Two Homebuyer Fees Worth Negotiating: The Rest, Not So Much | Disclosures with Nick & Dave

Episode summary

Nobody explains the buyer's closing cost estimate until you're sitting at the signing table — which is exactly too late to do anything about it. So we spent an episode on it: every line item, what's genuinely fixed, what's technically negotiable, and — the part that actually matters — which fees are worth spending your energy on.

The short version: out of a page full of fees, two move real money. Your lender fees (origination plus whatever administrative, processing, and underwriting charges get stacked on top) are the single most valuable thing a buyer can shop — the spread between two lenders can be three to five thousand dollars, and it's the one bucket that changes your monthly payment for the life of the loan. And your buyer's agent commission, which is the largest service fee in the whole transaction even though it conveniently shows up on the seller's side of the sheet. Everything else — appraisal, recording fees, title premiums, prepaids — is either fixed or worth a few hundred dollars, and stressing about it is a poor use of your attention.

Along the way: why the APR matters more than the advertised rate, when the cheapest lender is the wrong call (it's a risk calculation, and we use a TurboTax-vs-CPA analogy that lands), why the lender picks your appraiser, the two title insurance policies and why one of them feels redundant, the one prepaid you genuinely can shop (homeowners insurance — Dave cut his premium nearly in half with better coverage), and why your earnest money reappearing as a credit is the only good news on the page.

Hosted by Nick Aufenkamp and Dave Miller of The Tartan Team, brokered by Real Broker, LLC. Serving Clark County and Southwest Washington.

In this episode

[01:15] Recap: where this fits with the last few episodes
[01:54] What the "buyer borrower closing cost estimate sheet" actually is
[05:05] Why you'll see several versions of it before closing
[07:34] Down payment — essentially fixed (and the VA/USDA exception)
[08:56] Down payment assistance programs — and when they're a warning sign
[11:36] Lender fees: the one line worth really shopping
[14:23] APR vs. the advertised rate — the number that tells the truth
[15:45] Why we push for two to three lender quotes
[16:25] Should you always take the cheapest lender? (It's a risk question)
[19:44] What actually happens when financing doesn't come through
[24:19] Using competing quotes as leverage — lender fees are negotiable
[25:34] The appraisal fee, and why the lender picks the appraiser
[28:03] Home inspection — shoppable, but not where to cheap out
[32:26] The 2021–22 exception: when buyers waived inspections
[34:22] Title insurance: two policies, and why one feels redundant
[38:23] Why which title company you use matters more than the premium
[41:40] You're not legally required to buy owner's title insurance
[44:20] Prepaids: taxes, insurance, and the escrow account
[46:15] Homeowners insurance — the prepaid you genuinely can shop
[49:17] The good news: your earnest money comes back as a credit
[51:15] The footnote: where the agent commission is hiding
[52:49] The two fees actually worth negotiating

Links from this episode

Episode 7 — That $35,000 Builder Incentive Is Not Free — the previous episode
Episode 3 — Why We Charge a Retainer to Help You Buy a House — the flat-fee buyer agency breakdown they reference
Rent-vs-own calculator — the tool mentioned when down payments get tight
Net proceeds calculator — the sell-side equivalent of this walkthrough
Book a free consultation

Transcript

Lightly edited for readability. Speaker attribution in the fast cold-open banter is approximate; attribution through the substantive walkthrough is reliable.

Nick (00:00): Hey y'all, and welcome back to yet another episode of Disclosures with Nick and Dave. I am your host, Nick, along with my wonderful co-host, Dave Miller. Dave, what's going on, dude?

Dave (00:10): Not a whole lot. Just out here doing all the real estate things, watching the market, checking up on our listings.

Nick (00:20): I mean, hey — we had one that went pending after just two days.

Dave (00:26): Well, it went live Friday and pending on Saturday.

Nick (00:29): That always feels good.

Dave (00:32): That feels great. Probably not the best moment to admit I was out of town for it. I'm not saying correlation is causation, but there was correlation.

Nick (00:46): If what you're saying is that I need to leave town on vacation more for more offers to come in — that could be the best thing you've told me all year.

Dave (00:57): Exactly. That's the way to see the silver lining. If we could figure out how to reverse-engineer that, so that I could leave and you just handle everything...

Nick (01:05): If you figure that out, let me know. I'll do my best to squash it.

Dave (01:12): Perfect.

Nick (01:15): Well, for anyone who's new here — we've spent the last few weeks really just trying to look at different fundamentals of a transaction. We've talked about renting versus buying, the tax differences between living in Washington versus Oregon. This most recent episode we talked about builder incentives. And all of this is really just trying to help educate homeowners and home buyers on what really doesn't get talked about enough in this industry. So next in line, with just our absolutely riveting episodes, we are here to talk about the buyer borrower closing cost estimate sheet — which feels like a mouthful.

