When it comes to buying land, you will have to take into account several factors associated with costs. In fact, most buyers prioritize closing cost expenses to avoid budget constraints. In simple terms, think of closing costs as funds you pay as a settlement along with the down payment.
Typically, an average closing cost on a home could range between 3% and 7% of the original purchase price. It is vital to remember that cash transactions may have lower costs than land purchases.
If you are ready to buy land, we’ve created an easy-to-understand overview of closing costs.
Closing Costs: Who Pays Closing Costs on a Land Sale?
Contrary to misguided perception, sellers and buyers can take care of closing costs. If you are the seller, you may have to pay relatively more. The buyer pays between 2-5% of the original purchase price in closing costs. Most of these costs are for the lender.
Conversely, the seller’s closing costs can get as high as 8-10% of the original purchase price. The seller’s cost-benefit ratio is high because the seller usually pays the buyer’s commission and the listing costs. Taxes and other fees add up to another 2-4%.
How Long Does It Take to Purchase Land?
Once the zoning approval is complete, it takes 3-5 years to initiate development processes. Ordinarily, it means getting the approval of the municipality concerning the use of the land. It’s important to understand everything that you can about closing costs.
Some Closing Costs Can Be Interchangeable
Most closing costs are related to financing, but you may have some independent costs that are usually related to either the seller or the buyer. Nonetheless, you should always remember that anything is open to negotiation.
When it comes to a buyer’s market, properties are often slow to sell because concerned sellers usually agree to pay a portion of the buyer’s overall closing costs. In a seller’s market, there is not the same flexibility when numerous properties start to sell quickly.
For instance, the seller is usually responsible for paying the real estate commission. Technically, it is a seller’s closing cost if the paid commission amount gets deducted from the land’s sale proceeds. Similarly, the seller also has to pay for a real estate attorney.
The buyer pays for the application fees, discount points, origination points, credit report, and the broker’s fee. However, don’t expect a lender to finance all of the closing costs. Essentially, it depends on the land and nature of the transaction.
Other Closing Costs that Deserve Your Attention
When it comes to closing costs on a land purchase, it all starts with title insurance. Title insurance is a protection against previous defects in the land’s title like undiscovered heirs, undisclosed liens, or forged documents.
Sellers and buyers can negotiate the payment of title insurance which usually costs approximately 1% of the land purchase price. You can also expect to incur recording fees on the land’s deed, which is the final step of closing costs on vacant land. Once it is officially legal, your state can evaluate the transfer fees.
What Else?
Yes, there are costs that the builder might charge to you, so be sure to ask all the right questions before buying vacant land. There are other costs to consider depending on your circumstances.
You may have to pay builder levies, service deposits, and land inspection charges. You may think that 1% or 2% (the difference in an individual closing cost) might not amount to much at first, but it can add up to thousands of dollars. Exercise caution and careful consideration before you decide to purchase vacant land. The more prepared you are, the fewer surprises you will encounter.
The Importance of Understanding a Property Closing
Closing costs are basically a combination of fees, taxes, and payments. However, the closing costs essentially depend on the land’s geographical location, variations in lender costs, settlement fees, tax laws, and even title.
There’s a good chance you may have heard stories about buyers and sellers caught in the cobweb of closing costs. Whether you’re a buyer or seller, always do your research before making a decision.
When the sale of the land is finalized, both parties are often surprised at the unexpected closing costs, but being prepared and knowing all of the costs will save you time, and eliminate hassles and added expense.