What Home Sellers Need to Know about Closing Costs in Kentucky

If you’re selling your Kentucky home, you may be wondering how much you’ll make on the sale, what required costs will eat into your profit, and where you can cut costs. This means understanding which fees you’ll be responsible for when the sale closes. In Kentucky, the average closing costs for sellers are approximately 2% of the sale price or $3,000 for a $150,000 home (which is the average selling price across the state) and the agent’s commission, which is 5-6% of the sale price or up to $9,000 on a $150,000 home sale for a total of approximately $12,000 in costs.

To better understand which closing costs are applicable to home sellers in Kentucky, we talked to Maggie Terry, a real estate agent for Keller Williams Realty in Louisville East. Terry has sold over 267 homes in her 17 years of real estate experience.

What are closing costs?

Seller’s closing costs are the expenses the homeowner is responsible for paying to complete the real estate transaction. These costs may include mortgage payoff, title fees, prorated property taxes, real estate transfer taxes, loan reconveyance and reconveyance recording fees, real estate attorney fees, and real estate agent’s commission as well as buyer concessions and additional fees. Let’s discuss what each of these fees is and how much you’ll pay in Kentucky.

Kentucky seller closing cost overview

Mortgage prepayment penalty: up to 3%

When you sell your home, you are required by law to pay off the balance of your mortgage from the proceeds of the sale. Some lenders charge a prepayment penalty in addition to the balance of your mortgage.

Not all lenders charge a prepayment penalty and in Kentucky, payoff penalties are rare. In the rare case that your mortgage has an early payoff penalty clause, you’ll pay a prepayment fee because when you sell your home you’re essentially paying your mortgage off early. A prepayment penalty is a percentage on the unpaid principal balance at the time of payoff.

Typically, prepayment fees kick in when you pay off the mortgage in the first few years you own the home, and for most loan types they can’t go higher than 2%. Generally, if you’ve owned your home for more than four years, you will have passed any prepayment penalty period and will therefore not have one.

According to the Kentucky state statute:

“No prepayment penalty shall exceed three percent (3%) for the first year, two percent (2%) for the second year, and one percent (1%) for the third year of the outstanding balance of the loan; but in no event shall a prepayment penalty be assessed against a borrower refinancing with the mortgage loan company that funded the mortgage.”

Real estate agent commission: up to 6%

Real estate agent commission is the percentage of the sale paid to the agent(s) involved in the transaction. The seller generally pays the commission to the buyer’s agent as well as to the seller’s agent. Commission in Kentucky is typically 5% to 6% of the home’s sale price, split between the two agents. The commission paid to the seller’s agent covers the cost for listing the home with the local Multiple Listing Services (MLS) and marketing the home.

Commission is the largest fee Kentucky sellers will pay when selling their home, amounting to as much as 75% of the closing costs. For example, if you sell your home for $150,000, you will pay a commission between $7,500 and $9,000 while your other closing costs will come to approximately $3,000.

To estimate how much you’ll pay in real estate commission, use our real estate agent commission calculator.

Real estate commissions are not set by Kentucky state law. The seller can negotiate the commission rate with the seller’s agent, however this is not always in the seller’s best interest. Remember that the commission paid to the seller’s agent covers listing and marketing fees. If you plan to negotiate your real estate agent’s commission, Terry recommends that you find out what value adds are included in the service and negotiate discounts for anything you might not need, such as staging services.

While it’s common practice for the seller to pay the buyer agent’s commission, the seller  is not obligated to do so. During the negotiating period, the seller can request that the buyer pay all of or a portion of the buyer agent’s commission. In a hot market, a buyer may be willing to pay the commission for their agent to sweeten the deal.

The convenience of a real estate agent removes the hassle, unknown, and legal issues of selling your home yourself. It also puts your home in front of more buyers. However, you are not obligated to sell through a real estate agent. If you choose the for sale by owner (FSBO) option, you will save yourself the cost of commission. It’s customary for the buyer to pay the buyer agent’s commission in a FSBO purchase.

If you sell your home FSBO, you will want to hire a real estate attorney to draft and review your paperwork. The average hourly rate for a real estate attorney is $246.

You can also sell to pre-vetted cash buyers with the help of HomeLight’s Simple Sale.

Property taxes: 0.83% average

Because property taxes are paid in arrears, you will most likely owe property taxes at closing. The buyer and seller both pay their share of property taxes (prorated to the day of the sale) on the home sale. Property taxes are non-negotiable.

Scenarios in which you would owe taxes include:

• You pay your taxes in a lump sum AND
• You sell your home before you’ve received your tax bill for the year

OR

• You pay your taxes in a lump sum AND
• You sell your home after you’ve received your tax bill for the year and before you’ve paid your taxes

OR

• You pay your taxes into escrow AND
• Your escrow account is short the actual tax amount for the year

You can use this handy online tax calculator to estimate your property taxes.

If you have paid your taxes for the year, the buyer must pay the amount they owe, prorated from the date of the sale until the end of the year.

How much are Kentucky property taxes?

