Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
Wondering what everyone budgets for closing cost as a rule of thumb. I know this can vary based on county to county, who pays title policy, etc. but I'm wondering generally what do you use off your head.
I run them before i make an offer, you'll have a higher per centage with low priced deals and low for higher priced ones. Get the costs in the county as customary the rate for title insurance, you'll have an idea on insurance for the deals you do, taxes are listed, interest calculated for 30 days will cover odd days interest on your loan, you should know where points will fall, the closing agent will tell you what the cost is and who generally pays what. It only takes a couple minutes do estimate closing costs when you 1. do enough deals or 2. practice estimates at different prices and then check them.
As Bill points out, if your deal is getting to real number crunching it is less of a general estimate and more of a get the actual numbers. The problem with using a standard percentage is as Bill points out the dollar figure is more relative to lower sale prices and less for higher sale prices. Also included in that could be your strategy to control the closing. As a general rule of thumb, when we sell we pay for title in order to select the title company and then work with a entity we know does a good job.
Additionally, "closing costs" sometimes is a catch all phrase and includes all things paid for which might be commissions, title, transfer fees, seller concessions, taxes, etc. This will depend on who you speak to and how they treat it. As a "cost to close" ballpark we generally use 15% for quick math and easy calculations and we believe that generally covers all things under the sun including concessions and commissions. If we can cut concessions out or reduce commissions then to us, that is just good management.
Closing costs on the purchase side or the exit side?
Keep in mind I am referring to deals around $300,000 in this post, they will change according to your own price points and areas.
On the purchase side, I average around $1500 which covers by 1/2 escrow, my owners title binder, recording fees, and other junk fees. Seller pays title and transfer taxes in most my deals.
On the sell side, I use 7% of sales price as my go to figure, and usually am under that. 5% goes to agent fees, and the balance 2% to other closing costs (excluding any seller concessions). Often I am at 6% of sales price and would be less if I was not in a state that robs you with "trasfer taxes"!
Will, do you find that Realtors don't go for 2.5% each, or that they give you sub-par service if they do accept it?
Every place is different. We have one market where we pay 4%, and that's the best agent we have (and given the volume and the fact that she gets 3% on the buy side generally, she's very happy with her share of the split on the sell side).
Will, do you find that Realtors don't go for 2.5% each, or that they give you sub-par service if they do accept it?
No, it has become the "standard" in this market and in my area, particularly with rehabbers like myself who offer the agent multiple listings per year. The reduced cost does not reduce the service in my case. Now, if I was a one and done, it could very well have a minor impact on the services, but again, with thel imited invesntory, just as us investors are fighting for deals, so are agents fighting for listings!