BREAKING DOWN CLOSING COSTS IN NIGERIA’S PROPERTY MARKET.
INTRODUCTION
Are you looking to buy or sell a property in Nigeria? Congratulations on taking the first step towards owning your dream home or investment.
However, have you considered the additional costs that come with finalizing a property deal?
Closing costs can be a significant expense, and it’s essential to understand what they entail to avoid any surprises. In this post, we’ll break down closing costs in Nigeria’s property market, so you can make informed decisions and plan your finances accordingly.
WHAT ARE CLOSING COSTS?
Closing costs are also known as completion costs. They are fees associated with the completion of a property transaction. They are the costs incurred when transferring ownership of a property from the seller to the buyer.
In Nigeria, closing costs can range from 5% to 20% of the property’s purchase price, depending on various factors. These costs are usually paid by the buyer, but in some cases, the seller may agree to bear some or all of the costs.
It’s important to note that closing costs are different from the deposit paid on a property. A deposit is a portion of the purchase price paid to show commitment to buying the property, usually 10% to 30% of the purchase price. Closing costs, on the other hand, are the additional fees paid to finalize the transaction.
Understanding closing costs can help you avoid surprises and plan your finances better.
TYPES OF CLOSING COSTS
Here are the common types of closing costs in Nigeria:
1. Legal Fees
Legal fees are paid to solicitors or lawyers who handle the property transaction. They prepare and review contracts, conduct searches, and ensure a smooth transfer of ownership. In Nigeria, legal fees can range from 1% to 2% of the property’s purchase price.
2. Agency Fees
Agency fees are paid to real estate agents who facilitate the property transaction. They help find buyers or sellers and negotiate prices. In Nigeria, agency fees can range from 5% to 10% of the property’s purchase price.
3. Stamp Duty
Stamp duty is a tax paid to the government on legal documents, including property transactions. In Nigeria, stamp duty is 1% of the property’s purchase price.
4. Registration Fees
Registration fees are paid to register the property in the buyer’s name. This includes fees for registering the deed, survey, and other documents. In Nigeria, registration fees can range from 1% to 2% of the property’s purchase price.
5. Survey Fees
Survey fees are paid to surveyors who conduct a physical survey of the property to identify boundaries and any potential issues. In Nigeria, survey fees can range from ₦50,000 and above depending on the location and size of the property.
6. Inspection Fees
Inspection fees are paid to inspectors who conduct a thorough examination of the property to identify any defects or issues. In Nigeria, inspection fees can range from ₦50,000 and above depending on the location and size of the property.
7. Development/Infrastructure Fees
This type of fee is paid to cover the development of the entire area under construction. It is separate from other types of fees paid and should be taken into consideration when planning.
OTHER COSTS
Other costs include courier services, documentation fees, and other expenses incurred during the transaction. By understanding these closing costs, Nigerians can make informed decisions when buying or selling properties.
WHO PAYS CLOSING COSTS IN NIGERIA?
When buying or selling a property in Nigeria, one of the essential questions to ask is: “Who pays the closing costs?”
The buyer is usually responsible for paying legal fees for their solicitor, survey fees, registration fees, and inspection fees. On the other hand, the seller is usually responsible for paying agency fees to the real estate agent, stamp duty, and legal fees for their solicitor.
99.9% of the time, the buyer covers the costs in Nigeria, but there are times where the responsibility can be negotiated between the buyer and seller. In some cases, the seller may agree to bear some or all of the closing costs to incentivize the sale. This is often the case in a buyer’s market or when the seller is motivated to sell quickly.
To negotiate closing costs, buyers and sellers can consider including a clause in the sales agreement that specifies who pays closing costs. They may also offer to pay a higher purchase price in exchange for the seller bearing some closing costs or request that the seller credit some closing costs at closing. Additionally, buyers may consider hiring a real estate agent who offers to pay some closing costs
While the buyer typically pays most closing costs in Nigeria, the responsibility can be negotiated between the buyer and seller. By understanding who pays closing costs and how they can be negotiated, Nigerians can make informed decisions when buying or selling properties.
HOW DO I CALCULATE CLOSING COSTS?
Calculating closing costs in Nigeria can be a complex process, but understanding how to do it can help you prepare for the extra fees associated with buying or selling a property.
The individual costs are calculated separately and then added up to determine the total amount due. During the contract period, you may receive multiple drafts of the Closing Statement, which outlines your closing costs.
Please note that the figures in these drafts may be subject to change as new information becomes available, such as updated property tax projections or title claims. However, these drafts can provide a rough estimate of the closing costs to help you plan your budget accordingly.
Step-by-step guide on how to calculate closing costs in Nigeria.
Step 1: Determine the Purchase Price
The first step in calculating closing costs is to determine the purchase price of the property. This is the amount that the buyer has agreed to pay for the property.
Step 2: Calculate the Stamp Duty
Stamp duty is a tax paid to the government on legal documents, including property transactions. In Nigeria, stamp duty is usually 0.75% to 1% of the purchase price.
Step 3: Calculate the Legal Fees
Legal fees are paid to solicitors or lawyers who handle the property transaction. The legal fees can range from 5% to 10% of the purchase price.
Step 4: Calculate the Agency Fees
Agency fees are paid to real estate agents who facilitate the property transaction. The agency fees can range from 5% to 10% of the purchase price.
Step 5: Calculate the Survey Fees
Survey fees are paid to surveyors who conduct a physical survey of the property to identify boundaries and any potential issues. In Nigeria, surveyors are paid based on the SqM of the property.
Step 6: Calculate the Registration Fees
Registration fees are paid to register the property in the buyer’s name. In Nigeria, registration fees can range from 0.375% to 0.5% (fair market) of the purchase price.
Step 7: Calculate the Inspection Fees
Inspection fees are paid to inspectors who conduct a thorough examination of the property to identify any defects or issues. Inspection fee depends on the location and size of the property.
Step 8: Add Up the Closing Costs
Once you have calculated all the individual closing costs, add them up to get the total CLOSING COSTS.
EXAMPLES OF CLOSING COST CALCULATIONS
Let’s say you want to buy a property in Lagos for ₦20,000,000. Here’s how you would calculate the closing costs:
- Stamp duty: ₦20,000,000 x 1% = ₦200,000
- Legal fees: ₦20,000,000 x 10% = ₦2,000,000
- Agency fees: ₦20,000,000 x 5% = ₦1,000,000
- Survey fees: ₦100,000 (assuming a standard survey fee)
- Registration fees: ₦20,000,000 x 0.5% = ₦100,000
- Inspection fees: ₦150,000 (assuming a standard inspection fee)
Total closing costs: ₦200,000 + ₦2,000,000 + ₦1,000,000 + ₦100,000 + ₦100,000 + ₦150,000 = ₦3,550,000
In this example, the total closing costs would be ₦3,550,000, which is approximately 15% of the purchase price.
In conclusion, closing costs are an inevitable part of the property buying process. While they may seem like a daunting added expense, understanding what they entail and factoring them into your budget can make all the difference.
