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When buying or selling a home, closing costs can be significant. Both buyers and sellers typically cover certain costs related to the sale. Total closing costs can easily reach tens of thousands of dollars, so understanding the most common fees and your options for lowering costs can really help you plan ahead.

Here’s a closer look at who pays closing costs and what you need to know as a home buyer or seller.

Closing costs explained

Closing costs are fees from common transactions and services when buying or selling a home. Most costs are related to the financing, real estate agent services, and assessing the home’s condition and value.

Closing costs often add up to around 2% to 7% of the property’s sale price. So, for a $300,000 house, the closing costs would be roughly $6,000 to $21,000. Real estate agent fees are typically the highest closing cost, but the total closing costs will depend on location.

Some of the most common closing costs include:¹

  • Appraisal fees
  • Tax service provider fees
  • Title insurance
  • Government taxes
  • Prepaid expenses, including property taxes, homeowners insurance, and interest until your first payment is due

Breaking down the buyer's closing costs

Do buyers pay closing costs? They generally will pay some.

The buyer and seller each pay different costs related to their side of the transaction. Some of these costs may be negotiable, and you may be able to get the other party to pay all or a portion of the buyer’s closing costs. Some of these costs are included in the payment made at closing, while others are paid for individually.²

Closing costs often include (but are not limited to):

  • Title cost: Title costs include fees to verify a home can be sold and title insurance for the buyer and lender. You’ll also likely pay a fee to the county for registering a change in ownership. The buyer usually pays for title insurance to protect both the buyer’s and lender’s interests in the property.
  • Homeowner insurance: When you buy a home with a loan, the lender almost always requires homeowner’s insurance, which pays for the costs to repair major damage to the property. Even if it’s not required for a loan, homeowner’s insurance is still usually a good idea, as most people can’t afford to make significant repairs or replace their home in the event of a fire or severe weather event. Note that earthquake and flood insurance is usually not included in a standard homeowner’s insurance policy.
  • Attorney: Home buyers can hire an attorney to review loan and sale agreements. If you want extra assurance your contracts are legal and fair, you may want to pay for this additional cost.
  • Home inspection: A home inspector can check the home for damage and defects. After an inspection, you can ask the seller to fix the issues or offer a credit, effectively lowering the sale price so you can fix them after taking ownership of the home. An inspection may not be required, but buying a house without knowing its condition is unwise.
  • Appraisal: The lender generally requires an appraisal to ensure the home is worth as much as expected. An appraiser reviews the property condition and compares it with recent sales of nearby houses to determine the appraised value.
  • Prepaid interest: Depending on the time of the month you close, you may have a few weeks, or sometimes over a month, before your first mortgage payment is due. Prepaid interest covers the loan interest from closing until your mortgage payments begin.
  • Escrow fees: Escrow fees are usually paid to a title company to facilitate the change in ownership and distribution of funds.
  • Loan origination fee: An origination fee is a fee some lenders charge for creating a new mortgage loan. Some lenders don’t charge origination fees, which is one reason shopping around for a mortgage loan can be helpful.

Breaking down the seller's closing costs

Does the seller pay closing costs? While the seller may pay for closing costs from the loan’s proceeds, they’re still important to consider. Again, some closing costs may be negotiable.

Some of the most common closing costs for sellers include:

  • Title fees: The seller usually pays for title fees related to the title search and transferring the property to the new owner.
  • Realtor commission: Real estate agent commissions typically come from the seller’s proceeds. Traditionally, these fees add up to 6% of the home’s value, with half going to the buyer’s and seller’s agents.³ Some modern real estate companies offer much lower commissions. The seller may benefit greatly from finding a lower-cost agent.
  • Property taxes: Property taxes are prorated, meaning the seller pays for the year up until the sale date, and the buyer pays future property taxes. If there are outstanding property taxes, the seller must pay to get them up to date.
  • Homeowners association fees: Similar to property taxes, homeowners association (HOA) fees are divided so the seller pays through the closing date. If any HOA dues are outstanding, the seller must pay to cover HOA dues through the closing date.
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Buyer and seller shared closing costs

Buyers and sellers each typically cover the costs as described above, but it’s possible that buyers and sellers could share some or all of these costs. It all comes down to negotiating the best deal. Having an experienced real estate agent negotiate for you is very beneficial.

In some cases, the buyer can work out a deal where the seller pays closing costs that are offset by a higher home price. Called a concession, this arrangement allows the buyer to finance closing costs. With a higher home price, you may qualify for a larger mortgage. This allows the buyer to pay for closing costs over time rather than upfront.

Tips for saving on closing costs

Closing costs are not set in stone. While certain fees may not be negotiable, you can often save by shopping around or negotiating. If you don’t know who pays closing costs for different parts of the transaction, talk to your real estate agent or lender to learn more.

  • Negotiate with the other party: Negotiating a home sale can involve several back-and-forth offers and counteroffers. While being too aggressive can lead to a rejection, especially in competitive markets, you can always try to get a better deal.
  • Assistance programs: Local or federal assistance programs exist to aid with down payments and closing costs, especially for low-to-moderate income or first-time homebuyers. Depending on your financial situation, you may qualify for financial assistance.
  • Negotiate real estate agent commissions: Paying 3% each to the buyers’ and sellers’ agents can quickly add up, particularly on high-value homes. Even half a percent off your agent’s fees can be worth thousands of dollars. Seller’s agents may be willing to take a lower fee. Buyer’s agents sometimes refund a portion of their fee to the buyer after closing. That’s known as a “commission rebate” and is worth asking about.

The bottom line on closing costs

Closing costs in real estate can add up to tens of thousands of dollars, so shopping around for the best value and negotiating can lead to a significant payoff. While you don’t want to put your home purchase (or sale) in jeopardy by making unreasonable demands, doing your best to score a deal on closing costs can lead to thousands of dollars in savings.

If you’re thinking about buying a home, learn more about how much you need to buy a home to get you started on your homeownership journey.

FAQs

Do I still pay closing costs if I'm paying cash?

Certain closing costs related to a home loan can be avoided if you’re paying cash for a home, but other costs, including title costs, are still required.

Who pays most of the closing costs?

In most situations, the seller pays most closing costs through real estate agent commissions.

How long does the closing process take?

From the time you apply for a loan and get the home under contract, it typically takes about four weeks to close on a home. Some rush purchases can be completed faster, particularly when buying with cash. More complex deals may take more than a month.

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¹ Information from the Consumer Financial Protection Bureau's "What fees or charges are paid when closing on a mortgage and who pays them?" as of January 29, 2024: https://www.consumerfinance.gov/ask-cfpb/what-fees-or-charges-are-paid-when-closing-on-a-mortgage-and-who-pays-them-en-1845/

² Information Fannie Mae's "Understanding Homebuying Closing Costs" as of January 29, 2024: https://www.fanniemae.com/research-and-insights/perspectives/understanding-homebuying-closing-costs

³ Information from FTC's "What’s New in Residential Real Estate Brokerage Competition" as of February 6, 2024: https://www.ftc.gov/system/files/documents/videos/whats-new-residential-real-estate-brokerage-competition-part-2/ftc-doj_residential_re_brokerage_competition_workshop_transcript_segment_2.pdf

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