When buying land, it’s crucial to incorporate all its associated costs into your budget. However, beginner land investors usually ignore one of the most obvious categories of expenses; closing costs.
Closing costs are an on-time charge or fees, in addition to the loan down payment, paid for documentation and recording, closing a real estate transaction on a property. The costs vary from state to state but the sole purpose is the same; to finalize the deal.
Closing Costs in New York State
As being one of the most lucrative real estate markets in the US, New York is the second most expensive state for charging higher closing costs. Mostly, closing costs are financed by the buyer with an average of 3% to 7% of the total land purchase price.
Closing costs can be classified into various types:
Agent or Attorney Fees
In every deal, there is an agent or attorney who represents whether buyer or seller. The same attorney is designated for performing closing on the land sale.
Typically, the party who the agent or attorney is representing pays the fee.
However, you should assume that this fee will split between the buyer and seller because both of them have particular representation in closing a land deal.
Financing Fees
Buyers who complete the transaction by using borrowed funds from a bank or lender must have to pay the financing fee at closing.
It is dependent on the amount of loan and sometimes neglected when the seller offers owner-financing.
Brokerage Commissions
To negotiate and acquire land, the real estate agent keeps track of the whole deal and serves as a representative for the buyer or seller and in some cases both parties . In return, the seller pays a fee at closing, also known as the Brokerage Commission.
If the buyer is using owner-financing, some brokers might accept the commission at a later date. All these matters can be negotiated personally.
Title Search
Often done by a title company, the title search is used to confirm the land’s legal ownership and to check its public records.
Simply, the title search discloses restrictions on the land, lease details, mortgage details, and the names of the previous property owners.
The cost for the title search is paid by the buyer, usually at closing.
Deed Preparation
The preparation of documents that coveys the rights and warranties of land from the seller to the buyer is called deed preparation. It may also include a purchase agreement that‘s specifically drafted prior to closing.
There is a fee for all documentation and drafting paid at closing. The land seller is responsible for paying this fee.
Mortgage Preparation
This fee comes up when the buyer is dependent on owner-financing. All the documents for preparing the mortgage are included in this fee and paid at closing.
Because it is financed by the buyer, it’s quite easy to predict who will pay the fee; The Buyer.
Verdict
Every real estate transaction is incomplete without paying closing costs. Keep in mind closing costs are different from other expenses, it offers flexibility; you can discuss available options with an attorney, ask to extend the payment date, and negotiate with the seller.
Most of the expenses are associated with financing options, and thus you can lower the expenses when going through a cash transaction. Also, you can negotiate when buying land in a buyer’s market, as anxious sellers are known to pay a part of the buyer’s closing costs. Briefly, it is a cost that can’t be skipped but negotiated. However, in practice, the real estate agent can provide ways for tackling the extra and unnecessary charges so both the buyer and seller can complete the transaction with minimum costs.
