Unveiling Hidden Costs in Real Estate: 15 Extras Every Buyer Needs to Be Aware Of
Published October 3, 2023
As a first-time homebuyer, investor, or someone moving up the ladder in the real estate world, navigating through the purchasing process can be daunting. It’s not just about the sticker price on the property; several additional costs can significantly impact your budget. Let’s demystify fifteen additional expenses you need to be aware of when strategizing your next move in the housing market.
1. Appraisals: Appraisals are conducted to assess the fair market value of the property. This comprehensive evaluation typically runs anywhere between $450 to $600 (VA Loans) and up for custom style properties. An appraiser’s unbiased perspective can potentially save you from paying more than the house is worth, also ensure the house meets the required lenders conditions, each program is different. It is important to work with an agent that is familiar with each program’s requirements, it can save you a lot of money.
2. Property Taxes: An often-overlooked expense, property taxes are a critical aspect of homeownership. Rates can vary greatly depending on location and the assessed value of your property. Ensure that you consider this long-term expense in your budgeting. Property taxes also vary depending on if the property is a new home build or a resale home.
3. Survey Fees: Surveyors provide detailed maps of your property, highlighting boundaries, outbuildings, and any potential disputes with neighboring properties. This service can range from $200-$400 and more depending on what is required, but it is typically a one-time fee worth considering avoiding any boundary disputes down the road. Most properties sold, new construction, or resale have had this done, generally used when adjoined to open range or large parcels of land.
4. Property Insurance: Essential for protecting your investment, property insurance can add a hefty sum to your expenses. It covers potential damage or loss caused by theft, natural disasters, and other mishaps. Costs vary, so shop around for the best deal that suits your coverage needs. It is important to know if the previous homeowner has filed claims against the property, that can affect the quote you will get from other carriers.
5. HOA Fees: For condos or co-ops, monthly service charges cover expenses like garbage disposal, water, upkeep of shared spaces, and more. The cost is sometimes based on the square footage of your unit, but usually all units are assessed the same fees in single family homes. These fees are not part of the PITI payment (Principle, Interest, Taxes, and Insurance) so these fees will need to be accounted for outside of the monthly payment. Typically, there is one, but some properties will have up to three HOA fees.
6. Mortgage Fees: Mortgages come with underwriting, origination, and application fees that can sum up to 0.5% – 1% (or more depending on your lender) of the borrowed amount. It is always important to get the fees from your lender upfront, so you know what to expect. These costs often surprise buyers who are unprepared, so consult with your lender on potential charges. In the right market and the using the right knowledgeable agents, they are usually able to get the seller to cover these costs, commonly known as a: Closing Cost Credit.
7. Moving Costs: From hiring professional movers to storage costs, moving can be a significant expense, often fluctuating based on the distance and volume of goods to be transported. Local in town moves and cross country all cost money and it is an often-overlooked expense that isn’t included in the reserve’s buyers consider important.
8. Maintenance Fees: As a homeowner, it’s wise to budget for routine maintenance, like annual HVAC servicing, carpet cleanings, or any unexpected repairs. It is important to set up a home repair account that is outside of your daily budget, small amounts monthly can stop the sting from a large surprise. Once again, a good agent will negotiate and get you at least a one-year home warranty at the close of escrow. That will generally protect you from AC/Heating, Plumbing, Appliance, and Electrical surprises, they do have list of items covered and worth keeping on a yearly basis as a homeowner.
9. Water Quality, Quality Certification, and Septic Systems: It’s vital to check the quality of the water supply. Professional water quality testing can cost between $250-$600. If the property relies on well water, it may be necessary to obtain a quality certification. This really is buyer specific and property specific, only used on properties that use well water in the Las Vegas Valley. VA loan programs will require a well test (equipment), and water quality in some cases, something else specifically to VA loans is the septic inspection and pumping which will cost $700-$1200 depending on multiple factors, your agent should know.
10. Legal Fees/Escrow Fees: Engaging a lawyer or title company during the closing process can ensure a smooth transition of ownership. These charges vary depending on the price of the property and location. Depending on the location will determine if you use a Lawyer service or an Escrow company, in the Las Vegas Valley/Nevada area we use escrow companies. They will do all the title searches, ensuring the property is sold with clear title, clear any liens, handle all closing funds, disperse all funds, and get the property recorded at closing (very simplified explanation).
11. Mortgage Loan Insurance: (also referred to as MI or PMI private mortgage insurance) If your down payment is less than 20% of the home’s sale price, you’re required to buy mortgage loan insurance. Cost is usually between 0.6%-4.5% of the mortgage amount. This also varies depending on your type of loan, Conventional, FHA, and VA (which has no MI). Once again always get the fees associated with your loan type from your lender.
12. SIDs/LIDs: Special Improvement Districts (SIDs) or Local Improvement Districts (LIDs) are fees incurred for local improvements around the property like landscaping, building roads, etc. These costs are usually divided among the benefiting properties. When a new home community is built the city generally loans money to get the infrastructure, each new home is assessed with a portion to be paid back. This fee, which is paid twice a year, usually, transfers any unpaid amounts to new buyers.
13. Local Improvements: Costs for improvements to local infrastructure (e.g., sewer, water lines, sidewalk construction) can be passed on to you as a homeowner.
14. Transfer Taxes and Title Policy: Also known as stamp duty, these are fees paid to the government when transferring real estate ownership from one party to another. Rates will vary based on your location and the value of the property. Here in Clark County our transfer tax is $5.10 per $1,000, it is generally a seller’s cost, unless you are purchasing a new home. Once again, the importance of an experienced agent will be able to negotiate the closing costs credits from the builders to cover this fee that you as buyer will be responsible for. The builder generally does not pay for the Owner’s Title Policy, the two fees together at closing can cost you $3,000 to $6,000 depending on the purchase price.
15. Home Inspection: Last but not least, it is always recommended to get a home inspection. A third-party inspector that inspects all aspects of the home, from the roof down to the slab. Any agent you work with will have recommendations, it is always important to research you own, not all inspectors are equal. A home inspection can save you from the warranty company claiming a preexisting condition if the property has a major issue after closing. The home inspector should work for you the buyer, not the agent, seller, or lender.
Planning your next move in real estate requires you to understand all costs involved in the process. This understanding will ensure that you make informed and beneficial decisions about your investments. And remember, it is always best to engage professionals- like lenders, appraisers, or savvy real estate agent extraordinaries like yours truly, to smoothen out the process, just click below. Happy investing!