Dave (01:54): It is a mouthful. Buyer borrower closing cost estimate sheet. We've got to figure out a way to make that roll off the tongue a bit better.

Nick (02:15): We'll work on that throughout the episode. But you know, it's like — who listens to a full episode talking about just line items on an estimate sheet?

Dave (02:28): Nerds.

Nick (02:30): Nerds, yeah. It's somebody who really does want to understand what's on there, what can be negotiated, what can't, and how they could potentially save themselves some money. And that's really the whole goal of the show. We could just get into hot takes on agent gossip, but that doesn't really help people in the goal of transacting real estate.

Dave (02:51): No — and if you're listening, I think the theme, if this is your first podcast you're listening to or you've tuned into a couple of them, is that we're trying to talk about stuff that oftentimes gets glossed over by your agents. Kind of the hurry-up, make a sale, and then "your mortgage officer, the title, the closing agent will explain all this to you." Well, at that point it's a little late, right? It's a little late if no one told you that you can shop for which title company you use.

Nick (03:33): And I remember the first home I purchased — the agent who helped me was great, but I didn't really know a lot of what was on this sheet until I was seeing it for what felt like the first time. At signing. Which — you're late to the game.

Dave (03:52): You don't have to be an expert in any of this. This is stuff that hopefully your real estate agent is advising you of, and your escrow agent can also help answer these questions, and your loan officer. But I'd say from what I've seen in general, there's a lot of people it's just not explained very well. So there's your warning: it is a little boring, but it's also important to know.

Nick (04:22): Absolutely. If the real estate agent is to be like the quarterback — we're not pretending that the real estate agent should take the position of running back or wide receiver. The lender and title company, they do play important roles. But the quarterback should probably understand what the plays are, what roles those other players on the field serve throughout the transaction, and be able to explain that well. So let's get into what this closing estimate sheet even is. Who provides this? At what points throughout the transaction do you get it? Because that in and of itself can be a bit confusing.

Dave (05:05): And it's important to know, because you're going to see throughout the process multiple versions of what seem like the same sheet, but they all maybe change a little bit from point to point in the transaction. The buyer's estimate sheet is exactly that — it's an estimate of the costs. And towards the very end of your home buying process, right before you're about to sign all the papers, your lender or your title company is going to have to send you this closing disclosure sheet that breaks down all of the different costs based off of whatever deal your agent was able to negotiate.

Nick (05:50): And that final closing disclosure, that one's like down to the cent. You get it just a couple of days before you sign and finally get keys to your property. But these estimates that you get throughout the process — they're to just make sure that you're not blindsided by some crazy fee from your lender that's five, six thousand dollars that you had no idea about, and now all of a sudden you're scrambling two days before closing in order to come up with an extra six grand of cash. It also is there to let you know that there are some fees that are fixed — no matter what, they're not going to change — and there are other fees that you can absolutely negotiate.

Nick (06:50): So I think the rest of this episode, we're really going to run through: what are the different line items, at least at a high level? Usually you get your first estimate right about the time — we run them for our clients right before they make an offer on a house. Usually by that point you have an idea, you know what lender you're going to work with, we've got some solid numbers back from the lender, we have an idea on close date. So that's the first point that we can really get a solid estimate. And then we might update it a couple of times before we get to the closing. But we're going to run through what all the different line items are, what's fixed, what's negotiable — and even of the things that are negotiable, only some of them are really worth negotiating.

Dave (07:20): Yep. So maybe you can start us on that walkthrough.

Nick (07:34): So the first thing, and likely the biggest you're going to see, is your down payment. If you didn't know — you have to put money down to purchase a house. No lender is going to let you buy a house that you have no monetary interest in. That's, for them, a bad investment to write a loan on.

Dave (07:49): The only caveat is if it's a VA or USDA loan.

Nick (07:55): True. The government will insure lots of bad investments.

Dave (08:04): Yes they will. And genuinely too — a thank you to our veterans who have earned the government backing their home purchases. If you don't know that, that's something worth noting. For a conventional lender, that would be a terrible investment. And as a thank you for service, for our veterans who have served the country, the government says, "Hey, we're willing to hedge against the possibility of you defaulting on your loan," and write what would be considered some higher-risk loans. That could be its whole own episode.

Nick (08:51): And also — once again, in the spirit of knowing what the options are and what's out there — there are down payment assistance programs. To the conventional lender or the FHA lender, they still want you to have skin in the game. But if you can find a down payment assistance program, they'll oftentimes give you a zero-interest loan that kind of acts as a secondary mortgage on the property that you don't have to pay back until you sell. That can be a great way to get into a home for someone. And currently — if your numbers are that tight on down payment, we would recommend you take serious consideration, because renting might be a better choice for you at this specific juncture.

Dave (09:44): Shout out to the rent-versus-buy calculator on thetartanteam.com. If you're more interested in finding out "does this make sense," go back and check that other episode out.

