How to Explain Closing Costs To Clients (So That They Still Love You)
Home closing can be a long and complicated process involving many moving steps. Escrow officers are tasked with collecting all necessary documents and funds to meet the closing date, and ensure that the closing process goes smoothly.
Most parties in the transaction are often unaware of the closing costs associated with buying and selling a home. Therefore, they rely on escrow officers to disclose and communicate the closing fees and costs in advance, so that they are not caught off guard by unexpected costs, such as recording, document transfer, or HOA rush fees.
Who pays for closing costs?
Closing costs vary depending on the property location, sale price, and whether a loan is involved. Learn more about these costs in our article about the 10 Common Closing Costs Escrow Deals with at Closings.
So, who pays for closing costs? It depends on the transaction, and no two are alike. The buyer and the seller can negotiate and “split the bill” if they choose. Every transaction has its nuances, however, the escrow officer must always follow the terms of the contract and the instructions of the parties. Here is how Uyen and the Endpoint team go about it:
“The buyer and seller are contractual parties, and terms such as, who pays for what fees and costs can always be negotiated and then spelled out in the contract. Pursuant to custom and practice, the seller typically pays for inspections and the buyer pays costs associated with the loan, including appraisal fees, application fees, credit reporting fees, and recording costs.“
Explaining HOA fees to the clients
This can get tricky. Clients often want to understand what they are paying for and why. Here is how to speak about the HOA, or Homeowners’ Association, fees.
1. HOA Dues
The HOA dues cover recurring payments that HOAs charge to the homeowners to cover the HOA’s day-to-day operating expenses, common area maintenance, civic amenities, and HOA reserve funds. The dues may vary depending on each community association.
Why is it important?
Buyers want to be sure that any outstanding HOA dues owed by the seller are paid by the seller at closing so that the buyer is not liable. As part of the escrow process, the escrow holder obtains a statement from the HOA and any Master HOAs showing any outstanding HOA dues. In the escrow transaction, the escrow officer makes sure that HOA dues are prorated to the appropriate parties and paid current.
2. HOA Assessments
The HOA assessment fee is a one-time fee to cover unexpected or unbudgeted costs, such as natural disasters, major common area repairs, or new construction.
Why is it important?
Buyers want to know if there have been any special assessments for past or future work. It is also important for buyers to know of the HOA’s plans for future assessments which the buyer will be responsible for.
3. HOA Transfer fees
HOAs will often charge fees, such as move-in and move-out fees, for transferring their records or documents when ownership changes from the seller to the buyer. If the contract doesn’t call it out, then the escrow team will obtain instructions from the seller and buyer as to who will pay the transfer fees. Typically, the seller will pay the move-out fee and the buyer will pay any move-in fees. But again, this can always be negotiated between the parties in the transaction.
Why is it important?
Transfer of the documents ensures that the HOA records reflect the buyer as the owner of the property and contact information is updated so that the buyer will be the one receiving the HOA communications relating to dues and assessments.
4. Administrative fees & HOA document fees
HOAs also charge to prepare, reproduce and distribute all of the requested documents, including the Resale Package and CC&Rs.
Why is it important?
The number of fees is typically non-negotiable and mandated by the HOA, and is almost always paid at the close of escrow. It is crucial these fees are paid so that the HOA will process the documents in time to meet the scheduled close of escrow.
“Often, HOAs won’t process a request unless the fee is paid. It is important that HOA documents are ordered and all necessary fees are paid timely so that the buyer and seller can obtain documents in time to meet the close date.”
5. HOA rush fees
HOAs can sometimes take a long time to process a request. Depending on the state, the deadlines for an HOA to provide the documents may vary. If the HOA can’t process a request in time to accommodate the closing date, then it may charge the parties a fee for rush service. This fee can amount to several hundred dollars.
Why is it important?
The number and amount of fees from the HOA may come as a surprise for the buyer and seller, especially if there is an additional rush processing fee on top of the HOA fees. Make sure to explain the request process and the possibility of a rush service fee in the event of a quick closing.
“A lot of clients will ask us, ”Will the HOA waive their fee?”. We tell them, while we are happy to relay a request to waive the fee, as the neutral third party, we are not in a position to negotiate the fees on behalf of the parties. Sometimes when there is a concern or dispute over fees, we will recommend that the seller work directly with the HOA as that typically is the most effective way to resolve the situation.”
To alleviate the stress related to closing, an escrow holder should clearly explain to clients the HOA process, make sure all of the HOA documents are delivered before the closing date, and disclose all HOA fees as early as possible.
Escrow tips for making your clients happy
1. Do things ahead of time
You already know – it is imperative to be on time. And you also need to be prepared to explain all the fees and charges on the closing statement. If you proactively provide information about the closing process and the fees associated with the closing, it can save both you and your client valuable time. Here are some ideas:
- Prepare answers to common questions you’ve encountered in advance
- Have a closing documents checklist for your clients
- Share the timeline for the process
Doing this will not only make the process smoother but also add a layer of trust and transparency to the client relationship.
“The sooner you obtain the information, the more time you will have to resolve any questions or issues. That’s why our goal at Endpoint is to do everything as early as possible so we can help alleviate last-minute stress.”
2. Provide Personal Guidance and Solutions
The title industry is primarily service-based and it is important to establish strong relationships with clients to ensure that their needs and expectations are met by providing personalized guidance. Here is Uyen’s take on the topic:
“While our primary duty, as escrow holders, is to act as the neutral third party and follow the instructions of our principles our other main function during the escrow process is to shepherd the customer through the transaction guiding them through the process and explaining each step along the way.”
Communication is key, especially in a relationship-driven business like real estate. Providing prompt, clear, and concise explanations not only ensures a smooth experience for your customers but also helps to establish trust and credibility. In addition to effective communication, incorporating technology into your workflow can also greatly enhance the customer experience. By automating manual and repetitive tasks, you can free up time to focus on building relationships and providing personalized service.
3. Make the closing costs payments easier
The real estate industry is becoming more and more digitized, facilitating easy and secure payments in real estate transactions. Using technology and an all-in-one digital, secure platform makes the transaction so much easier for your clients. It also provides you with a competitive advantage since the industry is still adopting this approach.
Having a single platform to track all payments and documents allows you to deliver extra value to clients. Make sure you leverage the tech to your advantage and use a platform that allows you to have all your HOA documents in one place, schedule your HOA orders in advance, summarize the key HOA closing details, uncover any hidden HOA fees, front the HOA fees to the seller, and give you invoice flexibility.
Like InspectHOA, for example. We become an extension of your team so you can focus on providing that excellent customer service. Our platform takes care of everything for you and it is also custom-made to fit your processes. And we let you try it out for free.
This is a huge win for us – so THANK YOU for all you do!"