Paying closing costs on a land sale can be an unexpected expense for land buyers.
These closing costs account for 2 to 5 percent of the purchase price.
Yet, typically buyers are not the only party that must pay fees at closing.
Sellers also have fees that they must pay during land sales.
For example, they have their real estate agent’s and the buyer’s agent’s commission that they must pay.
This is normally around 6 percent of the sales price.
What’s more, not all costs associated with closing a real estate transaction are always paid at closing.
Sometimes closing costs need to be paid upfront and others are negotiable altogether.
This is because it often makes more sense for one of the parties to pay a particular fee than it does another.
For instance, if a buyer brings in a property inspector (as they’re the one who benefits from the information obtained in the inspector’s report), then it wouldn’t make sense for the seller to pay that fee.
Understanding closing costs can help you get the best deal.
In this closing cost guide, we’ll go over common costs in land sale transactions that can help you understand what you should know going in.
But first, before you get to a closing, be sure to do your proper due diligence!
Closing costs on land sales: paid at closing
This is the fee charged for performing the closing on your land sale.
Typically, the attorney or agent is representing one particular party, then that party will pay the fee.
The fee itself varies from state to state and area to area, so you probably won’t get a general estimate or know what you’ll pay going in.
However, you should assume this will be a cost that you’ll take on since it’s often typical that both buyers and sellers have representation in the closing process.
If you’re in a situation where neither party is represented, but you have to pay a closing fee, then you’ll split the fee even at the closing.
Financing fees are those associated with borrowing funds to complete a transaction.
These fees are usually based on the loan amount.
Since they benefit the buyer, they are typically also paid by the buyer.
However, sometimes the seller will take them on as a courtesy to leave more funds available for the buyer’s down payment.
Be sure to read up on rules and regulations regarding who can pay these fees for you (especially if someone offers).
Your lender can also help you understand these rules.
In most cases, you’ll be expected to pay financing fees at closing.
Sometimes the seller will offer owner financing, in which case they may not charge any fees.
Land brokers are responsible for the negotiation and acquisition of land.
They charge a fee when a land sale occurs.
Normally, the seller would be responsible for paying this fee, which is most often paid at closing.
The exception would be on owner-financed deals.
In this case, some brokers will accept a commission at a later date, but this must be personally negotiated.
Title search and abstract
A title search is an examination of public records to determine and confirm a property’s legal ownership and is usually done by title companies.
The title abstract is the condensed history of the title.
It consists of the summary of the original grant and all subsequent conveyances and encumbrances affecting the property.
It includes a certification by the abstractor that the history is complete and accurate.
These may be performed by the closing agent or attorney or someone that they contract with for the service.
The buyer most often pays for it at closing; although, it can be paid for by either party with negotiation.
Title insurance benefits the buyer (or the buyer’s lender), and thus it is up to the buyer to purchase.
Mortgage title insurance is always paid for at the time of closing.
Owner’s title insurance can be paid for after closing but is usually taken care of by then.
Taxes and property insurance
Both property taxes and property insurance are typically prorated closing costs.
This means that both the buyer and the seller pay for the amount of time that they own the property in the tax or insurance period.
Each county has a different way of handling this, so you’ll need to do research in advance so you know what your closing costs will entail.
Additionally, if the seller has already paid for an insurance policy that will cover the property beyond the time that they own it (the buyer will purchase the property during that period), then the seller will get a credit at closing.
Likewise, if there are taxes due from the seller, then the buyer will also get a credit at closing.
The deed is the document that conveys the property from the seller to the buyer and states the warranties and rights that the seller is granting the buyer.
There may also be a purchase agreement that is drafted prior to closing.
There is a fee for drafting these documents, and in general, the seller pays this fee at closing.
Like the deed, there is a fee for preparing the mortgage.
This is most common in owner-financed sales.
In lender-financed sales, the lender supplies a mortgage with the language that is necessary.
The buyer will typically pay this fee at closing.
Recording fees and transfer taxes
Recording fees and transfer taxes are fees and taxes that the county charges for recording the documents (deed, mortgage, etc.) into the public record and transferring ownership.
