Who Pays Closing Costs in AZ: Buyer vs. Seller

In Arizona real estate transactions, various fees and expenses arise beyond the agreed-upon purchase price, collectively known as closing costs. Understanding these costs is important for both buyers and sellers as they represent a significant financial commitment at the conclusion of a property transfer. Knowing who typically pays for which expenses is fundamental for financial planning and a smooth transaction process in the Arizona housing market.

Understanding Closing Costs

Closing costs are fees and expenses incurred during the transfer of property ownership. These charges compensate various parties for services rendered, ensure a clear title, and fulfill legal and administrative requirements. Closing costs can be broadly categorized into several types, including lender fees, title and escrow fees, government recording fees, and prepaid expenses. For instance, fees are paid for services like loan origination, property appraisals, and title searches.

On average, closing costs in Arizona typically range from 2% to 5% of the home’s purchase price, although this can vary based on the specific property value and the allocation between parties. For a median-priced home in Arizona, the average closing costs for all parties combined (excluding real estate agent commissions) were around $3,574 in 2024. However, when considering all potential expenses, including commissions, total costs can be higher. These costs are distinct from the down payment and represent additional funds needed to complete the purchase or sale.

Buyer’s Typical Responsibilities

Buyers in Arizona assume responsibility for several specific closing costs, many associated with securing a mortgage. Loan origination fees, charged by lenders for processing the loan, often range from 0.5% to 1% of the loan amount. Appraisal fees are typically paid by the buyer, as lenders require an appraisal to confirm the home’s value aligns with the loan amount. Costs usually fall between $450 and $750 for a standard single-family home. A credit report fee, usually around $25, covers the cost of checking the buyer’s credit history.

Lender’s title insurance, an expense borne by the buyer, protects the lender against title defects or claims against the property. While escrow fees are often split, the buyer pays their portion for the independent third party managing the transaction’s funds and documents. Recording fees, charged by the county or city to register property ownership transfer and the mortgage, are typically around $50 to $100.

Buyers are responsible for prepaid interest, which covers mortgage interest from the closing date to the end of the current month. Prorated property taxes and homeowners insurance premiums for a certain period are collected at closing to establish an escrow account. Homeowners Association (HOA) transfer fees, if applicable, might be part of the buyer’s costs, sometimes ranging from $250 to $500 or more.

Seller’s Typical Responsibilities

Sellers in Arizona have a distinct set of closing costs, with real estate commissions often being the most substantial. These commissions, typically ranging from 5% to 6% of the home’s sale price, cover both the listing agent’s and the buyer’s agent’s fees. While traditionally sellers paid both, the specific arrangement can be negotiated. Another significant expense for sellers is the owner’s title insurance policy, protecting the buyer from any pre-existing claims or defects against the property’s title.

Sellers typically pay a portion of the escrow fees for the management of closing documents and funds. If the property is part of an HOA, sellers may be responsible for HOA transfer fees or any outstanding dues. Prorated property taxes, covering the period the seller owned the home up to the closing date, are paid at settlement. Sellers might offer a home warranty to the buyer as part of the sales agreement, paid at closing. Other minor costs can include wire transfer fees for payoff of the existing mortgage or a loan reconveyance fee to release the lien on the property.

Negotiating Closing Cost Payments

While there are typical allocations for closing costs in Arizona, many fees are subject to negotiation between the buyer and seller. The specific terms of who pays what must be documented within the purchase agreement. Negotiation often occurs when a buyer requests seller concessions to help cover their closing costs, or when specific repairs are needed and the buyer asks the seller to contribute. For example, a seller might agree to pay a percentage of the sale price toward the buyer’s closing costs to finalize a deal, especially if the property has been on the market for an extended period.

Market conditions significantly influence the leverage each party has in these negotiations. In a buyer’s market, with more housing supply than demand, buyers typically have greater negotiating power and can more easily request sellers to cover a portion or all of their closing costs. Conversely, in a seller’s market with high demand, sellers are less likely to concede on closing costs. Factors such as the home’s condition, how long it has been listed, and the overall competitiveness of the offer play a role in determining the willingness of either party to negotiate on these expenses.