Closing
costs are those costs incurred in the settlement of the real estate transaction.
They include, but are not limited to: Deed Stamps, Intangible Tax, Note
Stamps, Attorney’s Fees, Recording Fees, Survey, Title Search and Title
Insurance, and fees required by Lenders such as Loan Origination Fees,
Discount Points, Tax Service, Flood Certification, Title Insurance Endorsements,
VA Funding Fees, etc. In the State of Florida, as in much of the United
States- it is customary that closing costs are prorated as follows:
Buyer: Customary to pay all closing costs
associated with taking title to the property.
Seller: Customary to pay all closing costs associated with delivering
marketable title to the property.
BUYER
As
a general rule, most of the Buyer’s closing costs are related to the loan
they will be procuring (if any). In many cases, if a Buyer is not getting
a loan, the Buyer’s closing costs may be as low as a fee of $10.50 to
record the deed in the public records. The fees charged by lenders may
include the following:
- Mortgage
Origination Fee
- Mortgage
Discount Points
- Wood
Destroying Organism Report
- Appraisal
Fee
- Tax
Service
- Document
Preparation Fee
- Mortgagee
(or “Lender’s”) Title Insurance Policy
- Title
Insurance Endorsements
- Flood
Certification Fee.
Of
course, if the Buyer is utilizing other services, such as an attorney
or home inspector, the Buyer must pay those fees as well.
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SELLER
The Seller
customarily pays those costs associated with delivering good and marketable
title to the Buyer. These costs typically include:
- Title
Search
- Owners
Title Insurance Policy
- Survey
- Recording
fees for Seller’s Satisfaction of Mortgage (if any)
- Other
costs for services chosen by the Seller such as the Seller’s attorney’s
fee.
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TITLE SEARCH. The title search is necessary to determine if the Seller
has the ability to convey “marketable title” to the Buyer. “Marketable
Title” means that the Buyer, once he or she has purchased the property,
would be able to sell or market the property, without a title defect or
“cloud” hindering materially their ability to do so. The Title Search
consists of a Title Abstract and Title Examination. In the Title Abstract,
each document in the chain of documents leading back to the “root title”
to the current owner is located and photocopied. When compiled, these
documents are called “The Abstract”. They include deeds, mortgages, judgements,
liens, Covenants and Restrictions, Easements, and any other document affecting
the subject property. Once the Abstract is complete, a qualified Title
Examiner conducts the Examination by inspecting each document to make
sure that it complies with formality of execution, recordation, and other
requirements to insure its legal effect. So long as documentation is
not found which “breaks” the chain of title, the Title Search may the
be utilized to obtain a Title Insurance Commitment from a State Licensed
Title Insurance Underwriter.
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TITLE INSURANCE. Whenever title is transferred
to property, there is always a risk that the Seller did not have a perfected
title to the property and that the Buyer may encounter difficulty or costs
associated with selling the property or curing title defects. In a worst
case scenario, the Buyer could find that he or she actually has no marketable
title to the property and that another person or entity has a prior claim,
mortgage, lien, or even right of possession to the property. Title normally
is transferred in Florida by General Warranty Deed, which means that the
Seller “warrants” or guarantees good title to the Buyer. However, many
times the Seller may not be around anymore to back up this “guaranty”
or may no longer have the financial ability to do so. Title Insurance
is protection against these types of risks. If you are borrowing money
to purchase property from a bank or other institutional lender, that lender
will almost always require that they be issued a “mortgagee” or “lender’s”
title insurance policy that insures the bank against any losses due to
title problems. It is important to know that this “mortgagee” or “lender’s”
policy does NOT protect or insure you as the owner of the property- it
is protection for the lender only. Normally, the lender’s title insurance
is issues simultaneously with issuance of an “Owners” or “Fee” title insurance
policy which protects you as the owner of the property.
In short-
in Florida, a Warranty Deed is not a guaranty that you have good or marketable
title to your property. Only by purchasing an “Owners” title insurance
policy can you be guaranteed and insured marketable title to the property.
Therefore, it is customary in the State of Florida that the Seller pays
for issuance of the Owners Title Insurance Policy that is given to the
Buyer, along with the Deed at closing. These two items together insure
and guaranty a new owner of property that they have clear and marketable
title to the property.
