Anyone who has ever bought or sold real estate knows how closing costs can affect a transaction. Sometimes, the fees can make or break a deal and blow the American dream right out the window. When either the buyer or the seller isn’t on top of their estimated closing costs, the entire transaction is in jeopardy and subject to dying a slow death at the escrow table.
Leave it to the Millennials (aged 28-34) to bring the problem to the forefront. According to a recent ClosingCorp survey of more than 1,000 adults, two thirds of Millennials planning to buy a home admit they’re clueless about closing costs.
The research also found that more than one-third of all homeowners say they’re “not very” or “not at all” aware of closing costs. This is an expensive communication glitch, since closing costs can amount to 2-5% of the purchase price of a property. On a $200,000 house, that’s an additional $10,000 a buyer would need to submit along with the down payment. Loan fees, lender, title and other settlement costs could add up to more than the borrower has in the bank.
It’s not much better for sellers. When selling a property, especially one in default, the seller’s share of closing costs can spread like wildfire when things like foreclosure fees, past due taxes and penalties are factored in. Depending upon the length of escrow, per diem fees, for example, can double or triple an original estimate.
What’s a consumer to do? Both buyers and sellers should insist on regularly updated closing cost estimates that accommodate contract extensions and surprise liens developed after escrow was opened but before it closes. This will prevent people from getting stuck in the uncomfortable, embarrassing, and sometimes legally precarious position of being short of money to close.
The issue of consumers’ confusion about closing costs is so widespread that the Consumer Financial Protection Bureau is implementing several changes to the property transfer disclosure process. The CFPB will require mortgage lenders and banks to provide buyers with new closing disclosures at least three business days prior to closing, to allow them to ask more questions and compare costs.
Time for agents representing buyers and sellers to do a better job of educating consumers about closing costs. Communicating with clients early and often will go a long way to support smooth transactions going forward.