Who Pays Closing Costs When You Sell a House?

When selling a home, various fees and expenses are incurred at the close of the real estate transaction. These financial obligations, commonly referred to as closing costs, are a necessary part of transferring property ownership. Both the buyer and the seller typically bear a share of these costs, which can represent a notable percentage of the home’s sale price. Understanding these expenses is important for sellers to estimate their net proceeds and for buyers to prepare financially.

Seller’s Typical Closing Costs

Sellers generally face a range of closing costs that significantly impact the final amount received from their home sale. A substantial portion of these costs often stems from real estate agent commissions. Real estate commissions typically range between 5% and 6% of the home’s final sale price, with this amount usually split between the listing agent and the buyer’s agent. While traditionally paid by the seller, recent changes allow for negotiation regarding who covers the buyer’s agent fee.

Another common expense for sellers is transfer taxes. These taxes are levied by state or local governments for the official transfer of property ownership. The amount of transfer tax varies significantly by location, with some areas charging thousands of dollars while others have no charge. In many regions, the seller is responsible for paying these taxes, though this can be negotiable.

Owner’s title insurance is another cost frequently borne by the seller in many markets. This policy protects the buyer against future claims to the property’s title, such as undisclosed heirs or liens. The cost typically ranges from 0% to 1%, often around 0.5% of the home’s sales price. While the owner’s policy protects the buyer, a separate lender’s title insurance policy, which protects the buyer’s mortgage lender, is usually paid by the buyer.

Escrow fees are also part of the seller’s financial obligations. These fees are paid to the escrow company or settlement agent who manages the closing process, ensuring all funds and documents are properly exchanged. Escrow fees can vary, sometimes ranging from 1% to 2% of the home’s price. In some cases, these fees might be split between the buyer and seller.

Attorney fees are incurred if a real estate attorney is involved in the transaction, which may be required in some states or chosen by the parties. Attorneys review contracts, prepare documents, and provide legal guidance throughout the sale. Recording fees are paid to local government offices to officially record the new deed and mortgage, making the transaction a public record.

Sellers are also responsible for prorated property taxes and potentially outstanding utility costs. Property taxes are typically paid in arrears or advance, and at closing, the seller pays their share of taxes up to the closing date. This proration ensures each party pays for the period they owned the property. Any outstanding homeowner’s association (HOA) fees or prorated utility bills covering the seller’s ownership period must also be settled at closing.

Buyer’s Typical Closing Costs

Buyers generally incur costs related to securing their mortgage and establishing property ownership. Loan origination fees are a primary expense for buyers, covering the administrative costs incurred by the lender for processing the loan application. These fees typically range from 0.5% to 1% of the total loan amount.

Appraisal fees are paid by the buyer for a licensed appraiser to determine the home’s market value, which lenders require to ensure the property’s value supports the loan amount. This fee can cost a buyer anywhere from $500 to over $1,000. Another common fee is the credit report fee, which covers the cost of obtaining the buyer’s credit history to assess their creditworthiness. This fee is typically around $35, though it can range from $100 to $250.

Lender’s title insurance is a mandatory cost for buyers who are obtaining a mortgage, protecting the lender’s financial interest in the property against title defects. This policy is distinct from the owner’s title insurance and its cost typically ranges from 0.1% to 2% of the home purchase price. Prepaid interest is another expense where buyers pay interest on their mortgage loan for the remaining days of the month in which the closing occurs.

Buyers also typically pay for property taxes and homeowner’s insurance at closing. Lenders often require an initial deposit into an escrow account to cover a portion of future property taxes and the first year’s homeowner’s insurance premium. Homeowner’s insurance is mandatory if a mortgage is involved, protecting both the buyer and the lender. The first year’s premium is usually paid upfront at closing.

Negotiating Closing Costs

The allocation of closing costs between buyers and sellers is not always fixed and can often be negotiated as part of the purchase agreement. Market conditions play a significant role in determining the leverage each party has during negotiations. In a seller’s market, sellers may be less inclined to cover buyer’s costs, while in a buyer’s market, sellers might offer concessions to attract offers.

Seller concessions are a common negotiation tactic where the seller agrees to pay a portion of the buyer’s closing costs. These concessions might cover various buyer expenses, such as loan origination fees or appraisal costs. The condition of the property can also influence negotiations; if a home requires significant repairs, the seller might agree to pay more closing costs as an incentive.

Buyers can propose specific amounts or percentages of their closing costs for the seller to cover. The overall offer, including the purchase price and other terms, can be adjusted to reflect these negotiations. Any agreements regarding closing costs must be explicitly documented in the purchase contract to ensure clarity and enforceability at closing.

Understanding Your Closing Disclosure

The Closing Disclosure is a comprehensive document that summarizes the final financial details of a real estate transaction. This five-page form is provided by the lender to the borrower at least three business days before the scheduled closing date. Its purpose is to ensure transparency by outlining the loan terms, projected monthly payments, and all associated fees and costs.

For sellers, while the buyer receives a detailed five-page disclosure, sellers typically receive a shorter, often two-page, seller’s Closing Disclosure. This document specifically itemizes the expenses the seller is responsible for paying. It provides a line-by-line breakdown of costs, including real estate commissions, transfer taxes, and other fees agreed upon in the contract.

Reviewing the Closing Disclosure carefully is an important step to ensure accuracy and identify any discrepancies. Sellers should compare the figures on their disclosure with the terms previously agreed upon in the purchase agreement. This review allows sellers to verify that all charges are correct and align with their expectations. The focus during this review should be on confirming the accuracy of the final amounts and how they impact the seller’s net proceeds.