What Are the Transaction Costs When Purchasing Property
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What Are the Transaction Costs When Purchasing Property

When purchasing a property, most of the transaction costs usually involve the financing, though there are other costs as well. Here are some of the costs you can expect to pay when making a purchase.
                                 transaction costs in purchasing property

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Transaction costs can be estimated. However, they will vary with each transaction. Most, though not all, are based on the price of the property. When purchasing a property, most of the transaction costs usually involve the financing, though there are other costs as well. Here are some of the costs you can expect to pay when making a purchase:

  • Points: Most lenders charge points (one point equals 1 percent of the loan amount). On a residential property, it's not unusual to pay anywhere from one to five points, depending on a variety of factors. These factors include market condition, your credit rating, the quality of the property, and so on.
  • Loan Fees: These are additional charges the lender may impose as a condition of getting the financing. In recent years, these have all been labeled, "garbage fees." Actually, some lender's fees - the true charges for securing the loan that the lender is passing on to the borrower - may be perfectly legitimate. For example, the lender may pass on a $350 fee for an appraisal or a $35 fee for a credit report, and this is not usually considered unreasonable. On the other hand, other fees such as lender's attorney, drawing documents, loan administration, and so on, which should either be a normal cost of doing business to a lender, or which are marked up, are usually considered unreasonable by most investors.
  • Buyer's Agent's Commission: Some buyers use an agent other than the seller's agent to find a property. While buyer's agents usually are able to get their fee paid out of the seller's agent's commission, that's not always the case. Sometimes there will be a separate buyer's agent's commission, typically 3 percent on a residential property, and 5 to 10 percent on bare land.
  • Title Insurance and Escrow: These are typically split between buyer and seller, although in some locales the buyer pays all of one and the seller all of the other, and in other locales, buyer or seller pay all the fees.
  • Broker's Transaction Fee: This is usually considered a "garbage fee." It is added on by the realty company, not the agent you're dealing with. In residential properties it has been running from $350 to $650. It compensates the agency for its costs in doing business.
  • Buyer's Attorney and Other Incidental Costs: If you use an attorney, you'll have this fee. Incidental costs can be anything from having documents sent to you by an express service to having them copied and notarized.

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