What closing costs to expect when selling to a cash buying company is one of the common questions we get asked by potential home sellers. So we try to answer it here for anyone who wants to know. Read on to find what you should expect to pay (if anything)…
Most cash buying companies in Cleveland or otherwise will pay the seller’s traditional closing costs. However, the buyer will, in most cases be responsible for some costs on the closing day. The main cost is prorated annual property taxes. There may be others. Read on to find out what your closing costs will be when selling to a cash buying company as well as any other buyer.
In our article “Do I have to pay closing costs when selling my house to a cash buying company?” we explained that most cash buying companies pay the seller’s traditional closing costs. This is a benefit as it means you could profit thousands of dollars more than if you were paying the traditional closing costs.
If you aren’t familiar with what traditional closing costs are, that article is a good introduction.
As a refresher…yes, most cash buying companies will pay your traditional closing costs. However, you should know that there are still costs you will be responsible for at closing, regardless of if you sell your property to a cash buying company or a traditional buyer.
So what are these costs? They mostly have to do with everyone’s favorite thing…taxes. Read on for the list.
What closing costs to expect when selling to a cash buying company…
The costs you could reasonably expect to pay at the closing include the following (this is not exhaustive and may vary based on situation and state):
- Prorated real estate property taxes – say you close on June 30th (basically 6 months of or 1/2 of the calendar year). The title company will prorate the annual taxes for the 6 months of the calendar year that you did own the property (Jan. 1 – June 30th). You are basically splitting the current tax year (which isn’t actually paid until the next calendar year) based on the closing date.
- Delinquent real estate taxes – say you haven’t paid your taxes for 2 calendar years and your taxes are delinquent. Before the property can transfer the balance for the taxes needs to be satisfied to the county. Depending on how the agreement with the buyer was structured they may agree to pay the delinquent tax balance. If not, you will need to pay this off from the proceeds of the sale or before closing.
Additional costs you may expect to pay at closing if your property is a rental property with tenants
- Prorated rent (*if its a rental with an occupied tenant) – this is similar to the prorated real estate taxes, but it is for the month’s rent in the month you close. If your closing date is June 30th then the title company will most likely ask for 1 day rent to be given to the buyer. Title will also ensure the rent for July is given to the new owner as well. If the closing date is June 15th the seller will give the buyer a pro-rated credit for the half of the month’s rent because the rent for June was (hopefully) already collected.
- Security deposits and any pre-collected rents (*if its a rental with an occupied tenant) – security deposits and pre-collected rents should be held in escrow so this is not actually a cost but rather a transfer of escrow funds. However, we want to note that these will need to be transferred to the new buyer upon closing.
A note on delinquent taxes and the structure of the sales contract
Depending on the agreement between the parties, a cash buying company may agree to pay a seller’s delinquent tax obligation (not pro-rated annual taxes). In these situations the offer price will be calculated to net the seller a given amount. In other words, the offer made by the cash buying company will take the delinquent tax expense into account and reduce the offer by the delinquent tax amount in exchange for paying the delinquent taxes for you.
Here’s an example. Say you have a property you want to sell to a cash buying company. The company makes you an offer of $100,000 for the property. During the process, you disclose that the property has $30,000 in delinquent taxes. No problem. The cash buying company gives you two options.
Option A: They pay you $100,000 and you pay off the $30,000 of delinquent taxes before closing or by taking it from your proceeds of the sale. The net offer would be $100,000 (sales price) – $30,000 (delinquent taxes you pay off) = $70,000 net.
Option B: They offer you $70,000 (sales price) plus they offer to pay off the $30,000 delinquent tax amount at closing. The net offer is again $70,000.
This may sound confusing, but in all honesty it doesn’t really matter if you or the cash buying company pay the delinquent taxes. There may be a reason why you prefer one option over the other. If this is the case then ask the cash buying company to structure the contract in that fashion. Either way, you will essentially net out the same profit regardless of if the cash buying company pays for the delinquent taxes at closing or you pay for them out of your sale proceeds.
FIND THE ANSWERS TO OTHER FAQS ABOUT SELLING TO A CASH BUYING COMPANY
We want to help sellers fully understand the cash buying process, whether you are selling to us or another cash buying company. We understand selling a house for cash to a cash buying company is not as common as a traditional sale. Understandably, you may have a lot of questions. We want to help answer them. Check out our cash home buyer FAQs.
If you want to learn more about us then check us out at Sesa Properties Cleveland.
The information presented in this article is for educational purposes only and should not be considered legal, financial, or as any other type of advice.
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