Nick (09:59): But in general, your down payment is going to be a fixed cost. If you're FHA, it's a minimum of three percent. If you're conventional — ten percent is kind of the practical minimum, but twenty is for sure the number if you don't want to pay mortgage insurance.

Dave (10:14): Surprisingly, with conventional you can get down as low as three percent, but it's highly dependent upon your credit score and those kinds of things.

Nick (10:20): And for most people, conventional ten percent and up makes the most sense. If you're doing less than ten percent, usually an FHA has more advantages, because their MIP, which is their version of mortgage insurance, tends to be a little bit less expensive. But more nuance to bring at another time. Point is, with the down payment — it's not something that you can show up a couple of days before closing and be like, "Hey, actually, I'd like to bring less." That's not going to fly. It's essentially fixed.

Dave (11:07): So if you're looking at a five hundred thousand dollar home, just assume your bare minimum is three percent. And if you're in a position where you can put more down to save on your total monthly payment and pay less interest, then that makes sense. But as you said, it's pretty much a fixed cost. So from that, it then gets into what would be considered the second most expensive, which is your actual loan from your lender. Loans aren't free, huh?

Nick (11:38): No, no. It's funny — banks and mortgage originators want to get paid to give you money.

Dave (11:43): I thought that they got paid every month in the interest that they take out of the loan.

Nick (11:50): Someone's getting paid. I'm pretty sure that's Fannie Mae or Freddie Mac, or one of those that they all sell the loans to.

Dave (11:58): Okay. So they've got to get paid on top of the interest that gets paid, is what you're saying.

Nick (12:02): They do. And this is one of the more complicated, more involved costs with the loan. You're going to look at this closing — you're going to look at the... what are we calling it? The buyer borrower closing estimate sheet.

Dave (12:28): I'm just going to point at you and you can say it.

Nick (12:32): There's going to be a lot of different items that fall underneath the loan origination fee. And they're sometimes broken out, and they're sometimes condensed together. It really depends on who you're getting your loan from, or who you're asking. The main thing to know about this is it's sort of your loan origination fee plus any other administrative fees that the lender is adding on. It's kind of that total number at the bottom. They might break it out differently, but the thing you need to understand, lender to lender, regardless of how they're breaking it down — it's the total number that makes the difference. One lender might say your origination is seven-eighths of a percent of the loan, and then they're going to have a bunch of extra fees on top of that, like an administration fee, a processing fee, all these different things — and none of it's standardized. They can kind of call it what they want. Or you might just get a lender that's going to say one and a quarter percent is the origination fee and there's going to be nothing else. So the thing you have to be discerning about is: what is the total in lender fees? And the reason that matters is we find that this is the one item on the sheet that's actually the most worth shopping for.

Dave (14:16): Absolutely. It's kind of funny, because every lender does have to send you their own estimate sheet.

Nick (14:23): And this is a standardized form — it's part of the Truth in Lending Act, to just make it very clear what all of their different fees are. And in addition to whatever the advertised interest rate is, there's a total APR that's inclusive of all fees. APR stands for annual percentage rate.

Dave (14:47): Annual percentage rate. You're getting it. Takes me a minute. But so what does that mean?

Nick (14:57): It means you qualify for an interest rate for the loan, but if you add in all these extra fees into your loan, the actual rate you're paying is increased — potentially significantly higher. So your APR is kind of the final number you want to be looking at.

Dave (15:15): Sorry, just wanted to jump in.

Nick (15:20): No, that's really good and helpful. Because it can kind of start to feel like you're shopping cable companies versus streaming services — the cable company has it all bundled together in one fee that looks really high up front, and then the streaming services will compete with "hey, you can get all of this for this much lower fee," but then all of a sudden, once you've bolted on all of your streaming services, it's like, actually that might be a lot more expensive.

Dave (15:45): So it can get fairly convoluted when you're trying to shop different lenders — which is why we always recommend that you get two to three quotes from different lenders, so that you're able to make sense of these fees. And this is one of the things that we really love helping our clients with: actually comparing those different lender sheets from one to the other and helping you determine which makes the most sense. This is an area where you could potentially save three, four, five thousand dollars by one lender versus another.

Nick (16:25): Would you say that you should always go with the cheapest lender?

Dave (16:29): That's a good question. It depends.

Nick (16:32): Our favorite caveat.

Dave (16:36): So to maybe break this down a little bit — I think inherently everyone understands that on some level, unless you're talking about people who are expensive just to rip you off, you're going to get what you pay for. If you've never gotten a loan before, you might not understand that there are standalone mortgage origination companies, and all they do is write loans, and then those loans kind of all get consolidated and sold to either the government or a big investment company.

Nick (17:10): That's getting into the nuance of the back end of the mortgage industry. But surely everyone's heard of Rocket Mortgage or loanDepot, or just one of these huge online platforms.

