Sorry, HGTV-bingers. Property Brothers and House Hunters haven’t taught you everything about real estate. There are a number of hidden costs of buying a home that often take first-time-buyers by surprise.
As California real estate consultant John Graff notes, real estate reality shows tend to gloss over glamorous details of closing on a house, many of which shock buyers in real life. “You really do encounter some first-time buyers with a warped sense of the money and time needed to go from seeing a house you like online to becoming the owner of that house,” Graff says.
Now, exhaustively detailing all the costs of buying a home wouldn’t make for great TV. But unfortunately, that low media profile makes for nasty sticker shock.
“The closing costs are typically the most expensive ‘surprise’ because they raise the effective cost of the home by 2-5 percent which isn’t an insignificant sum particularly in higher-priced areas of the country,” Graff says.
After scrimping and saving for a down payment on a $350,000 home, another $10,000 or $20,000 in fees feels like salt in a wound. There’s not a lot of wiggle room in a hot real estate market. Still, it’s better to go into your home purchase with your eyes open.
“Being armed with knowledge and working with a trusted real estate agent can go a long way in ensuring the home buying costs are in line with norms for your area and you’ll be more informed and better prepared for all the possible outcomes,” Graff says.
So, in an effort to save you some shock, here are a few of the hidden costs of home buying to know about. Keep in mind that several of these vary depending on such factors as where you live and what kind of home you’re buying, but it’s good to understand them regardless.
1. Attorney Fees
Homebuyers learn early in the process that they have to lawyer up. But buying a home involves a complicated legal process. Navigating it requires a legal expert you can trust, so the need for an attorney warrants a mention at the top of this list. Attorney fees vary greatly depending on such factors as location, the intricacy of the sale, and whether payment is flat or hourly. As such, attorney fees can range anywhere from $500 to $2,000.
2. Escrow Services
After the seller accepts the buyer’s offer and before the buyer gets the keys, they put an escrow agreement into motion. At that moment, the house is off the market and the home-buying process, from mortgage paperwork to inspections, proceeds. Escrow services usually cost 1% to 2% of the overall purchase price. This cost is usually divided between the buyer and seller.
3. Title Search
Title searches establish the correct history of property ownership. Lenders typically require them before entering escrow arrangements. Title companies search property records to determine who owns the property, as confusion can arise from misinterpreted wills, property lost due to tax liens, and other events in the property’s history. Title searches for homes are typically around $100-$250 and worth every penny. “There are crazy things that can be put with a deed,” New Jersey realtor Leslie DeBello says. “If somebody bought the land a hundred years ago, the deed can say you can never do a multi-family or you can never put a pool.”
4. Title Insurance
Here’s a fun nightmare scenario for prospective homeowners: You’re ready to move into your dream house when someone appears with a claim to the house out of nowhere. Title Insurance protects buyers and sellers from those claims. Most mortgages require title insurance, but due to differing state regulations, title insurance costs vary from Iowa’s statewide $180 mandated cost to $2,000 or more for high-ticket homes in other states.
5. Notary Costs
Nothing’s official until your documents are stamped. But while notaries are crucial, the cost is low, with notary publics typically charging around $100 for home purchases.
New York State broker Yorgos Tsibiridis finds that first time homebuyers feel blindsided by the number of inspections realtors recommend. “There’s the home inspection, termite inspection,” Tsibiridis says. “If it’s a standalone house and it’s well water, there’s a water inspection. And then there can be an environmental search if there’s any abandoned oil tanks or stuff like that on the property.” Average home inspection costs between $300 and $400 but prices vary by location and size of home — in the luxurious Hamptons, where Tsibiridis sells homes, home inspectors fees can reach $700-800 while engineers can cost $2,500.
7. Quirky Local Tax Levies
When considering a house in a high end area, research local taxes. There could be fees for homeowners that are unique to the location. For example, Hampton homebuyers pay two percent of the purchase price as a one-time tax levy supporting open spaces through the Peconic Bay Region Community Preservation Fund. With the average Hamptons home selling for $2 million, buyers typically have to outlay an extra $40,000. New York State also collects a one percent “mansion tax” on properties selling for $1 million or more. “On a million dollar house, you put 20 percent down, that’s $200,000,” Tsibiridis says. “Then you have to pay another 50,000-60,000 potentially. That starts stretching the budget.”
8. Furnishing costs
Graff says that savvy home shoppers who price in property taxes and closing costs can be caught off-guard by the cost of making a large space livable. “I think it’s so easy to get wrapped up in the transactional aspect of buying a property,” Graff says. In the current frenzied housing market, prospective buyers are putting in a lot of work to get to just buy a house. “You can forget about what happens after you actually become the owner.
9. Service Contractors
Kevin Sneddon, a realtor handling homes in Greenwich, CT, says the cost for seemingly simple property upkeep like tree removal can be eyebrow raising. “Tree Work is really expensive,” Sneddon says. “If there are some trees threatening your home or you just want more light in your backyard, in Greenwich it can cost you $3,500 to have one tree removed. That’s one tree.”
10. The Cost of Deferred Maintenance
When you buy a house, you’re at the mercy of the previous owners’ maintenance schedule. “The roof, the hvac system: all these things have a life of about 20-25 years,” Sneddon says. “So if you’re buying a house that’s 20 years old, all the systems and probably the roof are at the end of their life cycle. So if it’s next year or next month or five years from now you’re going to replace this stuff.”
11. Costs That Are Impossible to Predict
Murphy’s Law, the old chestnut that says that anything that can go wrong will go wrong, is particularly true when you buy a house. DeBello always reminds her clients that they shouldn’t use their entire bank account to buy a house. “Because, without fail, two weeks after you closed something comes up,” she says. “Two weeks after I closed on my own house, we had this water coming from the bathroom upstairs into the first floor. And we had an excellent inspector. But it was something that you would never see.”