Closing costs in Tennessee may vary for each transaction, so sellers should know how much they will have to pay before listing their homes.
Selling your home is an exciting prospect, especially when you are about to move on to greener pastures. But just because you are selling your property does not mean you will see every dollar of the final selling price in your bank account after closing the deal. In a real estate transaction, even sellers will run into costs that they need to pay for. And many homeowners are surprised to find how high these fees can go.
To help you get a better idea of how much you will spend when finalizing your home sale, this article will give you everything you need to know about closing costs in Tennessee. This guide includes:
- The definition of closing costs
- What closing costs pay for
- Who pays for the closing costs in TN
- How much are closing costs in TN
- Other costs to pay for when selling your home
- How to calculate your bottom line
What Are Closing Costs?
Closing costs are the expenses on top of the property’s price that both buyers and sellers usually pay for in order to complete their real estate transaction. These costs may include title search and transfer, insurance, and taxes, among other things.
Even if you are selling your property to a relative or close friend for below market value (also known as gifts of equity), you may still have to pay certain closing costs.
Federal law requires closing costs to be disclosed–usually by the mortgage lender–to the buyer and seller. The two parties must then agree on who will pay for which expense before they can officially complete the real estate transaction.
As a seller, most of your closing costs will be deducted from your sales proceeds, but there are a few expenses that you will have to pay out of pocket at closing.
According to the latest data from ClosingCorp, the average closing cost in Tennessee is $3,790.39 after taxes, or approximately 1.26% to 1.9% of the final home sale price. If the average home in Tennessee sells for $200,000 to $300,000, you can expect to pay from $2,520 to $5,700 in closing costs after taxes.
Meanwhile, combined taxes for both buyer and seller would amount to $1,206.24 on average, which accounts for 31.82% of the total average closing costs in TN.
How Much Are Seller Closing Costs in Tennessee?
As a seller, expect to pay around 1% of your home’s final sale price in closing costs in TN. The buyer could cover the rest, which would be about 0.26% to 0.9%. So if you sell your home for $200,000 to $300,000, you would pay around $2,000 to $3,000, while the buyer may pay for $520 to $2,700 in closing costs.
Title Service and Closing Fees
When selling your home, you have to transfer legal ownership of the property to the buyer. Before that, however, a settlement agent has to do a title search to make sure that no one else has a legal claim to the property in the form of liens or other encumbrances.
This fee, which is about 0.43% of the purchase price, will pay for the agent responsible for doing the title search and transferring of your title plus other services related to closing.
In Tennessee, both the buyer and seller typically pay for their own title company or closing agent, but you can negotiate on this.
Owner’s Title Insurance
An owner’s title insurance policy protects the buyer in case a problem arises regarding the previous title ownership. The issues it protects buyers from range from clerical errors in the paperwork to serious problems like full disputes over ownership. This policy covers any fees for legal representation or to reimburse the value of a home if mistakes were made.
While the average cost of the owner’s title insurance in Tennessee is around 0.19% of your home’s sale price, the specific rate may actually vary depending on the title company. In Tennessee, these companies usually have tiered pricing to determine how much you will pay for a policy based on your home’s value.
So who pays for title insurance in Tennessee? The seller usually covers this, but it is not unheard of if you negotiate to have the buyer pay for this expense.
Tennessee Recordation Tax
The state of Tennessee will charge you about 0.37% of your home’s sale price to transfer the title to the new owner. But your county or city may also charge their own transfer taxes. So check with your real estate agent or title company for a complete breakdown of the taxes that you will owe in your area.
Tennessee Recording Fees
Your state or the local government will also charge a fee for legally recording the change in the property’s deed and mortgage information. The fee for this is usually fixed regardless of your selling price, around $50. But you may be able to negotiate with the buyer to cover this cost.
In Tennessee, your county may collect property taxes for the current year at the end of each year. If that is the case in your area, you will pay property taxes at closing for the portion of the year that you owned your home. That way, the buyer will not have to pay taxes for the entire year when they have only owned the house for a few months.
But in case you live in an area where you pay property taxes at the beginning of the year, then the buyer would reimburse you at closing for the remaining months.
Other Seller’s Closing Costs in Tennessee
Every real estate transaction is unique, and they often come with costs that you will not always encounter in every sale. Here is a list of examples:
- HOA transfer fees
- Seller attorney fees
- Property appraisal fees
- Mortgage payoff or prepayment penalties
- Pest inspection
Note that these calculations are only estimates. The actual costs may vary depending on the actual selling price of your home and how much you can negotiate for the buyer to cover.