Dave (17:25): So you have individuals, and then you also have these large companies that are online and maybe less personal, and then you also have more local places like your local credit union that might write a mortgage for you, or one of the big national banks.

Nick (17:40): So the thing to think about is — to your point, Rocket Mortgage. I don't think they're affiliated with TurboTax, but it's like you could pay a personal accountant or you could get TurboTax to file your taxes. And I think inherently everyone understands that if you're paying an in-person individual that wants you to come sit down with them in January as you're getting ready to file your taxes, you're probably going to get better advice, you're probably going to get more optionality — it's just going to be a much more personal experience. And for some people, like if you have really complicated taxes, that can be money really well spent. The cost of employing that individual is far offset by the money saved.

Dave (18:40): Okay. So how's that look then for mortgages?

Nick (18:45): In general — some houses, if you're coming with little money down, and maybe you don't have the greatest credit, or this is a really high-stakes buy for you, like a couple of years ago when the market's really hot. You're self-employed and have different streams of revenue that are non-traditional. A unique property that's hard to appraise. All of these are factors that might indicate to us to advise you to go with somebody we know and trust individually — an individual who works in the loan origination space, knows the Clark County market, knows the appraisers, has a personal relationship with those folks, can get really creative, is going to give the attention to detail to you in your specific situation.

Dave (19:44): And so maybe, if you've never gone through a sale before, you're like, "What are these guys even talking about?" If you go under contract on a house that's contingent on your financing, and your financing doesn't come through in time — depending on how you wrote that offer, at a minimum you could lose the deal. In a really bad case, you could lose your earnest money if the deal falls out, in a really competitive market, looking from the buyer's perspective.

Nick (20:16): And so going with somebody — this is where it comes in — is trust, and having a reference for somebody who you know can pivot with these things that inevitably come up on harder deals. Now, would we recommend the most expensive for somebody who's putting thirty percent down on a house in a buyer's market, where maybe the house has been sitting on market for sixty, ninety days already and they haven't had any offers, and we get a really good deal for our client? I don't know.

Dave (20:50): No, it's the same kind of thing. If you're a W-2 worker with no weird financial situation, just kind of doing average normal stuff — TurboTax makes a ton of sense for you. You really don't need to have a dedicated CPA going through your stuff. Similarly with mortgage: if you're doing a very straightforward, down-the-middle, this-is-a-house-that's-going-to-be-easy-to-appraise, you've got nothing weird in your financial background, you're coming in with strong financials — then yeah, it probably makes sense to go with the most affordable lending option, because the risk is just so low.

Nick (21:36): That's really what it comes down to. When you need to get somebody on the phone who knows you, knows your situation and is going to go to bat for you — that's where working with somebody locally, who generally tends to charge a bit more for that expertise and personal touch, that's where it's really worth it. But if the chances are low that you're going to need to get that person on the phone in the eleventh hour, it's a little bit of a risk you take, but you can get a better deal that way.

Dave (22:00): To maybe sum it up, it comes down to risk. If you have a low-risk deal, if you don't have a lot of factors that would lead us to say "hey, maybe we should go with a smaller lender" — or if you have a relationship already with someone you know.

Nick (22:19): It's not always about keeping a referral network alive. There are a lot of disclosures in the real estate and mortgage industry — real estate agents are supposed to tell you, "Hey, we work with this guy, you don't have to work with him, but we like this person." A lot of agents, to some degree, it's a good old boys club in some cases. But in a lot of cases hopefully your agent is really advising you of, "Hey, it makes sense to use this person in this instance." Or if you don't have the more complicated situation, then definitely get that Rocket Mortgage quote and see if it's going to save you the money. That's why our recommendation is always: if you know somebody, check that person's price, but also shop around and see. And if it turns out that for your instance the potential cost savings is really small — you know, less than a thousand bucks — not to sound flippant, a thousand dollars is still a thousand dollars, but would you really want your deal to fall apart because your financing didn't come through?

Dave (23:40): And the last thing I'll say on this note is, we've got four different lenders that we have good relationships with, and if somebody needs a recommendation, we always make that a tailored recommendation or introduction. So it's not like we just have this handshake deal with just one person in Clark County that we're trying to funnel everybody to. We're really not trying to funnel anyone anywhere, other than trying to help make great introductions to good professionals doing good work.

Nick (24:19): And adjacent to that, the other benefit of getting three different quotes from three different lenders is that these closing costs, origination fees, underwriting, admin fees, all of that kind of stuff — it's all negotiable at the end of the day. So even if you have a lender that you really like but they come in with higher fees, you can show them, "Hey, I got this other quote from this other company. Is there anything you can do to sharpen the pencil and become more competitive in the numbers?" And they'll be honest with you — "Yep, actually we can reduce these fees here and here," or they can't. But that's the other benefit, in just trying to get leverage.

Dave (24:49): Of course we've camped out here, because this really is the biggest one — the biggest area where home buyers should shop services. It's going to be the thing that makes the biggest difference long term.

