split your closing costs in half, if not result in the seller taking them on completely.