[2024 Guide] Multifamily Closing Costs for Buyers and Sellers

The seller’s closing costs will cover legal assistance, properly transferring ownership of the property and any repairs that arise from the buyer’s inspections that the seller agrees to make.

Note: if you want to learn more about the multifamily property selling process, read our guide to selling an apartment building. We also have a guide to commercial real estate marketing.

Legal Fees

The seller’s attorney may write the purchase contract. Whether they do or not, they will help to negotiate the contract and work with the buyer’s attorney to finalize the specific language.

The seller is responsible for preparing the deed. This is the document that actually transfers ownership of the property. Their attorney will handle this.

Real estate attorneys charge by the hour. Experienced attorneys may charge from $175 to $500 per hour. Attorneys in the larger metropolitan areas may charge more. If work is done by junior members of their staff, that will be billed at a lower hourly rate.

Total legal costs for multifamily property sales range from $750 to $2,000, more for large complex properties. Legal fees are paid at the closing.

Closing Agent

The closing agent might be the seller’s or buyer’s attorney, a title company, or a registered closing agent. Their fee might be paid by the seller or split evenly, but usually, it’s a buyer’s expense. Closing agent fees run from $400 to $600 and are paid to them at the closing.

Commissions

Real estate commissions are a percentage of the total sale price. Commissions are always negotiable but are typically in the 5% to 7% range.

Larger transactions may have a tiered commission. For example, the commission agreement might set commissions for the first $500,000 at 6%, the next $500,000 at 5%, and 4% for anything above $1,000,000.

The seller almost always pays all broker commissions for both sides. For a $1,000,000 transaction the commissions can be $70,000.

The brokers send their commission agreements to the closing agent and are paid at the closing.

Negotiated Repairs

If the buyer’s inspections and reports show items that need to be addressed, the buyer can require the seller to fix them. If the seller refuses, the buyer can terminate the contract. If the seller wants or needs to sell the property, they may have no choice but to make the repairs.

This includes physical repairs to the improvements, remediation of environmental issues with the real property, or even exceptions to the buyer’s title policy. Depending on the issues involved, you may have to pay as little as $500. The high end could be over $10,000.

These costs are often paid prior to the closing. If they are, the itemized costs are shown on the settlement statement as closing costs to the seller.

Property Taxes

As we mentioned before, each party will be responsible for the property taxes for the time that they actually owned the property. This is called their pro-rata share.

If taxes have been paid, the seller receives reimbursement at the closing from the buyer for the taxes owed from the day of closing through the end of the year. Otherwise, the seller will pay their portion of taxes at closing or credit the buyer for that amount.

Tax Stamps

Most, but not all states tax sellers when they sell their property. This is an ad valorem tax that is calculated on the monetary size of the transaction. These are called Deed Stamps, Tax Stamps, or Excise Stamps. The amount of the tax paid is literally stamped on the deed when it is recorded.

The tax is an amount (tax rate) per portion of the transaction size. It may be $.75 per $100, $1.10 per $500, or it could even be applied to each $1,000 of value. Sometimes the state uses a tiered calculation similar to the commission structure we discussed earlier.

Each state is different, and not all states charge this tax. Every seller should check the regulations in the state where the property is located.

The cost of tax stamps is paid by the seller at the closing.

Incidental Costs

Incidental costs to the seller are similar to those the buyer might face. Courier fees, wiring fees, attorney’s charge to make copies of documents, and there are recording fees for the deed. These are negotiable and the responsible party varies from deal to deal. These costs are paid at the closing.

Loan Payoff

Paying off the balance of loans on the property may or may not be considered a closing “cost”. Payoffs have to be made in order for the sale to close, and they are shown on the settlement statement. However, unlike some other closing costs, loan payoffs are not deductible for tax purposes.

How to Sell a Multifamily Building Without Closing Costs

If you haven’t built up adequate reserves on your multifamily property, you may have a tough time selling it. Most properties need some work done to make them marketable. Add that to the upfront closing costs, and many owners don’t have the money to pull off a sale of their property.

At MultifamilyCashin, you don’t need money to sell your property. The all-cash offer that we give you will take into account your closing costs and the condition of the property. That means that your offer is the amount you walk away with from the closing table.

Once you’ve used the Request a Cash Offer Online feature, we’ll arrange to visit your property in person. Within 24 hours you’ll have an offer to buy your property as-is for cash. It’s possible that we’ll make you an offer on the spot.

The experienced multifamily investors at MultifamilyCashin have bought properties like yours all across the US. Our network of cash buyers is looking for all types and sizes of multifamily properties in all conditions.

With MultifamilyCashin, you can sell your multifamily property without paying for repairs or closing costs. Close quickly for cash at MultifamilyCashin.

If you are a beginner preparing yourself to making a multifamily real estate investment, you may also be interested in our other guide: How to Buy Your First Multifamily Apartment Building as an Investment Property where we are explaining important things to consider before making your purchase.

Because the costs of diligence and obtaining a loan fall entirely on the buyer, their costs are often higher than the sellers’. Let’s go over them now.

Inspections and Reports

Once the purchase contract is signed, the clock starts on the buyer’s inspection period. Depending on the size of the property, the list of inspections can be a long one.

If you are buying a small income producing property, you may only need one or two inspectors. You can usually find a commercial building inspector that is experienced in looking at the basic mechanical, electrical, and plumbing systems (MEP).

Because cooling system condenser/compressor units are outside and require regular maintenance, you should always have that system and units inspected by an expert.

If the structures have pitched roofs covered with shingles, an experienced building inspector can include the roof in their scope of work. If the buildings have commercial flat roofs, a roofing inspector should be hired. Larger properties that are more complex may require individual inspections on all MEP areas.