Nick (25:00): Both because you could potentially get a lower interest rate, certainly potentially a lower overall APR — and those are the things that month over month, year over year, really can make or break the financial scenario around your home.

Dave (25:14): It is the one bucket that really moves the number on your monthly payment. Which right now, with rates being what they are, that month-to-month cash flow is what deals really are living and dying by.

Nick (25:34): So, with the origination fee — things that people think are tied in are the appraisal fee. A lot of lenders will ask you to pay for that out of your own pocket, because if the deal falls apart they don't want to be out that money. They want you to pay for it, which makes sense for them. And a lot of people are like, "Why do I have to pay this?" Unfortunately, in almost every case, the lender gets to pick the appraiser that they want to use.

Dave (26:13): Maybe you heard your buddy Steve next door just wanted to know what his house was worth and he had it appraised, and it was only two hundred bucks, and you're like, "Why the heck am I paying seven hundred and fifty dollars for this appraisal when Steve had it appraised?" Getting gouged.

Nick (26:30): Well, Steve might be friends with the appraiser and he might have just done it on the side. Typically, even though it's an item chosen by whoever you're getting your loan from, you don't really have an option — and in general within an area, say Clark County, you're going to see roughly the same rate from one appraiser to the other. If you hear something really low from somewhere, it's a safe bet that the circumstances around it were different. Maybe it was a friend doing it on the side, not actually for a lender.

Dave (27:14): But in general, that's another fee that often comes in and looks like it's under the origination or the lender's cost, but it's really something you pay for directly — even though the lender is the one who chooses which appraising agency they want to use.

Nick (27:35): And what you should expect to see there: generally five hundred to nine hundred dollars. That's because usually an appraisal is somewhere between like four and seven hundred, depending on the size of the home, and then of course there's a bit of the markup that the lender has, because they're having to coordinate it and then make sense of it and file it as part of their underwriting process.

Dave (28:03): Well described. That's something that the lender handles, and by and large it's a fixed fee.

Nick (28:10): Home inspection is one that people ask about. It's not actually one that usually comes up on this closing cost estimate for buyers, but I still think it's worth mentioning here, because as buyers are trying to think through "all right, what are the total costs throughout this process" — kind of like the appraisal fee, this is one that may be due prior to closing, and can be another six hundred to a thousand, eleven hundred dollars, depending on the scope of work and how big the property is.

Dave (28:45): And that goes back to what we said initially — it seems like you're going to see a couple different versions of the sheet from different people. So something to note with the home inspection: a lot of the time, if maybe you're interviewing real estate agents and they say "this is what we think it's going to cost," you tell them kind of what you're looking for roughly, and they put in a rough guess on the home price you're going to see, and then they put in some of these other things, but maybe they leave out the home inspection. By the time you're seeing the official borrower cost disclosure — or whatever, what is the term we say?

Nick (29:30): Buyer borrower cost estimate sheet.

Dave (29:41): By the end, the final one you're seeing is no longer an estimate sheet. But at that point you've already paid for your home inspection. So you don't oftentimes see it — because that last sheet you're seeing is from your lender, and they didn't necessarily have anything to do with the home inspection. Sometimes, depending on how you're paying for everything, it might sneak in there, more often if your title company is funneling money to make sure everyone got paid so that there's no weird liens on the property. But for the most part you're not going to see that on the sheet. It is another six hundred to a thousand dollars roughly, is what we see around here, for your average five hundred thousand to million dollar home.

Nick (30:40): What do we typically recommend of, like, "well, it's five hundred thousand — should we even be doing this?"

Dave (30:48): It is something that's shoppable for sure, since it has nothing to do with the lender. You can find someone you know to give you a real good deal.

Nick (31:01): And I've truly seen it all — from people doing no inspections, to having a family member do the inspection for free because they've got a contracting background, to people doing the full works and spending upwards of thirteen, fourteen hundred dollars on inspections. So there's a gradient here. I think our recommendation is always that you have a home inspection done, and that this is not an area to cheap out on. Again, similar to lenders, we've got some phenomenal home inspectors that we've got relationships with and can recommend to you. But at the end of the day, that's a decision that you need to make. I wouldn't trust a realtor who said "you have to use this person," because there's just too many realtors that want to see the deal go through, and so they know an inspector that's going to go soft on the report. That's not the folks that we recommend. But at the end of the day, we want for you to have the relationship with the inspector, so that if you have concerns, you can call them.

Dave (31:56): We'll do another full episode on home inspections and how to understand the report, how to use that for leverage in negotiations. In general, though, it's cheap insurance, cheap peace of mind, and oftentimes the inspection more than pays for itself in the negotiations that it opens up with the seller based upon the findings.

