Buying a house in Florida is a big deal. No matter whether you’re purchasing a primary single-family residence, income-generating rental property, or even a vacation home, there are lots of considerations that come with the process. One common concern is closing costs: Who pays closing costs in Florida?
Who pays closing costs in Florida? According to the experts at Royal Shell Real Estate, in most Florida real estate transactions the closing costs are split between the buyer and the seller. The seller typically pays 5% to 10% of the home’s value in closing costs, while the buyer is responsible for 3% to 5%.
Ready to learn more about the home-buying process in Florida? Keep the following information in mind when you’re ready to sign on the line and get the keys to your new Florida property.
What are Closing Costs?
Closing costs are the fees paid to finalize a real estate transaction. These costs can include the home appraisal, searches on your home’s title, property taxes, mortgage insurance, and other loan-related fees.
As a rule of thumb, closing costs can range from 3% to 5% of the loan’s value, so it’s important to be prepared. To keep yourself from any surprises, be sure to include closing costs as part of your home-buying budget. You can read more about putting together your budget in our Tips for First-Time Home Buyers blog.
How Do Closing Costs Work in Florida?
After a home sale, closing is the final stage of the home-buying process. The average closing costs for Florida in 2021 were $8,551 with taxes and $4,484 without taxes, according to ClosingCorp. These costs depend on the home’s value and its location. The closing can even be negotiated. So, who ultimately pays those closing costs?
In general, closing costs in Florida are split between the seller and the buyer, with the buyer paying more. This arrangement can vary depending on the county and what the parties agree to.
In addition to paying most of the taxes and fees, buyer closing costs include:
- Mortgage costs
- Title search
- Escrow
- Home inspections
- Notary fees
Sellers pay a closing cost in Florida, too. A large portion of seller closing costs is the real estate agent’s commission.
Sellers in Florida may also be responsible for:
- Broker fees
- Outstanding liens, including HOA fees and utility bills
- Taxes
- Title fees
- Miscellaneous expenses
Continue reading to learn more details about the closing costs buyers and sellers pay in Florida.
What Closing Costs Do Sellers Pay in Florida?
Though the seller stands to benefit from selling their home, there are still a number of costs they are expected to pay.
Seller closing costs for a home in Florida, which include commissions, taxes, fees, and other expenses, often end up costing a seller between 5-10% of the price of the home.
Mortgage Payoff
The mortgage payoff refers to any outstanding mortgage payments that the seller must pay in full before closing on the property.
This mortgage payoff amount is not always the same as the current balance, as the balance may not reflect the interest that will accrue through the closing date. Some loans also have prepayment penalties that will need to be factored into the cost.
Property Taxes
A seller is responsible for paying the property taxes on their home for each day that they owned that home. Because Florida has homeowners paying their property taxes one year behind the actual year, sellers must pay their outstanding property taxes up to the closing date.
For sellers closing on the sale of their property on June 30th, for example, that means paying the outstanding taxes from the 1st of January through the 30th of June as part of the closing costs.
Title Examination
Part of the process of transferring a home between buyers and sellers is ensuring that there are no other outstanding liens, mortgages, judgments, or other claims against the property. This title examination must be done before the transfer can be completed, and any outstanding liens must be satisfied.
Though title examination searches do not legally require a real estate title company, title companies are used in about 80% of real estate transactions in Florida.
Excise Tax
This is a Florida state tax that the seller pays upon transfer of ownership. Called documentary stamps or the documentary stamp tax, this tax is based on the final price of the home. These taxes are due on mortgages, liens, or other evidence of indebtedness filed or recorded in Florida.
The Florida documentary stamp tax rate is $0.70 per $100 paid for the property in all counties, except Miami-Dade County, where documentary stamps are $0.60 per $100 for single-family residences, with a $0.45 surtax on each $100 added for other types of property.
Title Insurance
The owners of the house pay title insurance to keep themselves protected against future claims or defects that might be identified after the sale. The cost for title insurance will vary depending on factors like the sales price, the home loan amount, and the previous title owner’s insurance.
These prices are set by the Florida state government and average a total cost of $500 to $1,500.
HOA Estoppel
The HOA Estoppel letter is a certified document letting the current homeowner know how much they owe to the HOA in fees and other charges by the date specified. This can include current HOA fees, delinquent fees, interest payments, special assessments, and attorney fees.
It is a legally binding document that is designed to protect new buyers from undisclosed financial obligations.
Transfer Taxes
This is another name for what is called the documentary stamp tax in Florida. This is a tax enforced by cities, counties, and states on the transfer of a property title from one person to another. These transfer taxes are based on the sales price.
Between buyer and seller, it is often the seller - the party transferring or conveying title to the property - that is responsible for the payment of the tax.
What Closing Costs Do Buyers Pay in Florida?
In addition to paying to actually buy a home, buyers pay a number of closing costs. Many of those costs are connected with the need to secure a loan to purchase the home.
Still, even all-cash buyers will see that there are many other necessary closing costs to complete the transfer.
