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IN REAL ESTATE, WHO PAYS FOR WHAT?

Stacey Sanders
Broker, Weichert Realtors - Porter Properties
President, Alabama Association of Realtors
September 3, 2019

What are the typical financial arrangements in a residential real estate sale? Who pays for what—and when? These questions are commonly asked by buyers and sellers alike. Having an understanding upfront of what to expect financially may help you avoid unwelcome surprises.

Every real estate transaction is unique. The terms and conditions of any sale are determined by the parties involved. Meaning: there is flexibility in how a contract may be written. That said, typically a residential real estate sale proceeds with responsibilities as outlined below.

Earnest money: Buyer
Earnest money is a good-faith payment a buyer makes upon delivery of a contract. It tells the real estate seller that they are serious about their offer to purchase the property. The buyer is credited for this payment at the closing table. The amount of earnest money offered can vary from a percentage to a flat fee.

Home inspection: Buyer
A buyer has the right to inspect the desired property on which they make an offer. In such a situation, the buyer hires a qualified home inspector to inspect the property within a specified time frame. Alabama is a “buyer beware” (caveat emptor) state, which means that the responsibility is on the buyer to have the property thoroughly examined before the close of sale. As a buyer’s agent, it is the Realtor’s duty to guide buyers through getting an inspection and direct them to professionals who can answer all their property condition questions.

Termite inspection: Seller
Within thirty days of closing, the seller must provide a wood infestation report from a licensed pest control company. Sometimes called a “termite letter,” this report documents that a visible inspection of accessible areas was conducted and that there is no active infestation of insects or fungi that destroy wood.

Appraisal fee and credit report: Buyer
If a buyer’s purchase is being financed by a lender, an appraisal and credit report will need to be conducted.

Closing costs, including title charges: Buyer
The financial responsibility for closing costs, including deed and title charges, falls on the buyer. However, it is quite common for a buyer to ask a seller to share some of the closing costs as terms of the contract.

Commission to real estate agents: Seller
The commission that is paid to the listing and selling agents is predetermined by the seller’s listing agreement. Routinely, it is a small percentage of the final sales price that will be paid to the real estate agents at closing out of the seller’s proceeds.

When it comes to understanding expected costs, your Realtor can help. Realtors are required by law to provide an estimated closing statement to ensure that their clients are properly informed of potential expenses.

Again, every real estate transaction is different; terms can be negotiated in a myriad of ways. Knowing what expenses are involved will help you and your Realtor write a contract that works best for you.