Nick (32:26): I'd say so. The one caveat would be maybe if we see another 2021, 2022 sort of situation, where you're just going over asking by tens of thousands of dollars over asking price. At that point there were a lot of agents who were saying your best bet — if every house is getting ten offers on it — your best bet might be to just say no inspection contingency, save the money, and get people you know really well, whether it's a home inspector, your family member or friends or contractors, and essentially kind of try to do your own home inspection while you're walking the property, and maybe go through it two or three times.

Dave (33:11): That's kind of the one scenario. We've kind of moved past that, the way the market is currently, but that was definitely a strategy two, three years ago when you didn't have a lot of leverage.

Nick (33:31): If you just think about it — what's the point of paying a thousand dollars for an inspection if you already went thirty thousand over asking and you're not going to be able to negotiate anything? Now, the obvious answer to that is clarity, eyes wide open.

Dave (33:51): And that is good, and we'll still recommend that in a lot of cases. But if you really want the house, that might be something you elect not to do and try to discern yourself.

Nick (34:04): And that's situation by situation — more than happy to talk through negotiation strategy in a competitive market, because there are still things we can do to protect you while making your offer as attractive as possible.

Nick (34:22): Next one here: this is where we're starting to get more into escrow and title fees. And so a big one is title insurance. Title insurance is something that trips people up, because there's two policies with title insurance. One is the policy that covers you as the new homeowner — and this is one that the seller pays for. So the seller's paying for title insurance that shows that you have clear and free ownership of the home, from anybody else that comes to make a claim of it. There's a second policy — which feels so redundant, but I'll keep my opinions out of this — that you as the buyer pay for, to cover the lender. So it's the lender's title insurance policy. So one of those is obviously irrelevant to shop for, because one, the fees are set by the state, and two, the seller's already paying for it.

Dave (35:26): What's your level of comfort diving into the lender's title insurance policy that you as the buyer have to pay for? Some lenders do give you the option to not have it. Is this something that you can shop? What are your thoughts here?

Nick (35:39): It's interesting. You can technically, I believe, shop both. In a lot of states, as you said, the rates are set by law. I think in more cases than not, across the board, the policy premiums are going to be almost the same. The actual premium price might be a little bit different — we're talking less than hundreds of dollars difference in the prices of these policies. And they're usually a percentage of the sale price of the home — actually, forgive me, the loan amount, in a lot of cases. On the lender's title policy, they're insuring the loan that's against the home. So if you put a huge down payment down on an expensive house, that policy is going to be cheaper.

Nick (36:39): In general, the majority of the cost is going to be the administration fee that comes along with them doing what's called a title search. They're looking at the history of the deed. The deed is what says someone owns the house, and it gets written in — who the new owner is — every time the house gets sold. And so they're looking to see if there's some long-lost... you know, an old couple died and their kids don't want the house, so they go to sell it, and there's three sisters, and two of them — the third one's estranged — and two say they're going to sell it but they don't get the third sister to sign, who technically had a claim. And then sister three comes back and says, "No, I didn't want this house sold." And this can happen even like two or three buyers and sellers removed. So this doesn't even have to be the person you're purchasing the house from. It could be somebody who they purchased the house from, or even further back. So the lender, as is always the case, is trying to assess their risk in their investment into the property. And if somebody else technically has a claim to the property, that could really hurt them — if you get kicked out and you no longer own the property, you're not going to have much reason to pay that loan, and you default.

Nick (38:09): All to say — that's the mechanics of it, but more often than not the actual policy price is almost the same. You really see the savings when you work with a title company that also writes their own insurance policies. So one of the companies we work with the most is Chicago Title, and they actually have access to writing their own insurance policies.

Dave (38:39): So what we're saying is, smaller title companies might actually buy their insurance from a different title insurance company.

Nick (38:48): And so there's sort of an efficiency that comes from working with somebody whose systems are all synced together and they're not doing duplicate tasks on their ability to write a title insurance policy and close the sale of your home.

Dave (39:09): Once in a while we run into customers and they'll be like, "I know my aunt's a title agent," and they want to work with a small firm. And if that's your choice, absolutely do that — but just know that you may end up paying more in fees. Are we talking a crazy amount? No. We're talking in the hundreds to maybe a thousand dollars. This isn't nearly as big of a deal on the sale of a home as the loan origination cost. So it's not something really worth stressing about.

Dave (39:44): The recommendation we would come to is to go with a company you know and trust — or if you don't know anyone, hopefully you trust your agent to give you a solid reference for a company.

Nick (39:56): And a company that's been around and will be around for a long time, seeing as they are the ones that handle all of the money, including all of your earnest money deposits. You don't want them going under overnight. Not that we see that happen very often with title companies, but that is why we really like working with Chicago Title, who's one of the biggest. But there's WFG National Title, and Clark County Title is another local one.

Nick (40:22): So basically, title insurance and then escrow fees — it's all kind of jumbled into one bucket, because the title company and the escrow company and the closing agent, where they act as the third party throughout the transaction, that's all kind of under one roof in most cases.

