Who Pays Closing Costs on Land Sale: 2022 Guide

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Closing is a stage in the land selling transaction during which the property title is officially transferred from the seller to the buyer. Closing costs are the fees paid at the end of the land selling process outside the purchase price. These include the expenses that third-party service providers charge for finalizing the real estate transaction. Also, there are ways — such as buying your dream land via DiscountLots — to avoid paying closing costs altogether, hence there is no charge for closing costs on land.

Both the buyer and the seller have to pay some fees. Sometimes closing fees need to be paid upfront, whereas others are negotiable. Understanding who pays closing costs on land sale can help you get the best deal. In this guide, we detail the most critical information to get you prepared. 

Buyer Closing Costs on Land Sales

Land buyers usually pay closing fees of 2-5% of the land price. Some fees are requested by the lender, some are required by the government, whereas others are optional. We’ve outlined the most common buyer closing costs on land sales. While you won’t necessarily have to pay all of these costs, you’ll surely incur at least some of them.

Attorney Fees

Usually, both parties have attorney representation in the closing process, so you should factor in this cost when planning your budget. Of course, you’ll be responsible to pay the fees for the attorney that represents you. The fee is different for each attorney so you should contact your selected attorney for specifics.  

Title Search and Insurance

Title search looks for claims on the property you intend to buy. If the lot has unpaid back taxes or liens, the seller doesn’t technically own the selling land. In most states, a title search is done by a title insurance company, whereas in others, the law dictates title searches to be handled by a real estate attorney. Lenders usually require you to purchase title insurance too. The insurance will protect you if something is missed and problems with the title arise later on. 

Loan Application and Origination Fees

If you’re taking up a loan, you’ll have to pay fees associated with borrowing funds. These charges include one-time expenses, such as origination and application fees. Some lenders might be willing to waive the application fee through negotiation or charge only a low price, whereas others will impose higher up-front costs. Researching loan options with various competitors can save you hundreds of dollars in fees.

Land Survey Costs

A land survey reveals the actual property size, location, and dimensions and identifies if any improvements on the plot cross the boundaries. It’s advisable to get a survey on the land before closing unless the seller can provide a recent survey. Considering that you as a buyer will benefit from the survey, you’ll be the one paying for it.  

Appraisal

The appraisal estimates a property’s value given by a professional appraiser. It usually involves an inspection to look at the lot and assess its features. An appraisal is often required when getting a vacant land loan. It costs between $300 and $500 and is usually covered by the buyer, usually upfront.

Environmental Inspection

Usually, environmental inspections are done per the buyer’s request. Therefore, they are the ones that will be paying for it unless there are Recognized Environmental Conditions (RECs), at which point the seller pays. Similar to the land survey, an environmental audit is something that is typically paid upfront.

Soil Percolation Test

A perc test is used to determine the level of soil drainage of the property. This is one of the most important questions to ask when buying land, as it helps you decide whether or not you need to install a septic system. If the lot you’re purchasing is subdivided, this will likely be settled in advance. On the other hand, if you’re buying raw land and plan to build on it, you’ll likely need to do a percolation test. The cost is covered by the buyer and is always paid upfront. 

Seller Closing Costs on Land Sales

In addition to buyers, land sellers also must pay fees at closing. Let’s look at some typical closing costs sellers might pay to finalize a land sale. 

Attorney’s Fees

As we said, it’s a common practice for both buyer and seller to have attorney representation at closing. So, sellers will have to cover their fees. The cost depends on the attorney and can go anywhere from $150 to $500 an hour. There’s also an option to hire an attorney for a flat fee for a specific service which can be between $800 and $1,500. 

Real Estate Agent Commission

Real estate agents assist in the pre-closing process and charge a fee when the sale occurs. Sellers typically take responsibility for the commission fees of both agents on land sales. Real estate commissions vary depending on the market, but the average rate is between 5% and 6% of the loan value. If the deal is owner-financed, the seller can negotiate with the agent to pay the commission later. 

Escrow Fees

Escrow accounts benefit both the seller and the buyer. If the seller uses an escrow account to hold funds, they can rest assured that the buyer isn’t trying to back out on the closing. Usually, sellers will cover 50% of escrow fees charged because both parties benefit from the account.  

HOA Fees

If the land on sale is in a planned community governed by an HOA, the seller needs to pay the fees accumulated up to the date of sale. Also, they need to transfer the HOA rights to the buyer. In most cases, the seller is responsible for the HOA transfer fees, and they are added to the closing costs when escrow is complete.  

Prorated Property Taxes

Sellers are also responsible for property taxes that accumulate up to the date of the sale. They should check what they owe with the local county clerk’s office, as the dues vary greatly based on state. After paying the property taxes, the buyer takes over the dues.

Deed and Purchase Agreement Preparation

The deed preparation fee is paid for drafting the document that conveys that the property is transferred from the buyer to the buyer. To complete the deal, a purchase agreement will also be needed. Usually, the seller pays this fee at closing.  

Recording Fees and Transfer Taxes

When selling a property, the county will have to record the new deed into the public records and transfer ownership. The seller usually pays the fees at closing. However, in some states, this expense is split between the buyer and seller, whereas in others, the tax is covered by the buyer. 

The Takeaway

Both buyer and seller pay closing costs. Attorney’s fees, appraisal fees, and inspection fees are common closing fees you’re likely to incur as a buyer.  The specific expenses will depend on the type of loan, the land’s value, and the particular state laws. If you’re looking for a hassle-free experience, contact Discount Lots. We offer the best selection of lots and easy monthly payments with no credit check or formal underwriting process. Plus, we don’t charge any closing costs which means additional savings for you! 

 

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