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Transaction Fees on U.S. Real Estate


chrispy
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I am getting close to putting an offer down on my first home and have learned about all of the transaction fees associated with buying AND selling a property.  It surprises me that ~3% buyers fees are reasonable to buy a home.  How does paperwork and title changes cost $3k for a $100k house but than costs $18k for a $600k house? 

 

Than there are fees associated with selling a home that exceed this ~3% from what I have been told.  It really has me wondering how someone would buy a home knowing they will sell it in roughly 5 years and expect to make much of a profit.  Unless you are in Seattle, San Fran, NY, DC, etc. it does not seem like the appreciation would exceed the fees so then you are depending on your mortgage payment going towards your principle.  This would require a hefty down payment to make happen.

 

I am very naive in this area so please fill me in on the flaws with this thinking.

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No flaws. You're right. Real estate transaction fees are ridiculously high. Pile on top of that the mortgage origination fee which is ridiculous as well, plus the wait time to get a mortgage approved. Agent commissions of 3% each way are insane as well.

 

Btw, I say this as a Canadian. Up here transaction fees are crazy as well but nothing compared to what you guys have going on.

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I am getting close to putting an offer down on my first home and have learned about all of the transaction fees associated with buying AND selling a property.  It surprises me that ~3% buyers fees are reasonable to buy a home.  How does paperwork and title changes cost $3k for a $100k house but than costs $18k for a $600k house? 

 

Than there are fees associated with selling a home that exceed this ~3% from what I have been told.  It really has me wondering how someone would buy a home knowing they will sell it in roughly 5 years and expect to make much of a profit.  Unless you are in Seattle, San Fran, NY, DC, etc. it does not seem like the appreciation would exceed the fees so then you are depending on your mortgage payment going towards your principle.  This would require a hefty down payment to make happen.

 

I am very naive in this area so please fill me in on the flaws with this thinking.

 

Fees are indeed high on real estate transactions....but you can counter that a little bit.

 

Don't like the real estate agent's fees?  Either negotiate to lower them OR don't use them and sell it yourself.  You are not required to use an agent...

 

Don't like mortgage origination fees or PMI insurance?  Simply pay cash.

 

As to attorney's fees/and or title insurance...those increase with the value of the property because the liability of the lawyer goes up.  Different liability for a $50k house vs. a million dollar house...

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I'm a bit confused. I don't think I paid 3% of a house as a buyer.

 

I never paid any fees for mortgage or closing... simply got no points, no fees mortgage. It may have been a bit higher rate, but since I refi'd at least 3 times per house, it was well worth having a bit higher rate but then refi with no points no fees again.

 

Yes, you do pay something like 5% real estate agent fees as a seller, which is split among seller's agent and buyer's agent. You can save by not having an agent but it has its own issues. If you have no agent as buyer, it doesn't give you any benefit usually.

 

Anyway, just my experience, your's might be different.

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A big part of Redfin's business model is offering a partial rebate on that transaction fee. I think other brokers will do that as well.

 

+1, buyer's agent gets 2.5% fee from seller's agent. Some agent are happy to rebate part of the fee because they do little work. If you are comfortable about negotiation yourself and knowledgeable about your target real estate market, I strongly suggest you use a discount buyer agent.

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