Dave (40:47): And so if you did want to shop WFG versus Chicago Title versus Clark County Title, you could ask them for a fee schedule based upon the price bracket that you're looking at, and you'd be able to get those side-by-side comparisons.

Nick (41:10): But this is, like you were saying, truly one of those areas where you might stand to save a thousand dollars. Again, not nothing. But if your agent already has a relationship with somebody that's reputable, that's known for being organized and on top of things, it's probably not the most important area to spend your time. Far better to shop lenders and realtors.

Dave (41:33): Absolutely. I also wanted to back up real quick and just put one note in that is maybe almost not worth mentioning because it happens so infrequently — but you don't actually by law need to purchase the homeowner's title insurance policy. What that means is, the one policy covers the lender if a claim comes up. But if that sister who thinks they still have a claim to the property comes up and goes after you, and you didn't purchase the owner's title policy — well, now you're going to have to fight that claim in court out of your own pocket.

Nick (42:10): So out here in Clark County, more often than not the seller is purchasing that for the incoming buyer. So it's kind of one of those things that just sort of auto-gets penciled in. But in some places that might not be the standard. There are other states where it's not customary for the seller to purchase an owner's title policy for the incoming owner — in which case, most of the time our recommendation would always be to purchase that policy. Especially if it's coming in with the lender's title policy, you get those economies of scale of the title search fee and all of it. It's usually no more than a couple thousand dollars.

Dave (43:04): The land dispute lawsuits are incredibly expensive and can be very drawn out, and it could in a lot of cases be the best insurance you purchase. It's cheap peace of mind to know that your property isn't going to get pulled out from underneath you. And I give the example of the sister coming for you — and that's a really extreme example. But more often than not, it's small clerical errors that can create issues that get caught later on.

Nick (43:30): Where if you ever are going to sell this house, you want to be able to deliver a clean title to the next purchaser of it. And if there's what would be called a cloud on title — and that could be because of a number of things, but a lot of the time even just small paperwork or filing errors — that stuff can be really costly to resolve. Oftentimes if you had even one claim, more than the cost of the policy.

Dave (44:05): So just to sum it up, with your title and escrow fees — this is something that you can shop. There are fees in there that aren't exactly fixed, but in most cases the savings aren't huge.

Nick (44:20): But still good to understand. Now there's another bucket of essentially prepaids. So this is homeowners insurance, tax reserves, your escrow account is what they call it, some prepaid interest. Which of these are fixed? What can you shop for or negotiate, if anything?

Dave (44:43): Not much.

Nick (44:46): Not much. If you haven't seen it before, you may look at the end and be like, "What is all this?" Taxes and insurance — it could be anywhere between a couple thousand up to eight, nine, ten thousand. And it really depends on where you are during the year. If you're sort of at the beginning of the year, they might want you to pay your first half of the year taxes and your full year's homeowners insurance, and as well you're going to see the deed recording fees, some of the other county fees. That's all going to be at the end, and it could be like five, six thousand dollars on a home that's between — we're keeping it in the range of five hundred to a million.

Dave (45:34): And it's like, what is all this other stuff? It's like, well — you were going to end up paying that regardless.

Nick (45:40): And that escrow account, they're taking your money ahead of time to ensure that it gets paid to the right people. The lender wants all of that property tax and the insurance up front so that they're in control of it and they can make sure that gets sent to the right people. They have an interest in making sure that your home is insured and that the tax liens don't come against the property. So they will make sure that those things get paid, and they will make sure you pay for them, by putting them in this escrow account.

Nick (46:15): Now, the homeowners policy — that is something that you get to shop for.

Dave (46:22): Correct. And that can really be big.

Nick (46:29): This is again just locally — we recommend the Van Clark agency, because they do homeowners, auto, life, anything that you need for insurance, and they work with all the different insurance companies so that they're able to really bundle together a great package. So like when I was originally shopping on my own, whatever it was — Safeco or something like that — had sent me a policy to review that was like two thousand dollars a year. And then when I went with Van Clark, they came back with something that was closer to eleven hundred dollars a year. I picked that one, and it was better coverage.

Dave (47:12): And this could also be its whole own topic, but everybody's seen a commercial talking about bundling and saving. It's like, what is that really? It's back to what we were saying in both title company insurance and loan origination — it's efficiencies of scale. If they're already inputting your information for your home, but they're also getting your auto policy, maybe some life insurance, you're going to get a better deal on that.

Nick (47:35): Is this a good time to let everybody know that this episode is brought to you by Jake at State Farm?

Dave (47:42): Yeah — Jake at not State Farm. Just Jake. He's the paid sponsor for this episode. So shout out Jake, thanks. You've got to generate some customers somehow.

Nick (47:56): What did we get paid for shouting them out?

Dave (47:58): Nothing. Yet.