Inspections will cost from $500 to a few thousand dollars for large properties. If you have a lender, they will likely require an environmental report called a Phase I. If areas of concern are noticed, they will make you get a more in-depth study called a Phase II report. The cost of a Phase I report starts at $1,000 and can be as much as $5,000.

The companies or individuals performing inspections and preparing reports often require payment at the time of service. Some may allow payment at the closing. Either way, these costs are shown on the settlement statement.

Financial Reports

Since a multifamily property is income-generating, buyers may want to see financial statements that are at least reviewed by a CPA if not audited.

Reviewed Profit & Loss or Income Statements cost $2,000 to $10,000 depending on the size of your business. Audits can cost twice that. CPAs will present their bill with the financial statement and may want payment before releasing it to you.

Loan Fees

In most multifamily purchases, the buyer’s funds are leveraged by borrowing a significant portion of the purchase price. The financing contingency in the contract will give you a limited amount of time to get your lender’s approval. Once the contract is signed, you’ll need to make your formal loan application right away.

When you submit your application, you’ll pay for the appraisal and credit report. A credit report costs $50-$100. The cost of the appraisal will depend on the size and complexity of the property. It can run from $750 for one duplex to $6,000 or more for a large apartment complex.

Banks typically charge a loan origination fee for commercial loans that equals 1% of the loan amount. Other commercial lenders may charge more.

Some investors use mortgage brokers who present your loan to multiple lenders. Brokers charge an additional fee that’s 1% to 2% of the loan amount. You should question fees higher than 2%.

Commercial lenders of all types may charge an underwriting fee of $350 to $500.

Borrowers sometimes decide to “buy down” the interest rate by paying discount points. Discount points are prepaid interest that buys you a lower interest rate. If you plan to keep the property indefinitely, discount points may make sense to you. Points and discounted rates will vary from lender to lender.

Fees and points are paid at the closing.

Legal Fees

The closing agent may be a title company or other registered closing agent, or it may be an attorney. The closing agent will charge a fee for their services of $400 to $600. Whether the buyer or seller pays this cost is negotiable, but it is often paid by the buyer.

The buyer will need the help of an attorney to negotiate the contract including specific language that protects their rights. Attorneys charge hourly rates from $175 to $500 an hour. More in large cities. Work done on the buyer’s behalf by others at the firm should cost less.

Representation in a commercial real estate transaction will cost from $750 to $2,000 or more. This is paid at the closing.

Once you have gotten through the inspection period and the transaction is on course to close, you will need to start the closing agent on several tasks.

One task is the title search. This will show if the property was properly transferred each time that it was sold. It will also find any liens or encumbrances on the property that have to be cleared up before a clear title can be conveyed by the seller. There is a separate charge for the title search that will range from $75 to $150.

Most commercial properties are owned by a legal entity instead of an individual. Your attorney will need to prepare the documents to create this entity such as Articles of Incorporation and Operating Agreements. At the closing, you’ll need a Borrowing Resolution or Board Resolution showing that you are entitled to sign loan documents for the entity.

Legal fees for this work will cost from $500 to $1,200 and are paid at the closing.

Insurance

An insurance policy will need to be in place when you take ownership of the property. That includes property damage and liability coverage known as Property and Casualty (P&C) insurance. Your lender will require that you have these coverages at their prescribed minimum levels.

Insurance costs will vary depending on things like the property’s location and its amenities. Properties in the north will have heavy snowfall, those on the southern coast may be impacted by storms and hurricanes.

Although property and liability rates are different, investors often combine them into a general price per door (unit) rule of thumb. Combined rates can run from $150 to $750 per door in different parts of the country.

P&C Insurance may have to be paid prior to closing, but it will be shown on the settlement statement as a closing cost.

Title insurance is something that every property owner should buy. Hidden defects in the title can get by the most stringent title search. Title insurance protects you from financial loss from defects in the title of the property.

If you have a lender, you won’t have a choice. You will have to purchase a lender’s title policy. Remember, the lender’s coverage is separate from the owner’s coverage. It only protects the lender, not you. Make sure that you have your own title insurance coverage.

Title insurance premiums are only paid one time, upfront. Premiums are calculated using a rate for every thousand dollars of value. Title insurance policies can cost from $1,000 to $5,000 or more and are paid at the closing.

Survey

The title insurance company will probably require a new ALTA survey of the property. An ALTA survey shows much more than the property lines and where the improvements are located.

The surveyor will research property records and show all the details of the subject property. This includes rights of way, easements, setbacks, all improvements, and zoning and flood zone classifications.

Sometimes, the buyer will negotiate that the seller must provide this, but since it is required for their title insurance, the seller will usually want them to order and pay for the survey.

The cost of an ALTA survey depends on the size of the property. Most of the time, they will cost between $2,000 and $3,000.

Surveyors report that if they find issues with the property that cause the deal to terminate, they have trouble getting paid. For this reason, more surveyors insist on being paid upfront. Their fee is a closing cost and will be included in the settlement statement.

Property Taxes

If the year’s property taxes have already been paid by the seller, the buyer will pay their share at the closing for the amount of time that they owned the property that year.

When the taxes aren’t due at the time of closing, the seller will give the buyer a credit for their portion of the year’s taxes and the buyer pays them when they’re due.

If taxes are due but haven’t been paid yet, the closing agent will collect each party’s portion and pay the taxes at closing.

Incidental Costs

Incidental costs include fees for couriers, wiring funds, making copies of documents, and fees to record the deed and mortgage. Incidental costs are paid at the closing.