Title Insurance
must be purchased from a title insurance underwriter that is approved
by the State of Florida Insurance Commission. Once your title search
is completed, the title insurance company will issue a “commitment” to
insure the property. The commitment will include any title exceptions
for the property as well as any requirements that must be met for issuing
the policy. Typical exceptions include Covenants and Restrictions, easements,
encroachments, rights of the state or federal government to submerged
lands or jurisdictional wetlands, navigational servitude rights of governments
(for properties fronting a navigable waterway), and any unrecorded encumbrances
or liens. Typical “requirements” include execution of affidavits by the
Buyer and Seller that they have not done anything to cause a lien to be
put against the property, execution of a valid deed and/or mortgage to
the property, and a “Gap Affidavit” to be executed by the buyer and seller
stating that they have done nothing since the title search was performed
to cause a lien against the property. If there are any “clouds” or “defects”
found in the title search, then the Title Commitment will require that
they be cleared prior to issuance of the policy.
HOW MUCH
DOES TITLE INSURANCE COST? The rates for title insurance are set by the
State of Florida Insurance Commission. That means that title insurance
costs the same- no matter where you purchase it from- this rate is called
the “Promulgated Rate”. Most “Settlement Agents” are also title insurance
agents. Most commonly, a “Settlement Agent” is either a Real Estate Attorney
or Title Insurance Company. Many people have a misconception that title
insurance or closing services are more expensive from an attorney’s office
vs. a title company- in most all cases, this is simply not true. A Title
Agent is free to charge over and above “Promulgated Rate” for title insurance,
but very few do so. All settlement agents, whether they are an attorney
office or title insurance company, are required by law to charge a reasonable
“settlement fee”. This fee ranges from a low of $75 to a high of $250
for most settlement agents. As a rule of thumb, settlement fees vary
more geographically than they do between attorney offices and title insurance
companies- in other words, it is incorrect to say that title companies
charge lower settlement fees than attorney offices as a general rule.
Title
insurance rates in the State of Florida are $5.75 for each $1,000 of coverage
from 0 to $100,000, $5.00 for each $1,000 of coverage from $100,000 to
$1,000,000, $2.50/$1,1000 from $1M to $5M, $2.25/$1,000 from $5M to $10M,
and $2.00/$1,000 over $10M.
Click Here for a Chart
of Title Insurance Rates.
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Other
Title-Related Charges. A typical charge
for the Title Search, which includes the abstract and examination is $150.00.
Complicated searches may require higher search fees. If you are borrowing
money to purchase, the lender may require additional endorsements to the
title insurance policy issued to the bank. These endorsements typically
always include an ALTA 8.1 endorsement, which guarantees the bank that
there are no environmental liens against the property from the federal
government. Other endorsements may include an ALTA 5.0 (For Properties
having a Homeowner’s Association), ALTA 6.0 (for adjustable rate mortgages),
a Navigational Servitude Endorsement (for properties abutting a navigable
waterway), and a Florida Form 9 Endorsement (for properties located in
a platted subdivision). Typically, the ALTA endorsements are approximately
$25 each, and the Navigational Servitude Endorsement and Florida Form
9 Endorsements are 10% of the Promulgated Rate for the title insurance.
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SURVEY.
The survey is an important document that defines the boundaries of your
property, locates any structures on the property, and identifies any easements,
building restriction lines, or right-of-ways. If you are borrowing money
to purchase property, a survey less than 90 days old must generally be
provided to the lender at the loan closing. If you are paying cash, it
is up to you whether or not you choose to get a survey- but doing so is
highly recommended. Typically a surveyor will “flag” the corners of your
property so that you may actually visit the property and identify the
boundaries. You may ask the surveyor to also flag easements or other
features of the property that may interest you. It is very important
to know what you are buying- and the survey is your connection between
what is on paper, and what exists in reality. Surveys are never required
for condominium purchases, and on many refinance transactions your lender
will allow you to use an old survey provided no additional improvements
have been constructed on the property, or no changes have been made to
the outside dimensions of the structures that existed when the old survey
was done. A survey for a typical ½ acre lot with no complications should
run approximately $175 to $250. Larger properties, or properties that
make it difficult to survey the property (such as a swamp or other water
body) will require much larger survey fees. When purchasing a property,
ask the seller for a copy of their survey and get your new survey from
the same surveyor- doing so may save you money.