The property tax for Kentucky homeowners averages around $1,257 per year, which is much lower than the national average of $2,578 per year. Kentucky property tax rates vary from county to county but are between 0.63% and 1.17% of the home value. The state average is 0.83%, although Terry notes that they’re higher (around 0.9%) in the Louisville area.

In Kentucky, property taxes follow a one-year cycle, beginning on January 1 of each year, when the home is assessed through a mass appraisal. Tax rates are calculated during the summer and billed in October and November, with payment due on or before December 31. Homeowners who pay their taxes before November 30 receive a 2% discount on the total amount but those who don’t pay until January pay a 5% penalty. In February, that penalty becomes 20%.

Kentucky property taxes are paid in arrears, which means they are paid for the previous tax year. Therefore, unless you pay your taxes in escrow to your lender or you sell your home in the winter months and after you’ve paid property taxes for that year, you’ll be responsible for the current year’s taxes for the portion of the year you own your home.

Deed preparation fees: $500

The state of Kentucky requires a licensed attorney to conduct real estate closings. Your attorney will handle the legal documentation and the transfer of the sale.

When you sell your home and pay off your mortgage, your real estate attorney distributes a payment on your behalf to your mortgage company from the proceeds of the sale and prepares a deed preparation settlement (also called deed of reconveyance or satisfaction of mortgage document), which indicates that your loan has been paid off in full.

You will pay approximately $500 for deed preparation fees and real estate attorney fees.

Real estate transfer tax: 0.1%

In Kentucky, the seller is responsible for the real estate transfer taxes imposed by the state and city. However, the seller can negotiate with the buyer to pay all or a portion of the transfer tax. Kentucky state transfer taxes are collected by the county in which the property is located.

State transfer tax: 0.1% of sale price

Title fees: $550

When you sell your home, you must prove that you legally own the property and there are no outstanding judgments or claims against your home. This is done with a title search, which costs approximately $550 in Kentucky.

Concessions: vary

Buyers may ask the seller to pay certain closing costs. This is called a buyer’s concession and is requested during the buy/sell negotiations at the time of the offer. Concessions are uncommon during a hot market and for Kentucky properties with a market value greater than $300,000. However, during a slow (buyer’s) market, a buyer might request that the seller pay a percentage of the buyer’s closing costs or for more specific line items. Alternatively, in a slow market, the seller may sweeten the sale by offering the buyer a credit toward closing.

Common concessions include:

• Title insurance, which protects the lender or homebuyer from claims against the home’s title
• Home warranty, which is a service agreement that pays a certain amount to repair or replace home systems and appliances should they wear down
• Disaster insurance, which covers flood, fire, or tornado insurance depending on the area
• Credit toward repairs of ageing or damaged features of the home

Sellers may also pay these closing costs: vary

There are additional costs sellers are expected to pay if they apply to them. These can  include:

Termite inspections for VA loans. If the buyer is financing the property purchase with a VA loan, the seller will be required to pay for a termite inspection. The average cost for a termite inspection is $100.

HOA fees and condominium dues. These are common homeowner expenses in Kentucky. You will be required to pay the prorated amount of any outstanding HOA fees or condominium dues for that year. Terry shares that HOA fees in Kentucky are approximately $400–$500 and condo dues are approximately $250 (but may be higher if utilities or repairs are included).

Don’t overlook these costs to sell your home

There are other costs to selling your home that aren’t closing costs. They are: costs to prepare your home for sale, negotiated costs to repair your home, and moving costs.

Home preparation costs. These are other costs a seller may pay for when selling a home including fees paid to deep clean their home, storage fees, and staging fees. Costs vary depending on your needs. Terry says home staging is common on high-end homes in Kentucky.

Home repairs. Another cost to sellers is the cost to make necessary repairs. These are the repairs that the buyer negotiates with the seller based on findings in the inspection. Unless your home is 100% perfect, you will likely be on the line for some repairs. How much repairs cost varies from home to home and depends on what the seller is required to fix in order to make the sale or repairs that Kentucky law requires them to make.

While an “as is” sale is a way for sellers to avoid making costly repairs, it generally results in lower offers.

It’s customary to put a cap on the cost of repairs the seller must spring for, however there are some repairs that are required by state law. Sellers are on the hook for the following repairs:

• Water damage
• Structural issues
• Old or damaged roofing
• Damaged or old electrical system
• Plumbing problems
• Insect and pest infestation
• Issues with the HVAC system

Sellers should be aware of items in need of costly repair when they list their home, such as known leaks or a failing septic system. They have a legal and ethical obligation to disclose these issues to the buyer.

Moving costs. If you are selling your home, you are most certainly moving. While moving costs aren’t part of the closing costs, you will be on the line for the cost of packing up and transporting your belongings. Costs vary depending on whether you hire a service, how far you move and whether your relocation costs are paid by an employer.

Where to see your estimated and actual costs and profits

Your real estate agent should provide you with a list of the closing costs, determine the net amount you’ll make from your sale, and discuss the costs with you before you sign your purchase agreement. If you want to estimate how much you’ll make from your home sale after home repairs and closing costs, plug your home details into our net proceeds calculator.

At the end of closing, you’ll receive a settlement statement, which is a record that lists itemized fees and credits for the entire real estate transaction.

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