Why Are There Buyer-Side Closing Costs?
Copyright (c) 2014, The Gold Homes Team
"Seller's pay all the commission, so why do I have to pay extra?"
The house already seems so expensive, so the buyer laments these additional charges added on like sales tax on a retail purchase!
1. Making sure that the seller actually has conveyable title
Hypothetically a buyer could make a cash purchase, not record the deed, not do any title research and just Trust the Seller that they actually have clear title to convey. Since purchasing a house typically involves a rather large amount of funds most buyers decide to pay a title company (settlement company, escrow company, settlement agent) for an abstract of title, a title binder, and title insurance. A surprising number of title searches reveal undisclosed liens from judgments, unpaid federal taxes, unpaid child support or alimony, unpaid water/sewer bills and unpaid homeowners or condo associations.
Few sellers actually fraudulently attempt to sell the same house simultaneously to multiple separate buyers since this is a felony. This has, however, been known to be attempted.
The prudent buyer will pay for title research and a title insurance policy.
Buyers who borrow money to purchase have not option. Their lender will require the title research and lender's title insurance.
2. How to avoid loan origination fees - pay cash!
A substantial portion of the usual buyers closing costs are fees collected as part of originating their new purchase money mortgage or deed of trust. These include flood certification fees, tax service fees, appraisal fees, fees to set up an initial escrow account balance, and loan origination fees. By paying completely in cash the buyer may avoid all these fees. You will, of course, have to have all that cash and want to tie it all up in a house if you buy cash.
3. Your lender may not require a survey - maybe you can skip it
Surveys are often desktop recertifications of existing documents rather than sending a crew to the homesite. If your lender doesn't need one and you don't want to pay for one you can omit this expense.