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RECORDING FEES. Many documents associated with a real estate closing must be recorded
in the Clerk of Court’s office in the county where the property is located.
The clerk of court usually charges a recording fee for filing these documents
in the public records. Once they are filed, they become a part of the
“chain of title” to the property and will appear in any future title searches
on the property. Documents that must usually be recorded include the
deed, mortgage, easement agreements, covenants and restrictions, and any
affidavits or Power of Attorney documents associated with the transaction.
Recording fees are typically $10.50 for the first page of the document,
and $6.00 per page thereafter.
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NOTE
STAMPS AND MORTGAGE INTANGIBLE TAX. The Florida Statutes provide that if you borrow money when purchasing
property, you must pay a note stamp tax and mortgage intangible tax.
Note Stamps are $3.50 for every $1,000 of the loan evidenced by the Note
(the document where you agree to pay back the bank money on your loan),
and Mortgage Intangible Tax is $2.00 for every $1,000 of the loan evidenced
by the Mortgage (the document which gives the bank a security interest
in your property as collateral for the Note). For more information
on these taxes, you may refer to Chapter 12B-4 “Documentary Stamp Tax”
of the Florida Statutes. Click
here to go to the Florida Statutes.
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ATTORNEYS
FEES. In some states, the law requires that
each party to a real estate transaction be represented by an attorney.
In Florida- it is up to you! Considering the amount of the investment
in most real estate transactions, hiring an attorney is a wise step.
In the typical transaction, the Seller pays the Closing attorney’s fee.
If the transaction is a cash transaction, then the Attorney is deemed
to be representing the Seller only in the closing. If the Buyer is getting
a loan, then the Closing Attorney will be representing the Seller in preparing
the real estate contract, the purchase negotiations, and all other matters
leading up to the actual closing. At the closing table, however, the
Closing Attorney will typically be acting as the lender’s authorized representative
in closing the loan for the bank. To the extent that there is any conflict
between the Seller and the Buyer’s Lender, the Attorney must represent
the lender. If for any reason the Seller decided to pursue legal action
against the Buyer’s lender, the Closing Attorney would be unable to represent
the Seller against the lender due to the “conflict of interest” rules
of the Florida Bar. If the Buyer pays the Closing Attorney’s fee, then
the closing attorney is deemed to represent the Buyer up to the point
of closing the loan package, at which time the Closing Attorney is then
again representing the Lender in closing the loan. If for any reason
a Buyer or Seller is uncomfortable with the split representation resulting
in the above typical situations, they may hire a separate attorney to
represent only their interest in the transaction. Therefore, it is possible
to have a closing where there is an attorney representing the Buyer, an
attorney representing the Seller, and an attorney representing the Lender
who acts as the settlement agent and closes the loan. The typical situation
in Northeast Florida is where the Seller pays the Closing Attorney’s fee
and the Closing Attorney then represents the Lender for the Buyer at the
closing table.
Most
real estate attorneys are also title agents, and subsidize their attorneys
fees by earning a commission on the title insurance premiums. A Title
Agent who is not an attorney (such as an independent Title or Closing
Company) earns the same premiums. The consumer benefits from this arrangement
in that the title insurance must usually be purchased regardless of whether
an attorney or title company is acting as the settlement agent, and therefore
a Seller or Buyer may gain attorney representation at a subsidized rate
through the title insurance premium subsidy. Due to this arrangement,
most real estate attorneys in the Northeast Florida area are able to offer
the added security and protection of attorney closings for settlement
fees ranging from $175 to $250. For transactions that are “For Sale
by Owner”, a higher fee may apply since the attorneys office may be asked
to help with certain tasks that would normally be handled by a licensed
Realtor. The attorney’s office will typically prepare the sales contract
for the parties, order the title insurance and examine the title search,
work with the Buyer’s lender in creating the loan package with all associated
documents, order the survey, and coordinate most other closing issues
and requirements for the settlement fee and title insurance premium subsidy.
In short, you can typically close with an
attorney office for about the same (within about $100.00) of the price
to close with a title insurance company. Utilizing an attorney gives
the added insurance of professional and experienced representation at
the closing table, the ability to immediately address legal issues and
questions, as well as the added benefit of malpractice insurance. The
Real Estate Attorney is a valuable resource to the parties in a real estate
transaction, and you should not hesitate to contact one for advice if
you are involved in a real estate transaction and have any legal questions
or issues.
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