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Calculating Closing Costs Just Got Easier

If you want to buy a house, your first step these days is to get approved by a lender. At the time your local application is approved, your lender is supposed to give you a good faith estimate of your closing costs.

Right now, the lender has to pull those costs and figures together manually. There's a fair amount of guesswork involved, since the lender doesn't exactly know which service provider you're going to use and exactly who is going to pay for what. With nearly 30 closing costs home buyers and sellers can expect to pay, it's fair to say that mistakes get made and too often, good faith estimates are flat out wrong.

In this day and age where technology has solved so many of the annoying problems associated with real estate, it didn't seem possible that there hasn't been a fix for closing costs. But a website as emerged, Closing.com, that seems to be the right solution at the right time.

Closing.com has contact information for more than 150,000 of those closing service providers, who have also entered their rate information. (Right now it's free to enter that information, according to spokesman Steve Cook, although the plan is to charge these companies down the line.) Service provides include home inspectors, title companies, settlement service companies, appraisers and others who a buyer or seller would have to pay to get the deal closed.

With the rates and fees plugged into their data base and rate engines, Closing.com can instantly tell you how much you'll have to spend in closing costs on the property you want to buy.

Closing.com has been busy racking up the frequent flier miles to do deals with all sorts of big websites. Their SmartClosing calculator widget, which is being introduced today at the Inman Connect conference in San Francisco, will appear next to listings on real estate search sites like Trulia and CyberHomes. Tony Farwell, Closing.com's CEO, tells me that discussions are "continuing" with other major search engines, like Zillow and Realtor.com, as well as with big multiple listing service companies (an agreement was recently signed with Sandicor, the MLS in San Diego), and individual real estate brokerage companies.

"We started out four years ago to offer a pricing engine for title insurance because there wasn't one, and we felt we could provide a system where professionals and consumers could get instant quotes," Farwell recalled. Farwell and his partners invested $10 million of their own money, and the company now has 50 employees scrambling to get millions of pieces of data uploaded correctly into their rate engines.

Farwell expects to be in the black by the end of 2010, no small feat as we move through this recession. Next up on his hit list: Convincing major mortgage companies to use Closing.com to automate the good faith estimate requirement, boosting speed and accuracy.

He expects the technology to be ready by January 1, 2010, the day the Dept. of Housing and Urban Development (HUD) will begin requiring lenders to provide accurate good faith estimates. Certain expenses can come in 10 percent higher or lower than estimated but a fair number of those fees must come in at the penny.

"We think our system is substantially more accurate than what is out there right now. We take all the data, whether it is the cost of transfer taxes, property taxes, or vendor fees and produce what is in effect a pre-good faith estimate on Closing.com. We'll use the same technology to produce good faith estimates for lenders," Farwell explained.

For me, the best part about Closing.com is the ease with which consumers can shop for and choose their own settlement providers. Every company that has a listing (all settlement companies can offer a free listing, but have to pay to list their rates) will be featured. And if the buyer or seller chooses a company not on the list, at least they know what other companies are charging for the same service.

"It's an open approach to figuring out closing costs," Farwell said.