When you’re buying or selling a house, closing costs are an important factor to consider. These are extra costs that come in addition to the home’s price. While they might seem complicated at first, understanding them can help you plan your budget better. In New Jersey, closing costs can be quite varied.
If you are buying or selling a home in New Jersey, keep in mind that although some closing costs can be negotiable between a buyer and seller, most are typically paid by one or the other. Understanding these costs can be especially helpful when exploring tips for selling a home and maximizing your profit. Before you make any decisions, it is important to consult with an experienced New Jersey real estate attorney. Call the Matus Law Group at (732) 785-4453 to schedule an appointment today.
How Much are Closing Costs in NJ
In New Jersey, the closing costs that home buyers and sellers need to bear encompass a range of expenses. For buyers, these costs generally fall between 2% to 5% of the home’s purchase price. These costs cover various charges, including loan origination, appraisal, credit report, title search, and title insurance fees.
On the other hand, sellers usually face costs ranging from 5% to 8% of the sale price. The major component of these costs is the realtor’s commission, which typically amounts to 6% of the selling price. Additional costs, making up the remainder, may include fees for legal services, title transfer, and other associated expenses.
Let’s take an $800,000 home as an example. A buyer with a mortgage may pay around 3% or $24,000 in closing costs. Conversely, a seller could face up to 8% or $64,000 in closing costs, inclusive of the real estate commission.
It’s important to note that these figures are average ranges, and actual costs can vary based on factors like the type of loan, property value, sale contingencies, and local regulations. Always consult with a local real estate professional or a skilled attorney to get a more accurate estimate of closing costs.
Typical Seller’s Closing Costs
During the course of a real estate transaction, there are closing costs that are typically paid by or credited to the buyer by the seller. Typical costs paid by the seller at closing are:
- Mortgage Payoff, Accrued Interest, and Recording of Satisfaction: If the seller has an existing mortgage on the property, the outstanding balance and any accrued interest are settled from the sale proceeds. Additionally, recording fees are incurred to officially document the mortgage’s satisfaction.
- Real Estate Commissions: Sellers typically pay commissions to both the listing and buyer’s agents. In New Jersey, the average total commission is approximately 5.07% of the home’s sale price, with the listing agent receiving about 2.55% and the buyer’s agent 2.52%.
- State, County, and City Transfer Taxes or Stamps: New Jersey imposes a Realty Transfer Fee (RTF) on property sales, calculated based on the sale price.
- Well Water Inspection: The Private Well Testing Act (PWTA) mandates that well water be tested before closing to ensure safety and compliance.
- Smoke Detector/Carbon Monoxide Certificate: Sellers must obtain a certificate confirming that the property complies with New Jersey Fire Code requirements for smoke and carbon monoxide detectors.
- Prorated Adjustment for Property Taxes: Property taxes are typically prorated between the buyer and seller based on the closing date, ensuring each party pays their share for the time they own the property during the tax period.
- Prorated Adjustment for Homeowners Association (HOA) Dues and Transfer Fees: If the property is part of an HOA, dues are prorated, and any transfer fees are addressed during closing.
Who Pays Transfer Taxes at Closing?
During the closing of a real estate transaction in New Jersey, both the buyer and the seller are responsible for different types of transfer taxes. Understanding who pays what is crucial for both parties involved.
The Realty Transfer Fee (RTF) is typically paid by the seller. This fee is imposed by the state for recording the deed, calculated based on the sale price or, in some cases, the assessed value adjusted by the Director’s Ratio. Various exemptions may apply, such as transactions for less than $100, transfers involving governmental bodies, or certain familial transfers.
On the other hand, buyers in New Jersey are responsible for paying a supplemental transfer fee if the property purchased exceeds $1,000,000. This 1% tax applies to residential properties classified as Class 2, farm properties with residential structures (Class 3A), commercial properties (Class 4A, excluding industrial or apartment buildings), and cooperative units (Class 4C). This is in addition to any standard RTF that might be imposed on the transaction.
Additionally, the Controlling Interest Transfer Tax (CITT) affects buyers where a controlling interest in an entity that owns Class 4A commercial property valued at more than $1,000,000. If the buyer has already paid the 1% supplemental transfer fee, they are exempt from this tax.
It is essential for both parties to review these obligations early in the transaction process, with legal guidance to accurately fulfill tax responsibilities. Understanding these fees and preparing for them can significantly smooth the process of transferring property ownership in New Jersey.
How Transfer Tax Rates Are Calculated in New Jersey
When selling property in New Jersey, understanding how transfer tax rates, known as the Realty Transfer Fee (RTF), are calculated is crucial. This fee is a state-mandated charge applied to the transfer of real estate based on the property’s sale price. The rate calculation depends on whether the sale price is above or below $350,000.
Standard RTF Rates
For properties with consideration not exceeding $350,000:
- $2.00 per $500 of consideration for amounts not exceeding $150,000.
- $3.35 per $500 for amounts over $150,000 but not exceeding $200,000.
- $3.90 per $500 for amounts over $200,000 but not exceeding $350,000.