Loan Origination Fees
This is an upfront fee charged by the lender to process the loan application. It is compensation for executing the loan, and in the U.S. it ranges from 0.5% to 1% of the total loan amount.
Though this is considered part of the closing fee, this price is set from the beginning and the buyer should be well aware of it as they get ready to finalize their property purchase.
Appraisal and Survey
The appraisal fee is ordered by the lender in order to ensure that the amount of money the buyer is seeking is in line with the objective value of the property. In Florida, an appraisal costs an average of $500.
The survey cost is ordered to establish the borders of the property that’s being sold. A survey can reveal that a property is larger or smaller than expected. In Florida, surveys cost an average of $200-$800.
Home Inspection
A home inspection is designed to make sure there are no undiscovered or undeclared problems with the property. Should anything be uncovered, the seller can make the repairs, the seller can credit the buyer for the cost of the repairs, or there can be a dissolution.
Home inspections in Florida generally cost in the range of $279-$399.
Credit Reporting
To begin processing your loan, the mortgage lender will perform a credit report. Similar to other financial contracts, including credit cards and car loans, a full credit report is necessary to secure a loan. The buyer pays the cost of the credit report, which is generally between $175 and $200. Though some other fees or closing costs may be negotiable, the credit report fee is not.
Recording Fees
These are the fees charged by Florida countiesand record certain documents associated with the sale of a property. These fees are based on the number of pages to be recorded.
To find the cost for the county in which the transaction is taking place, search for the county name along with the “recording fee calculator.” For example, Manatee County Recording Fee Calculator.
Is it Better to Ask for Closing Costs or Lower Prices?
Given the variety and expense of the closing costs involved for both buyer and seller, a common question is whether it’s better to ask for a closing cost credit or lower prices.
The general argument is this: saving on closing costs is immediate relief, as the buyer gets savings on escrow and lender fees. On the other side is the long-term relief of a lower price that’s felt over the lifetime of the loan, often either 15 or 13 years.
But how does this playout for the seller? Many sources say that aiming for a lower price is your better option overall. But why?
If a seller receives a full-priced offer with a request for $5,000 in closing cost credit, or an offer for $5,000 less but no request for closing costs, this is what happens when you go with the second option:
- It lowers the selling fees for the seller, including agent’s commission, escrow and title fees, and transfer taxes
- It reduces the taxable portion of the capital gain on your home’s sale
- It can alert you that your buyer isn’t financially ready for this transaction
- It avoids some of the risks of a low appraisal - where a buyer has overbid, but a lender says your home is worth less - which is more of a risk today with appreciating real estate values.
Can Closing Costs be Rolled into the Mortgage?
Even once you understand all of the closing costs that come with buying and selling a home in Florida, it can feel overwhelming.
If you’ve been budgeting for the cost of the house itself and it’s becoming more of a financial burden to pay all of the closing costs at once, there is another tool to help buy a home in Florida: a no-closing cost mortgage.
With a no-closing cost mortgage, the lender can pay for a number of the initial closing costs and fees in exchange for a higher interest rate over the lifespan of the loan. Some buyers also use a no-cost mortgage to be able to allot more of their money towards a down payment.
While this can save money in the short term by reducing closing costs, it is worth paying attention to the increased monthly payments and increased interest rates over the long term to make sure it’s a financially sound plan.
Does the Buyer or Seller Pay Transfer Tax in Florida?
The transfer tax, also known as the documentary stamp tax, is based on a property’s sale price. It is paid upon transfer of real property by either the buyer, seller, or both parties. However, the party primarily responsible is the one conveying the property, the seller.
Though there are some markets where it is dictated who must pay the tax, it is often at the discretion of the buyer and seller. It can also become a negotiating point after the home sale.
If it is a strong selling market, a buyer can gain an advantage by offering to pay the transfer tax. If it is a strong buying market, the seller may not have as much negotiating power and could end up paying the documentary stamp tax. In other situations, it’s possible to split the tax.
Who Pays Closing Costs on New Construction in Florida?
To this point, we have discussed the buyer and seller closing costs in Florida on existing properties. When it comes to new construction homes, however, the closing costs can be higher - and often are.
For one, this is because closing costs will fluctuate based on new construction interest rates. These costs can also change based on the new construction escrow account and the owner’s title policy.
For closing costs on new construction in Florida, it is the seller who usually pays. Included in the additional closing costs is a new construction escrow account. Helping navigate these closing costs is just one of the reasons why you should use a realtor for new construction.
Make Buying or Selling Simple with Royal Shell Real Estate
Who pays closing costs in Florida? The answer isn't so simple. That’s why you need a strategic partner on your side no matter whether you are buying or selling a home or property.
Let Royal Shell Real Estate go to work for you. No matter whether you’re looking to make sense of the real estate market, find the perfect property, or are considering a move to Southwest Florida or beyond, Royal Shell has the answers and expertise you need.
Get in touch with one of Royal Shell Real Estate’s friendly agents today. We’re ready to go to work for you from start to finish.