These fees are based on the sales price of the property, the number of documents and pages being recorded, and the value of the mortgage (if applicable).
In financed transactions, these fees are normally collected at closing.
In cash transactions, it is left up to the buyer to physically carry the deed to the recording authority after the closing has taken place.
While this is technically a negotiable cost, the seller doesn’t have any interest in whether or not the buyer’s documents get recorded, and thus this cost almost always falls on the buyer.
If documents need to be shipped at other places, you will need to pay courier fees.
The party responsible for paying for these will be the party who needed the items shipped (these can benefit either party).
If you owe courier fees, then your closing agent or attorney will collect these at the time of closing.
It’s not typical to negotiate courier fees in land sales.
Fund transfer fees
During some transactions, buyers may opt to have funds transferred directly to the closing agent’s account for simplicity.
While this is significantly more convenient in many cases, there can often be fees associated with bank to bank transfers.
These fees are often passed along to the party that benefited at closing.
This is worth knowing about if you intend to use this to pay for any part of your land sale.
Affidavits, power of attorney, and other documents
Depending on the situation, the closing agent may sometimes need to draft and execute other documents.
This will help to clear up defects in the chain of title or may allow someone else to sign in the stead of a party who cannot personally attend the transaction.
As in most situations, the fees are often collected from the benefited party at closing.
Closing costs on land sales: paid upfront
A land survey reveals the exact property dimensions, size, and location of your property along with any improvements that may be crossing a property line.
If you want a land survey done before you close on land, you’ll need to hire a land surveyor.
It’s often best to do this unless there was a very recent survey that corresponds with the current physical boundary lines that are evident on the property.
In most cases, buyers will pay for surveys as they are the ones benefitting from this type of information.
The basic survey (most used and least expensive) will have the corners of the property marked as well as a legal description of the property created from the information gathered in the field and from previous deeds.
However, there are upgraded surveys that you can pay for that will show you fences, roads, structures, and other features on the property.
It’s all about what you’re willing to pay for throughout your closing process.
In general, this is a closing cost that you would pay for upfront (at the time of service), so you wouldn’t wait until closing.
However, you may be able to negotiate if your budget or financial situation somehow prohibits you from paying for the service until closing.
Environmental audits and inspections
In general, any time an environmental audit or inspection is done it is at the request of the buyer.
Thus, they will be the ones paying for it unless there is a known problem that the seller wants to quantity during the sales process.
Just like the survey, this is something that would be paid for at the time of service.
Home and structural inspections
Much like the two closing costs, above, home and structural inspections are often done at the buyer’s request and paid for upfront.
Sellers may also choose to have a home or structural inspection done before putting their property on the market to make it more appealing.
The appraisal is the process of developing an opinion for the market value of a property.
This process is often associated with financing a purchase and thus is often requested by buyers.
Because it is at their request, buyers will often bear the cost of this service and pay for it at the time of service.
Soil percolation test
The purpose of a soil percolation test is to determine the soil drainage properties of a given area.
You’ll need to know this if you want to install a septic system.
If you’re purchasing a smaller, subdivided property, this will often have been taken care of in advance.
However, if you’re purchasing rural land, then this is one of those closing costs on land sales that you may want to keep in mind.
Not every property will need this, but some properties can absolutely benefit from it.
Determine your necessity and get it if you need to.
If you’re intent on building on the land you’re purchasing, then it may be prudent that you have a soil percolation test done.
It’s often part of the “due diligence” checklist.
This fee is always paid upfront – never at closing.
As a buyer, you may be tempted to forgo some of these expenses, but be sure you avoid making common land buying mistakes to cut costs.
What’s the number one thing to keep in mind with closing costs on land sales?
While it may make more sense for one party to pay them, for the most part, either one could.
This means you have a lot of flexibility and you can discuss your options with your attorney or agent to ensure you have what you need to make the most out of your transaction.
If you have the upper hand in a sale, you could use these fees as a means of negotiations.
Also, keep in mind that you’ll pay a lot of fees at closing (that’s the reason why they’re called closing costs after all!), but there are some services that will have upfront fees that don’t make sense to wait for because you’re working with contractors.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article i based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.