Understanding Closing Costs: Who Pays What?

When buying or selling a home, one of the most overlooked (yet crucial) aspects of the transaction is closing costs. These fees can sometimes catch buyers and sellers off guard, adding thousands of dollars to the final tab. So, let’s break it down: what exactly are closing costs, and who’s responsible for paying them?

What Are Closing Costs?

Closing costs are a combination of fees and expenses that are due when a real estate transaction is finalized, or “closed.” These costs vary depending on location, loan type, and other factors, but typically range from 2% to 5% of the purchase price.

Typical Buyer Closing Costs

Most of the time, buyers carry the bulk of the closing costs. Here’s a breakdown of what buyers commonly pay for:

• Loan Origination Fees – Charges from the lender for processing the new mortgage.
• Appraisal Fee – The cost to appraise the property’s market value.
• Credit Report Fee – A small fee for pulling your credit report.
• Title Search & Title Insurance (Lender’s Policy) – Ensures the title is clear and protects the lender from any title-related claims.
• Escrow Fees – Fees charged by the title or escrow company to handle closing.
• Recording Fees – Fees paid to the local government to officially record the new ownership.
• Home Inspection Fee – Often optional but highly recommended.
• Prepaid Costs – Includes property taxes, homeowners insurance, and sometimes HOA dues.

Typical Seller Closing Costs

While buyers pay more line-item fees, sellers usually pay the biggest single cost: agent commissions. Here’s what sellers typically cover:

• Real Estate Agent Commissions – Usually 5%–6% of the sale price, split between buyer’s and seller’s agents.
• Title Insurance (Owner’s Policy) – Protects the buyer from any claims against the property title.
• Transfer Taxes – Local or state taxes for transferring property ownership.
• Outstanding Liens or Judgments – Any debts tied to the property must be settled before closing.
• Escrow Fees (sometimes split) – Depending on the area, escrow fees may be shared between buyer and seller.
• Home Warranty (optional) – Sometimes offered as an incentive to buyers.

Can Closing Costs Be Negotiated?

Absolutely. While many closing costs are standard, some are negotiable. For example:

• Buyers can sometimes ask the seller to contribute toward closing costs as part of the offer.
• Lenders may offer no-closing-cost loans, but beware—they often come with a higher interest rate.
• Some service fees, like title or escrow, can be shopped around for better rates.

Final Thoughts

Closing costs can feel like an avalanche of unexpected expenses, but with a bit of preparation and guidance from your real estate professional, they don’t have to be overwhelming. Knowing who pays what and what to expect puts you in a better position to budget smartly and close confidently.