By Will McCullough
Have you ever planned to contribute to the local economy by purchasing something you really wanted only to be surprised by extra, seemingly unexplainable, expenses? No, I’m not talking about feeding the parking meters while shopping along Bay Street; I’m talking about the closing costs associated with purchasing a property in the area. While experienced real estate buyers are stereotypically fully aware of exactly what closing costs consist of, most first time buyers are not. So if you’re a potential first time buyer of real estate in the Lowcountry, please read on. On the other hand, if you’ve already “been there, done that,” I’ll understand if you choose to stop reading now and skip forward to Terry Sweeney’s “Happy Winos” column. (For the record, I’m still waiting for him to review one of my favorite wines but he’s apparently prejudiced against the whole “volume meets cardboard box” packaging concept.)
Now that we’re left with just the first time buyers, please allow me to explain, in general, what closing costs are. In short, closing costs are not a single individual fee paid to some nameless entity when you buy a home. Instead, the term refers to the combined accumulation of multiple fees due to multiple sources for services rendered on your behalf during the transaction. In other words, instead of one big charge, it’s a whole bunch of smaller charges added together. The following are a few examples of some of the individual items that, when combined together, make up some of what we refer to as closing costs.
Home Inspection: While a buyer is not normally required to have a home inspection before a purchase, it is my strong recommendation that you do so. A good home inspector can discover a wide range of “latent defects” or “problems nobody knew existed” before a sale is finalized. As the saying goes — “An ounce of prevention beats a pound of cure.” The cost of the inspection depends on many factors but, in a nutshell, one can expect to pay an average of between $250 to $400. This charge is often paid at the closing as opposed to when the actual inspection is conducted and, thus, becomes one of the fees that make up part of the closing costs.
CL100 Inspection: Normally required by lenders and commonly referred to as the “termite inspection”, the CL100 inspection checks for just about anything that would degrade the stability of a wooden structure. While this obviously includes termites and other timber destroying insects, it also includes excessive rot, moisture in the wood and certain fungi. Like the home inspection above, payment for the CL100 is normally deferred until closing.
Appraisal: If, as opposed to paying cash, you are getting a loan on the property, an appraisal will likely be required by your lender. Basically, the appraisal’s purpose is to ensure that the sales price agreed upon does not exceed the actual current market value of the property. This protects both the buyer (from over paying) and the lender (in case you default and they have to foreclose and re-sell).
Attorney Fees: If you are purchasing a property in the state of South Carolina, you will be having an attorney represent you in the transaction. In short, the job of your real estate attorney is to ensure that all the contractual “T’s” are crossed and “I’s” are dotted, that you are receiving a clear and marketable title free of liens and that you fully understand the wide range of documents, fees, etc., associated with the closing.
Lender Related Fees: This is a topic that warrants a detailed column of its own but, in general, there may well be fees or up front costs associated with the type of loan you have secured for the property and, if so, these costs will become closing costs as well.
While the above list represents some of the services that, when combined and paid for at closing, make up what we call “closing costs,” it is by no means complete. Actual costs will vary from transaction to transaction, so I highly recommended that you discuss the topic in detail with your agent before you make your first offer.
Oh, and try out the boxed wines too. I’ll take the convenience of that little plastic spout over those annoying corks every time.
By Will McCullough