Nick (48:00): We're working on that, as with all of our sponsorships. But again, that would be a great topic to really delve into. That's the one thing that you do get to shop for yourself. In general, taxes and prepaid interest and any of those other county-level recording fees —

Dave (48:18): Can't negotiate your taxes.

Nick (48:20): You can try, actually. When the assessment comes out, there's some options there. But in general, no — and certainly not as part of closing.

Dave (48:39): For anyone who's still stuck around, almost an hour in — anything else in there? These like recording fees, there just always feels like there's a bunch of twenty to two hundred dollar fees, maybe five of those. Worth mentioning?

Nick (49:00): In general, no. Can't negotiate. It's just for the moment — little cash grabs here and there. Feels like you're just slowly getting bled out. But I think that's kind of what everyone's feeling nowadays, right?

Dave (49:12): Any good news in there?

Nick (49:17): You get your earnest money back. That is the good news. Oftentimes whatever money you put down to get your offer accepted originally comes back as a credit on the closing disclosure, or the borrower's cost disclosure, at the end. And so in a lot of cases, if you already put down all this money, you don't have to come up with even more money for some of these fees. And that really goes into how the deal ends up getting structured and the financing. Sometimes that's the case, sometimes not.

Dave (49:55): We'd be lying if we just said "yeah, go for it." But that was how we started the episode — saying you should go into this having a solid understanding of what it actually costs. Because so few real estate agents are really explaining this, and then you put all the time and the effort — both effort in showing up, but also emotional effort — and you get your offer accepted and you're going through the process, and then all of a sudden you feel like, "I feel a little far down this rabbit hole."

Nick (50:30): So the best thing to do is to be educated on the front end. And listen — if your real estate agent is averse to questions and they don't want to go through this stuff with you...

Dave (50:46): Well, hopefully you're working with a great agent and they are explaining this stuff to you, and it's not just sort of a push on and then let the loan officer or the escrow agent explain all these extra costs to you. At a bare minimum, hopefully you knew that some of this was coming.

Nick (51:15): And not to drag this on, but I feel like we'd be remiss to not address this explicitly — and perhaps I'll cut this and put it at the beginning of the episode. But absent from this list is real estate agent fees. And the reason for that is because historically, traditionally, even in most transactions now, the buyer agent commission shows up on the seller side, not on the buyer side of the estimated closing costs. And most of the buyer clients that we work with, that's still the way that they want us to negotiate their purchase and sale agreement — so that the seller is paying our fee as a seller concession or credit.

Dave (52:01): But if you're going through this and you're wondering, "How do Nick and Dave get paid, and why doesn't that show up here if they're representing me?" — a lot of agents will talk about how buyer agency is free to the buyer, and this is the reason that it looks like buyer agency is free.

Nick (52:19): But the reality is that when we negotiate our fee in for the seller to pay for it, that potentially takes away your negotiation power to reduce the price or for closing cost credits. And there are worlds in which it may make more sense to put buyer agent commission as a buyer cost.

Nick (52:49): When we sum up this episode and think through, like, what are the things that you should actually negotiate to reduce your transaction costs? It really comes down to service fees. And the most expensive ones are agent fees — even if that shows up on the seller side. If you're paying a traditional three and a half, or three percent, or two and a half percent agent on a million dollar purchase, I mean that's twenty-five to thirty grand. It's got to come out of somewhere, and the seller's not just paying it out of the goodness of their heart. So that's an area where, by negotiating compensation with an agent, finding an agent who's aligned, that's a huge area where you can save yourself a lot of money as a buyer. And then negotiating lender fees. Those are really — if there's any takeaways from this episode, I think it should be those two.

Dave (53:49): Great footnote. Hopefully if you're following the podcast, you already knew that. And if this is your first episode and you're like, "What are they talking about?" — all real estate commission fees have always been negotiable. And it seems that in recent time it's actually starting to get the press that it should have gotten a while ago.

Nick (54:20): So I'd say that's a great place to wrap. Your buyer's agent's commission and lender fees are the things to shop for and the things that are negotiable.

Dave (54:33): And if you want the buyer's agent commission being negotiable broken down more, we did that in one of the first podcasts — talking about how we work, and why you might want to start looking at the flat fee.

Nick (54:45): Flat fee buyer agency. Absolutely. And also breaking down some of the mechanics of, well, even though it seems like the seller's paying for it, you're still paying for it. At some level you're not going to get a service provided to you for free.

Dave (55:03): So check out some of the other podcasts. I'm sure we'll talk about it again in the future. But subscribe to the show, and in comments let us know what it is that you'd like to hear us break down next. And you can always reach out to us — dave@thetartanteam.com, nick@thetartanteam.com. And you can book a call, if you want to go through any of these numbers or just talk about your situation. thetartanteam.com/book is another great way to just schedule a meeting with us. But thanks for being here.

Nick (55:32): We'll look forward to catching you in the next one. Bye.

Dave (55:34): See y'all. Bye.