Selling a house involves lots of moving parts and most of these moving parts have costs associated with them. Before you stick a sign in your yard, make sure you have a full understanding of closing costs. I advise my sellers to ask their attorney for a closing cost estimate early in the process so there are no surprises once you find that perfect buyer. Here is a brief rundown of closing costs you can expect…
Title insurance…Your buyer and their lender will want to know that you have a “clear title” when you convey your property to them. This requires a title search and ordering title insurance which will identify any liens that have been recorded on your property. Most homeowners have two liens that will be cleared when they close: their unpaid real estate taxes and their mortgage balance. Other liens can be a home equity line of credit, mechanics liens (a subcontractor not paid by the contractor for work done on your home), tax lien (delinquent federal and state taxes), and association lien (unpaid assessments), etc. These liens must be cleared before closing. The sellers’ attorney typically orders the title insurance which is a seller cost in Illinois.
Survey…Our contract states that the seller will provide an updated survey that is less than six months old at or before closing. The purpose of this is to provide the legal description, show the exact dimensions/ location of the property, and ensure that there are no encroachments (your shed or fence is in your neighbor’s yard). The sellers’ attorney typically orders the survey. The cost of the survey is determined by the size of the lot. If you have an old survey, you may be able to save a little money when the new survey is created.
Tax proration…Illinois is unique in that we pay real estate taxes in arrears. Sellers are responsible for all taxes during their ownership plus any additional proration agreed upon in the contract. Since the prior year’s tax bill may not be issued before closing, it is customary for the seller to credit the buyer, at closing, 105% of last year’s tax bill to cover any increase when the tax bill is issued. (This amount may vary based on your tax history and the county where your home is located.) After closing, if the taxes increase more than 5% when the bill is issued, the buyers cannot demand more tax money. If the taxes do not increase or increase less than 5%, the sellers cannot demand a rebate from the buyers. If the taxes were appealed and a decision is forthcoming, the attorneys can set up an escrow account to calculate the amount of taxes once the tax amount is known. If you pay taxes in your mortgage payment and your lender has an escrow account, you may not receive that escrow for up to 30 days after closing. You will still be responsible for crediting the buyers the tax money at closing.
Revenue stamps…When closing on a property in Illinois, sellers are obligated to pay $1.50/thousand to the state and the county at closing. Some villages have additional revenue stamps. Check with your village regarding required revenue stamps. They must be purchased before closing.
Association fees…If your home is part of an association, you may be required to provide a “paid assessment letter,” conduct mandatory inspection(s), pay a departure fee, provide an association disclosure statement, etc. Check with your association to see what costs are involved before closing. Your attorney will order the paid assessment letter. If you don’t have your Covenants & Restrictions, Bylaws, Budget, etc., you may need to pay the association to provide a new set of documents. Many associations have these on their community website which is very convenient.
AttorneySurvey…I keep referencing your attorney. Illinois makes it almost impossible to close without an attorney. The attorney will review the contract, explain the process and contract, propose language revisions, negotiate inspection items and details of the contract, and order all the documents/ inspections/ survey/ loan payoff/ association documents you need to close. They attend the closing in person or virtually to review the documents and ensure that your interest is protected. They will arrange to wire the funds to pay off your mortgage and make sure you receive the correct proceeds.
Brokerage fee…This is the fee due to the brokerage that handled the sale of your home. This is in the original listing agreement. Your broker will pay the cooperating broker with this fee.
Well & septic test…If your property has a well and septic system, you are obligated to provide a report showing that both are safe and in operating condition. Your attorney usually orders this test.
Miscellaneous costs…It is a good idea to plan for unexpected costs to arise as you get closer to your closing date. This could be anything from credit towards an inspection issue, an additional charge from your association, a “rush” fee for a report that is taking longer than expected, etc.
Seller credits…You may receive a credit! For instance, if you already paid your association dues for the year, they will be prorated and you will receive a credit for the unused portion.
Please note that the cost of your move, packing, disconnecting any systems, etc. are not included in your closing cost estimate.
Please ask your attorney or your listing broker any questions you have about closing costs. It is best to go to closing knowing what to expect!
A special thanks to attorney Barbara Hyman for her contributions to this article.