When you buy a home, you’ll see many line items on your Closing Disclosure. Each closing cost has a purpose to help you close your loan. Two of the fees most commonly misunderstood are the abstract and recording fees.
We help you understand them both below.
What is an Abstract?
An abstract is a summary of the title search. In essence, it summarizes all public records found on the property, but it goes back to the property’s original date – it doesn’t stop at 40 or 60 years as title searches do. The abstract shows the chain of title, and a short property description. The abstract doesn’t guarantee the title or provide title insurance. It’s a summarized history of what can be easily found regarding the property’s public record.
How Much Does a Property Abstract Cost?
The fees for an abstract update depend on the area you are in and the complexity of the search. On average, expect to pay between $350 and $500 for the abstract. This is often more than the title search, but it’s a more in-depth and/or longer look at the property’s history.
What is the Difference Between a Title and an Abstract?
A title report and abstract are essentially the same thing, but with one major difference. A title report may or may not have all of the pertinent details. An abstract is more in-depth. In other words, it may catch a break in the title’s chain easier. A title search may overlook an issue, especially if it occurred a long time ago.
Here’s where the problem lies. If a broken chain of title isn’t found, the deed keeps changing ownership, but illegally. You don’t realize until it’s too late that there’s an issue when someone from 30, 40, or 50 years ago comes forward and claims ownership. That’s when title insurance comes into play. The abstract just shows what could be wrong in the ownership, but it doesn’t insure against any claims. Title insurance, however, insures against the claims.
Do you Need an Abstract to Sell a House?
Many states don’t use the title abstract any longer. They often opt for the quicker title search and title insurance. Lenders require title insurance on all loans and owners are encouraged to purchase an owner’s policy to protect themselves.
What are Recording Fees?
When you take out a mortgage, there is a deed. That deed gets recorded with the county. This is where the recording fee comes from. The deed then becomes public record. In other words, anyone can find the chain of ownership.
The recording process and fees are crucial to prevent fraud. With the information being public record, anyone can see the ownership and determine if a ‘seller’ really owns the property or if they are committing fraud. The recording fees save everyone a lot of money in the long run.
The recording fee costs depend on the location. Some states have minimal fees, such as $15 for the entire document. Others charge a percentage of the home’s value or a per page rate, such as $5 per page.
Who Pays the Recording Fees?
Essentially, anyone can pay the recording fees, but traditionally, the seller pays it. You can work it out when you negotiate the sales contract. If the recording fee is a big fee, it may not matter to you who pays it. However, if it’s sizeable in your area, you may want to consider asking the seller for assistance with the fee.
Abstract and recording fees can add up when looking at your closing costs. In fact, closing costs add up to as much as 3% – 5% of your loan amount. Make sure you go over each line item carefully to determine the cost of your closing fees. You may be able to negotiate some fees, but abstract and recording fees aren’t among them.