Who Pays Closing Costs in Washington?

Real estate transactions involve various financial obligations beyond the purchase price, collectively known as closing costs. These expenses are incurred by both buyers and sellers to finalize a property sale and transfer ownership. Understanding these costs is important for managing a real estate transaction.

Defining Closing Costs

Closing costs encompass a range of fees and expenses necessary to complete a real estate transaction. These are distinct from the property’s purchase price and are paid at the time of closing, when the property title is officially transferred. These costs can vary significantly based on location, property type, and transaction specifics.

The types of closing costs generally fall into several categories:
Loan-related fees: Charges from the lender for processing the mortgage application and establishing the loan.
Title and escrow fees: Cover services related to ensuring clear ownership and managing transaction funds and documents.
Government recording fees: Cover the official registration of the property transfer.
Prepaid expenses: Property taxes and homeowners insurance premiums often collected at closing to establish an escrow account.

Typical Buyer Responsibilities in Washington

In Washington State, buyers are typically responsible for a specific set of closing costs, many of which relate to securing a mortgage. Loan origination fees, which compensate the lender for processing and underwriting the loan, usually range from 0.5% to 1% of the loan amount. This fee covers administrative costs, paperwork, and verifying the borrower’s creditworthiness. Buyers also pay credit report fees, which are typically between $25 and $50, allowing lenders to assess their credit history.

Appraisal fees are another common expense for buyers, ranging from $300 to $900 in Washington. Lenders require an appraisal to ensure the home’s value supports the loan amount, protecting their investment. Home inspection fees, although not always required by lenders, are a prudent expense for buyers, typically costing a few hundred dollars. These inspections help identify any significant issues with the property before purchase.

Buyers are also responsible for the lender’s title insurance policy, which protects the lender in case of future title disputes. The cost for this policy can vary, often around $1,000. Government recording charges for the deed and mortgage are also typically paid by the buyer, with costs varying by county. Furthermore, buyers often prepay a portion of property taxes and homeowners insurance premiums into an escrow account at closing.

Typical Seller Responsibilities in Washington

Sellers in Washington State typically incur several significant closing costs, with real estate agent commissions often being the largest. These commissions generally range from 5% to 6% of the home’s sale price, split between the listing agent and the buyer’s agent. This expense is paid out of the sale proceeds at closing.

Another notable cost for sellers is the owner’s title insurance policy, which protects the buyer from any future claims against the property’s title. While the cost varies, it can be around $1,000 to $2,000. This policy ensures clear and marketable title is transferred to the new owner.

The Washington Real Estate Excise Tax (REET) is a tax levied on the sale of real property and is typically paid by the seller. Washington’s REET system is graduated, with state rates varying based on the sale price. As of January 1, 2023, for residential sales, the state rates range from 1.10% for properties $525,000 or less, up to 3.00% for sales exceeding $3,025,000. Local jurisdictions, including counties and cities, may impose additional REET rates, typically ranging from 0.25% to 0.5%, further impacting the total tax. Sellers are also generally responsible for prorated property taxes up to the closing date.

Shared or Negotiable Closing Costs

Certain closing costs in Washington State are commonly shared between the buyer and seller, or their allocation can be subject to negotiation. Escrow fees, which cover the cost of the neutral third party managing the closing process, are frequently split between both parties. The exact amount of the escrow fee, often ranging from $500 to $2,000 per side depending on the property price, is typically determined during the negotiation of the purchase agreement.

While not always required, attorney fees can also be a shared or negotiated expense if legal counsel is involved in the transaction. Document preparation fees, which cover the costs of drafting necessary legal papers for the sale, may also be subject to negotiation.