Who Pays Closing Costs in TN?
Both the buyer and seller share the responsibility for paying the total closing costs at the end of the transaction, though it will not be an exact 50-50 split. In Tennessee, sellers usually pay for the title service and closing fees, title transfer taxes, owner’s title insurance, and recording fees. But you or the buyer can negotiate for the other to cover more of the closing costs.
Other Costs to Expect When Selling Your Home in Tennessee
Closing costs are not the only expenses that you will have to pay when selling your home. You may also have to deal with these expenses:
Preparing Your Home for Sale
To make your home attractive to potential buyers, you need to do repairs, cleaning, landscaping, and staging. You would want to prioritize high-impact items such as cleaning the carpets, repainting the walls, and repairing items.
These costs can vary greatly depending on how outdated or neglected your home is prior to selling. But if you estimate that doing these tasks would cost more than 3% of your asking price, then consider selling your property as-is so you would not have to do any repairs or freshening up.
Real Estate Agent Commission Fees
Paying your real estate agent’s commission would probably be the highest cost related to selling your house. Their commission in Tennessee would typically run from 5% to 6% of your selling price, though it does not have a set fee and can be negotiated. Aside from your own real estate agent, you might have to pay for the commission of your buyer’s agent as well.
However, the benefits of having a real estate agent handle the marketing of your home sale as well as the transaction itself may be worth the high cost. But if you really do not want to pay this much, you could look into alternatives like hiring a real estate broker or doing an FSBO (for sale by owner).
Negotiable Items and Buyer Incentives
Because selling your house will involve a lot of negotiating, it would be prudent of you to set some budget aside for any concessions that you might make. For example, a buyer might ask you to pay for certain closing costs that they would typically pay for. Mortgage lenders allow this up to a certain amount.
Also, after signing the purchase agreement with the buyer, they will most likely do a home inspection. If they find an issue, they could request for you to either repair it or deduct it from the final selling price at closing.
Lastly, if you want to make a quick sale, you could offer a good incentive for buyers with a home warranty. This will give them peace of mind that the appliances and mechanicals in the property will be covered for the first year. Contrary to what most people think, a homeowner’s insurance policy does not include these items.
Setting aside up to 2% of your asking price for these expenses should be enough.
If you have been living in the property that you are now selling, then you also need to account for the expenses involving your relocation. Even if you are not hiring a moving company, you will still have to spend on moving boxes, packing supplies, a moving truck, a storage unit, and hired help. You can expect to spend up to 2% of your selling price on these tasks.
Calculating Your Bottom Line
By estimating all of the costs that you will spend when selling your home, you will know how much money you will actually have left at closing. To do this, just add up how much are the closing costs in TN plus other expenses related to selling your home.
Then, subtract these costs from your selling price. You will also have to deduct the amount that you may still owe on your mortgage. The result is called the seller’s net, which is the amount you are actually getting after selling the house. Here is a sample calculation:
- Total home selling price: $200,000
- Minus the following:
- Closing costs (1%): $2,000
- Cleaning and repairs (3%): $6,000
- Real estate agent commission fees (6%): $12,000
- Negotiable items (2%): $4,000
- Mortgage payoff: $0
- Seller’s net: $172,000
When calculating costs, it is better to use the higher end of each range so you do not end up underestimating how much you will be spending.
You Have to Spend on Your Home to Sell It
To summarize, closing costs are what you and the buyer will pay on top of the property’s price in order to complete the sale. Closing costs in Tennessee range from 1.26% to 1.9% of the selling price. These cover the expenses needed to finalize the transaction, such as title search and transfer, owner’s title insurance, recording fees and tax, and property taxes.
But depending on your home, you may also have to pay for other closing costs like HOA transfer fees, attorney fees, property appraisal, mortgage payoff, and pest inspection. Aside from closing costs, you will also have to account for other expenses related to selling your home, repairs and cleaning, realtor commission, negotiable items, and moving costs.
If you want to know how much you will actually take home, just subtract all of these costs from the selling price. Should you find these expenses too high, you can find ways to save on closing costs and other expenses. Here are some ideas:
- Consider alternative home selling options, such as selling as-is.
- Negotiate for the buyer to pay for some of the closing costs you would typically cover.
- Shop around for better prices on services you will avail of.
- Save on realtor fees by either doing FSBO or hiring a real estate broker.
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