Property taxes
Property taxes are one of the more complicated closing costs. In Texas, property taxes are paid in arrears in the state. That means that all of your taxes for the 2023 tax year will be paid in January 2024 (or January 2025 for tax year 2024).
As a result, you’ll need to factor in your share of the property taxes into your closing costs. Let’s say the property taxes on a house are $1,200 for the entire year. If you lived in the house from January to June but sold it at the end of the month, you’d be responsible for six months of property taxes, or $600. The seller is responsible for providing this credit to the buyers, so they can pay the property taxes come January.
Harrison says this can be confusing for first-time homebuyers who are used to paying rent at the beginning of the month.
“So, everything works backwards. It’s a little confusing, especially when you’ve been renting and you’re used to paying rent and staying there, paying rent and staying there,” she explains.
Additionally, property taxes can be prorated up to the day. So using the $600 January to June example, if the seller sold on July 15, they would also be responsible for paying one-half of July’s taxes, or $50.
On average, annual property taxes are 1.81% of the home’s assessed value in Texas. However, property taxes vary by county, so check with your local government or your real estate agent.
Harrison encourages Texas sellers to keep an extra copy of their closing statement, where they’ll note the credit they gave to the buyer for the property taxes. Because they won’t be the ones actually paying the property taxes come January, this is the only record they will have of the payment. It’s important to keep the record because property tax payments are usually tax-deductible, “and it’s the only place that you’re going to show you paid taxes for that year because you didn’t get the full tax bill,” Harrison explains.
Loan reconveyance fee
When you pay off your mortgage, you are responsible for paying the loan reconveyance fee, which removes the lender’s lien from the property. Lenders’ fees can vary but usually fall between $50 and $65.
Reconveyance recording fee
You’ll also have to pay to record the reconveyance at your local county office. These costs also vary between counties. For example, Dallas County charges $25 for the first page and $4 for every page thereafter, while Tarrant County charges $19 for the first page and $4 for each additional page.
Real estate agent commission
The seller is responsible for paying a commission to the real estate agents, which is on average 6% of the sales price in Texas and is typically split evenly between the buyer’s agent and the seller’s agent. That means that if your house sold for $300,000, you would pay $18,000 in commissions to the agents. To find the average commission rate for your city, try our Real Estate Agent Commission Calculator.
Title search and policy
There’s also a required title search, which confirms that the seller is the owner of the property and that the title is free of any liens or judgments that could hold up the sale.
Further, the buyer’s lender will require a title insurance policy that protects them against future claims on the property for anything that was missed in the initial search. The buyer may also opt to get their own title insurance policy.
In Texas, the cost for a title policy can range from 0.6% to 0.9% of the sale price. While this is customarily the seller’s responsibility, many buyers offer to pay it in a seller’s market, where competition is stiff. “That’s quite a savings,” Harrison says. “Then the closing costs are maybe 7% [total], quite a bit lower.”