For properties with consideration exceeding $350,000:
- $2.90 per $500 of consideration up to $150,000
- $4.25 per $500 for amounts between $150,001 and $200,000
- $4.80 per $500 for amounts between $200,001 and $550,000
- $5.30 per $500 for amounts between $550,001 and $850,000
- $5.80 per $500 for amounts between $850,001 and $1,000,000
- $6.05 per $500 for amounts over $1,000,000
Additionally, for properties sold over $1,000,000, buyers are subject to an extra 1% fee, commonly known as the “Mansion Tax.” This fee applies to the total purchase price and is the buyer’s responsibility.
Certain transactions may qualify for full or partial exemptions from the Realty Transfer Fee. These include transfers between spouses, transfers to charitable organizations, and sales of low and moderate-income housing. To claim an exemption, the appropriate Affidavit of Consideration must be filed with the deed.
Understanding these details helps sellers plan for the financial aspects of their property transactions in New Jersey. For specific calculations and potential exemptions, such as those for senior citizens or newly constructed properties, consulting a New Jersey real estate attorney is recommended. A New Jersey real estate attorney can provide guidance on RTF calculations and help ensure compliance with state laws.
Why Would a Seller Pay Closing Costs?
When it comes to real estate transactions, the question often arises: why would a seller agree to pay closing costs? There are several strategic reasons why doing so can be beneficial for the seller.
Firstly, paying closing costs can make a property more attractive to potential buyers. In competitive housing markets, offering to cover these costs can differentiate a home from others and help it sell faster. This is particularly appealing to buyers who may be stretched financially and are looking for ways to minimize upfront expenses.
Secondly, covering closing costs can be a negotiating tool. Sellers might agree to pay these fees in exchange for a higher selling price or to finalize a deal more swiftly. This can be especially useful in situations where a buyer’s offer is contingent on selling their current home.
Moreover, in some markets, it is customary for sellers to cover certain fees. For instance, in New Jersey, sellers typically handle expenses related to verifying and transferring ownership. Understanding these local customs can help sellers comply with standard practices and facilitate smoother transactions.
Lastly, agreeing to pay closing costs can help close a deal that might otherwise falter due to a buyer’s inability to cover all associated fees.
Typical Buyer’s Closing Costs
The buyer’s closing costs will vary depending on whether the buyer is getting a mortgage, who the lender is, and what type of loan it is. When a buyer applies for a mortgage, the lender is required to give them what is called a good-faith estimate of their closing costs. Some are paid at closing, and some are paid in advance. Typical closing costs paid by the buyer are:
- Costs associated with closing and title insurance such as the title search, title insurance premiums for the buyer’s policy as well as the mortgage holder’s, administrative fees charged by the closing office, and the property survey
- Costs associated with the mortgage such as application fee, mortgage points, appraisal, prepaid interest, private mortgage insurance, recording fees, and other miscellaneous costs
- Inspection costs such as a radon inspection, wood destroying insect inspection, roof inspection, septic inspection, and oil tank inspection as they are required or applicable
- Prorated adjustment for property taxes for the year.
- Prorated homeowners’ association dues and transfer fees
- Escrow for homeowners insurance
- Escrow for property taxes
- Mansion tax (if applicable)
| Buyer’s Closing Costs | Description and Examples |
|---|---|
| Closing and Title Insurance | Fees for closing and obtaining title insurance, including title search, insurance premiums, administrative fees. |
| Mortgage Costs | Expenses related to the mortgage process, such as application fees, points, appraisal, insurance, and recording fees. |
| Inspection Costs | Fees for property inspections, like radon, wood destroying insects, roof, septic, and oil tank inspections. |
| Tax Adjustments | Adjustments for property taxes, HOA dues, and transfer fees. |
| Escrow Accounts | Funds held for insurance and taxes, including homeowners insurance and property taxes. |
| Additional Taxes | Taxes like the mansion tax, if applicable. |
Can the Seller Pay Some of the Buyer’s Closing Costs?
Whether the seller can pay a portion of the buyer’s closing costs will depend on the lender that the buyer is using. With most loans, the seller can contribute some amount toward the buyer’s costs. Depending on the mortgage, this can vary from around 3 percent to 6 percent.
In most cases, however, the market will determine whether a seller chooses to contribute to a buyer’s closing costs. If the market is very competitive, the seller will have little incentive to pay a buyer’s closing costs. Conversely, in a down real estate market, a seller may offer to offset a buyer’s costs or offer other concessions to attract buyers.
Getting the Assistance of a New Jersey Real Estate Attorney
A real estate transaction is one of the largest investments of a lifetime…and one of the most expensive. You never want to pay more than necessary. Getting the assistance of a New Jersey real estate lawyer can ensure that. At the Matus Law Group, we can guide you through your real estate transaction, review your contract, and ensure that the lender has properly disclosed the closing costs you are paying. If you are a seller, we can make sure that your contract and title documents are properly drafted, executed, and filed. Contact us today at (732) 785-4453 to learn more.
