When it comes to real estate transactions, buyers and sellers can benefit from preparing for the finish line early.
Closing costs are an expensive final hurdle for both parties, but careful planning and budgeting can help turn an unpleasant surprise into a routine part of the real estate transaction.
For buyers, it’s all about researching what they may be responsible for and budgeting appropriately. For sellers, finding the right listing agent that won’t break the bank is crucial, as agent commissions are one of the costliest closing costs for those selling their property.
Below, the team from Prevu Real Estate breaks down the most common and crucial closing costs you need to know and prepare for, including how to estimate them, what the average cost is, and how to potentially pay less.
What are real estate closing costs in New Jersey?
In a nutshell, closing costs are fees associated with the sale and purchase of a home that are paid at the end of the transaction - the closing. Both buyers and sellers pay them, and they can cover various services, from legal and inspection fees to agents’ commissions and mortgage closing costs. Most closing costs are unavoidable, but careful planning and budgeting can help turn an unpleasant surprise into a routine part of the transaction.
For buyers, closing costs typically include loan origination fees - which the lender charges for processing mortgage loans - appraisal fees, escrow fees, and title-related fees, which can include title search and title insurance fees. Buyers typically pay for the recording fee, but sellers are responsible for paying the fee for recording the release of any open mortgages on the home. Additionally, buyers with a down payment of less than 20% of the home's purchase price may need to pay for private mortgage insurance.
Sellers have their own set of closing costs, the most substantial being the real estate commission. Sellers typically pay for commissions, realty transfer fees, recording fees, prorated property taxes, homeowners association fees, attorney fees, property appraisal fees, and mortgage payoff. The commission fee is typically split between the buyer’s and seller’s agents and can total between 5% and 6% of the property’s selling price. Sellers may also cover transfer taxes, any outstanding liens on the property, and attorney fees.
Of course, closing costs can vary significantly depending on the situation and specific factors. These can include the property’s location, the specifics of the mortgage agreement, and even the time of year the transaction takes place.
Buyer closing costs in New Jersey
- Loan origination fee
- Appraisal fee
- Escrow fee
- Title insurance
- Title search fee
- Recording fee
- Attorney fees (if applicable)
- Home inspection fee
A significant part of buyer closing costs is the down payment, which can greatly impact the total expenses associated with purchasing a home. Additionally, there are closing cost assistance programs available in New Jersey, such as those provided by the New Jersey Housing and Mortgage Finance Agency, which can benefit first-time homebuyers by reducing their closing costs.
Seller closing costs in New Jersey
- Real estate agent commission / Realtor fees
- Transfer tax
- Outstanding liens or judgments (if applicable)
- Title insurance
- Home warranty (if applicable)
- Attorney fees (if applicable)
- Escrow fees
- Property taxes
- Home repairs (if negotiated with the buyer)
How much are the average closing costs in New Jersey?
In New Jersey, closing costs for buyers usually range between 2% and 5% of the home’s purchase price. For sellers, the closing costs can range from 5% to 8% of the home’s sale price, with the real estate agent’s commission forming the bulk of this amount.
These are just average ranges, and the actual closing costs for either party can vary significantly depending on the type of property and value of the home.
For a clearer picture, let’s consider a $800,000 home in New Jersey. For a buyer purchasing with a mortgage, assuming closing costs at 3% of the home’s purchase price, the total closing costs can total around $24,000. This would cover charges such as loan origination, appraisal, credit report, title search, and title insurance fees, among other things.
For a seller, assuming real estate commission of 6% and additional closing costs totaling 2% of the home’s sale price, the total closing costs would add up to 8% of sale price, or $64,000 for the seller.
How to estimate closing costs in NJ
Estimating closing costs in New Jersey can be complex, given the various charges and the variability of some of these costs. Working with your mortgage broker and real estate agent is a crucial step during the estimating process; you can leverage their experience with these transactions to zero in on your specific situation and get the most accurate estimate possible.
Start by identifying the fixed costs, such as the real estate agent's commission if you're a seller or loan origination fees if you're a buyer. For costs that depend on the property's value, such as title insurance or transfer taxes, a percentage of the property's price can be used for a rough estimate.
It's always a good idea to overestimate to cover unexpected expenses post closing as well, but remember that these are only estimates, and actual costs can vary.
How much is transfer tax in NJ?
One of the most expensive closing costs sellers will face in NJ besides real estate commission fees is transfer tax.
Each state has different rules and regulations when it comes to real estate transfer tax and New Jersey is no different. In terms of a ballpark estimate, most sellers should anticipate to pay 0.85% of their home’s sale price in transfer tax, on average.
That number can change depending on the overall value of the property; the more expensive the property is, the greater the likelihood of paying a higher transfer tax. TheState of New Jersey outlines specific rates per every $500 of a property’s value; if we go back to our earlier example of an $800,000 home, the rate would be $5.30 per $500 of transaction value. That means you can expect to pay about $8,480 in transfer tax.
However, sellers should be aware of any exemptions that may be available to them, such as a transfer of property between husband and wife, or parent and child. You can find more information about realty transfer fees at theNJ Division of Taxation website.
Transfer Tax Rates in New Jersey
- $0 to $150,000: $2.90 tax per $500
- $150,000 to $200,000: $4.25 tax per $500
- $200,000 to $550,000: $4.80 tax per $500
- $550,000 to $850,000: $5.30 tax per $500
- $850,000 to $1,000,000: $5.80 of tax per $500
- $1,000,000 or greater: $6.05 tax per 500
How to offset closing costs in NJ
As daunting as closing costs may be, there are tools and strategies both buyers and sellers can take advantage of to potentially lower the overall expense. Typical closing costs for both buyers and sellers in New Jersey can range from 2% to 8% of the property’s value.
Sellers may also cover some of the buyer's closing costs as part of buyer incentives to facilitate a home sale.
For buyers, commission rebates are arguably the most effective at offsetting closing costs.
In simple terms, commission rebates, or buyer rebates, are essentially a portion of your buyer agent’s commission fee given back to you as savings. How do you get one? By working with a brokerage that offers them.
Tech-forward brokerages like Prevu invest in salaried agents and online homebuying tools to unlock rebates for buyers. Prevu’s allows buyers to potentially receive up to 1% of a home’s sale price as a rebate after closing.
For instance, if you were to purchase a $1,250,000 home with Prevu, you could receive up to $12,500. For many buyers, that extra cash can help offset closing costs.
Another option is to negotiate with sellers to cover part of the closing costs. This will likely work better in a buyer’s market, however, so it’s always best to consult with your broker to make sure this is the best strategy.
Sellers, meanwhile, should interview as many brokerages as possible to ensure they’re getting the most competitive commission rate.
Alex Mikoulianitch
Content Marketing Editor
Alex Mikoulianitch is the Content Marketing Editor for Prevu, where he covers home buying, home selling, local insights, and all things residential real estate. Alex previously wrote about law and order for Business Insider and local news for Our Town Uptown. If he isn’t writing up the latest neighborhood guide, you can find him spending hours at the piano or reading Haruki Murakami novels.
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