Is there Closing Cost when Buying Land?

The money you spend to buy land will be a good investment. However, you will have to spend money out of your pocket to make money. This is applicable for the property you buy as well. Apart from the money that you have to spend on the piece of land, you will also have to spend your money on numerous closing costs. Let’s take a look at some of the most prominent closing costs that are applicable at the time of purchasing a piece of land. All these expenses might not be applicable, but it is better to have a good understanding of them. Then you can make an informed decision as you spend your money on purchasing a property.

Commission for the real estate agents

If there are any real estate agents involved in the process, you will have to pay for their commission as well. In some of the instances, it is the seller that has to pay this commission, but the real estate agent can make the decision to charge that from you as well. That’s because there is no hard and fast rule on who should be charged for the commission taken by the real estate agent. The standard commission that real estate agents would get at the time of closing a deal is around 5% to 6% of the price associated with the piece of land. You should be mindful of this expense as you go ahead with closing the deal.

People who are looking to staying away from this commission should think about looking for a deal where there is no real estate agent involved. This might be something impossible to do, but you will still be able to look for an opportunity with careful research.

Title insurance

Title insurance is a policy that you should be purchasing along with your property. It is a must for you to get title insurance with the property you buy. That’s because the title insurance will be able to provide protection to you against the financial damages that you will have to face during the defects that are not usually captured during the ownership transferring process.

You don’t need to worry too much about encountering such defects because the chances associated with encountering such situations are minimum. However, you should never ignore the risk and face negative consequences in the long run. Hence, it is important to purchase title insurance along with your land.

The cost associated with a title insurance policy would vary depending on the state you live in. On the other hand, it can also vary depending on the loan amount and the property value. However, it will still be an affordable fee for you, when compared to the cost of land you buy. Hence, you don’t need to worry too much as you go ahead and spend your money on title insurance.

Transfer taxes

Along with the purchase of property, there will be changes in the tax records. This is where you will have to pay for the recordation and transfer taxes. These taxes are implemented by your state. However, there can also be situations where this cost is implemented by the town in order to document the transaction.

There are numerous tools available online for you to use and get a better understanding of this expense. You just need to use such a tool and understand the amount of money that you should be spending as transfer taxes. This varies from one state to state. Moreover, it would also vary depending on the overall sale price of the land. It will usually range from around 1% to 1.5% of the price of land that you buy.

Property taxes

Buyers will have to pay pro-rated property taxes as they go ahead with the settlement. If you are purchasing the piece of land along with a mortgage, you will usually be asked to make a pre-payment for the property tax for the very first year. You might even be asked to make a partial payment for it, depending on the state that you live in. This will be determined by your lender.

Title fees

Title fees and title insurance are two different things. Hence, you should never assume that it is the same as title insurance. You will have to pay this fee at the time of closing your transaction to buy a piece of land as well. The fee will be charged by the title attorney and title agent. That’s because they will have to spend their efforts in conducting a title search. Moreover, they will also have to work on coordinating the needs of the parties as well. They will have to record all the signed documents and ensure transparency of the overall transaction as well.

The entity that selects the title company varies from one state to another. In other words, some of the states have made it mandatory for the buyer to pay the title fees. If the state you live in has that rule, you will have to go ahead and pay title fees as you purchase. You will also need to look for a title company to proceed with the transaction. By doing a search on the internet, you will be able to locate a title company. Or else, you can simply get in touch with your real estate agent and ask for referrals. Based on your requirement, you will be provided with all information about the title companies that are available in your neighborhood to assist you. This fee can range from $100 to $1,000, depending on the price of the land you buy.

Final words

As you can see, you will have to deal with a closing cost at the time of purchasing land. You should never ignore this expense when you are about to go ahead and make an investment. Then you will be able to go ahead and complete the transaction without encountering any surprises.