In a short sale who pays the closing costs?

In a traditional real estate transaction, homeowners are responsible for paying the closing costs associated with selling their property. These seller closing costs include things like property transfer fees, realtor commissions and attorney or title company fees. In a short sale transaction on the other hand, the seller’s closing costs are usually paid out of the money the buyer brings to the closing. Normally, the seller’s lender must approve all of these seller closing costs before a short sale can be approved and completed.

Let’s take a look at an example of a short sale from the seller’s perspective (Note: the buyer also incurs closing costs in a real estate transaction that will not be covered here). Seller closing costs vary greatly from state to state and place to place. In the simplified example below, a homeowner doing a short sale enters into a written contract with a buyer to sell his property for $200,000. The buyer will bring $200,000 to the closing to pay for the property. Of that $200,000, $12,000 will be paid for the realtor commission, $2,000 for the seller’s attorney or title company fees, $1,000 for the property transfer fees and the remaining $185,000 will be paid to the seller’s lender. Again, the seller’s lender must approve all of the seller’s closing costs. All monies paid out by the buyer and seller at closing are outlined on the transaction settlement statement also known as a Hud-1.

Purchase Price: $200,000
Realtor commission (6%): $12,000
Seller attorney fee/title company fee: $2,000
Property transfer tax/fee: $1,000
Total Seller Closing Costs: $15,000
Net $ paid to seller’s lender/bank: $185,000

Negotiation is an unavoidable component of most short sales which is why it is very important that you select a competent person or company with plenty of experience to assist you with your short sale. An experienced short sale specialist should be able to negotiate with your lender to get them to accept and approve all reasonable closing costs. In the unlikely event that the bank does not approve some of the closing costs, the buyer or perhaps the seller may have to contribute some money to pay these costs.