Who Pays Closing Costs in Tennessee?

Closing costs are fees and expenses incurred at the final stage of a real estate transaction. These are distinct from the property’s purchase price and are paid when the property’s title officially transfers from the seller to the buyer. Understanding these financial obligations is important for both parties to ensure a seamless property transfer. These costs can significantly impact the total financial outlay for both buyers and sellers, making it necessary to account for them from the outset.

Common Closing Cost Categories

Real estate transactions involve various fees and charges that fall under closing costs. Loan-related fees include origination fees, which lenders charge for processing a mortgage application, typically ranging from 0.5% to 1% of the loan amount. Appraisal fees are also common, covering the cost of a professional assessment to ensure the property’s value supports the loan amount, usually costing between $300 and $500. A credit report fee covers the cost of obtaining the buyer’s credit history.

Title-related fees are also a component of closing costs. Title insurance protects both the buyer and the lender against potential defects in the property’s title, such as undisclosed liens or ownership disputes. There are two main types: an owner’s policy, which protects the buyer’s equity, and a lender’s policy, which safeguards the financial institution’s interest. Escrow fees, ranging from $500 to $2,000, are paid to the neutral third party that manages the closing process, including the secure handling of funds and documents.

Other common categories include recording fees, which are charges by local government entities to officially record the deed and mortgage information in public records. Attorney fees may also apply, covering legal services such as reviewing contracts and preparing documents. Prepaid expenses, such as property taxes and homeowner’s insurance premiums, are often collected at closing to cover initial periods post-transfer, ensuring continuous coverage and tax payments.

Buyer’s Typical Responsibilities in Tennessee

In Tennessee, buyers typically incur closing costs ranging from 2% to 5% of the home’s purchase price. Loan origination fees, a charge for processing the mortgage, are a standard buyer responsibility, often between 0.5% to 1% of the loan amount. Appraisal fees, which assess the property’s value for the lender, generally fall within the $300 to $500 range, though they can exceed $1,000 for more complex properties. A credit report fee is also paid by the buyer.

Home inspection fees are highly recommended for buyers to identify potential issues with the property’s condition, typically costing $300 to $500. Should a survey be required to verify property boundaries, the buyer might pay for this, with costs often starting around $400. For title insurance, the lender’s title insurance is usually a requirement when financing a home. In Tennessee, the buyer often pays for both the owner’s and lender’s title policy.

Buyers also typically cover recording fees. The state’s realty transfer tax, calculated at $0.37 per $100 of the property’s value, is generally a buyer’s expense in Tennessee. Buyers are responsible for establishing initial escrow accounts for property taxes and homeowner’s insurance.

Seller’s Typical Responsibilities in Tennessee

Sellers in Tennessee face closing costs that typically range from 3.03% to 10% of the home’s selling price, with real estate agent commissions being a significant component. Real estate agent commissions, averaging 5.42% of the sale price, are traditionally paid by the seller. This remains the largest expense for most sellers.

The owner’s title insurance policy is customarily paid by the seller in Tennessee. This one-time fee typically costs about 0.5% of the purchase price. The Tennessee real estate transfer tax, assessed at $0.37 per $100 of the sale price, is also a seller’s responsibility. For a $300,000 home, this tax would be around $1,110.

Sellers additionally pay recording fees. Prorated property taxes, covering the portion of the year the seller owned the property, are also accounted for at closing. Sellers might also incur attorney fees.

Negotiation and Agreement on Closing Costs

While there are typical allocations for closing costs in Tennessee, many of these expenses are negotiable between the buyer and seller. The final distribution of costs can be influenced by prevailing market conditions, the specific attributes of the property, and the motivations of both parties. For instance, in a buyer’s market, a seller might be more inclined to cover a larger portion of the buyer’s closing costs to facilitate a sale.

Conversely, in a seller’s market, buyers may agree to take on more of these expenses to make their offer more attractive. These agreements are formalized and documented within the purchase agreement or through specific addendums to the contract. Both parties should clearly outline who is responsible for each fee to prevent misunderstandings at closing. The agreed-upon terms override typical practices, establishing the binding financial responsibilities for the transaction.