What Constitutes “Cost of Sale” in Property Transactions?

Question from John, What Constitutes “Cost of Sale” in Property Transactions?

Answer from AI:

When a property is sold, the term “cost of sale” refers to the expenses directly associated with the transaction. These costs are deducted from the gross sales price to determine the net sales proceeds, which are then distributed according to the terms outlined in a legal decree, such as a divorce settlement. Understanding what typically falls under the “cost of sale” can help clarify financial responsibilities between parties after a divorce.

Typical Costs of Sale in Real Estate Transactions

The “cost of sale” generally includes, but is not limited to, the following expenses:

• Real Estate Commissions: Fees paid to real estate agents for their services in selling the property.
• Title Search and Insurance: Costs for ensuring the title is clear and insuring against title defects.
• Escrow Fees: Fees paid to the escrow company for handling the closing of the sale.
• Attorney Fees: Legal fees for any attorney services required during the sale process.
• Transfer Taxes: Taxes imposed by the government for transferring the title of the property.
• Recording Fees: Fees for recording the sale with the appropriate government entity.
• Inspection and Appraisal Fees: Costs for property inspections and appraisals if required for the sale.
• Repair Costs: Any agreed-upon repairs that are necessary to complete the sale.
• Other Closing Costs: Miscellaneous fees that may be required to finalize the sale, such as notary fees, loan payoff fees, and home warranty costs.

Understanding Your Divorce Decree

In the context of a divorce, the division of these costs should be outlined in the divorce decree. It is essential to carefully review the decree to understand your financial responsibilities. If the decree states that the “net sales proceeds” are to be distributed after deducting the “cost of sale,” then typically, both parties would be responsible for these costs in proportion to their ownership or as specified by the decree.

However, if you were awarded the LLC that held the property in the divorce, and the decree does not specify otherwise, you may be responsible for the costs associated with the sale of the property owned by the LLC. It is crucial to review the specific language of the decree and consider the following:

• The timing of when the costs were incurred (before or after the divorce decree).
• Any specific clauses in the decree that assign responsibility for these costs.
• The nature of the bills and whether they are considered part of the “cost of sale” as defined by the decree or by standard real estate practices.

Seeking Legal Advice

If there is ambiguity in the decree or a dispute arises regarding the responsibility for these costs, it may be necessary to seek legal advice from a family law attorney or a real estate attorney. They can provide guidance based on the specific language of your decree and the laws of your jurisdiction.

For more information on the typical costs associated with selling a property, you can refer to resources such as the Consumer Financial Protection Bureau.

Remember, this information is general in nature and should not be construed as legal advice. Each situation is unique, and laws can vary by state and local jurisdiction. Always consult with a legal professional for personalized advice.