What are the Closing Costs & Who Pays for Them?
Whether you’re a buyer or seller before buying and or selling a home, both parties need to know and should know their bottom line before showing up to escrow to finalize the sale of their transaction. In fact, once escrow opens, and once you have a loan amount and sale price – both the seller and buyer should know their closing cost almost down to the penny.
So – first let's answer the first question. What are the closing costs? Closing costs are charges related to the closing of escrow in a real estate transaction. And the closing of escrow is when the real estate transaction gets fulfilled, and the title of the property gets conveyed from the seller to the buyer.
Now – let’s talk about the second question. Who pays for the closing costs? Typically, both the buyer and seller pays for the closing costs in a real estate transaction. Although “who” pays for the closing costs in a real estate transaction is not always so straight forward. Sometimes the buyer may agree to pay for the seller's portion of the closing cost (and or) vice versa the seller may agree to pay for the buyer's portion of the closing cost.
Here’s what the standard closing cost fees look like for the seller. The biggest fee for the seller is usually between 4 to 6% of the selling price which covers the listing agent fee and selling agent fee. After the agents fees, the seller can expect to pay another 1 to 2% of the selling price which covers escrow fees, title fees, and other small miscellaneous fees. In addition to the real estate commission, escrow fees, title fees and a few miscellaneous fees – the sellers may have to pay the balance of their property taxes “if” they haven’t done so already, as well as prorated homeowners association dues, too.
On the buying side – even though the buyer’s closing cost is lower than the selling side, the buyer is faced with more line-item expenses than the seller. For the buyer, they typically pay about 2 to 3% of the selling price. The buyer will have to pay their portion (which is usually half of the escrow cost) of the escrow cost “as well as: they usually incur a small portion of the title cost. The rest of the buyer’s fees stem from the home mortgage loan they secure and or things such as property taxes or homeowners association dues, are pro-rated and paid at the time of closing. As an example, buying a home that closes escrow toward the end of the property tax period and you’ll likely have to pay the balance of taxes upfront.
Regardless of “who’s” paying the closing cost in a real estate transaction– both the buyer and seller need to know their bottom line before showing up to escrow and sealing the deal. Your local Realtor (that you work with) should have access to a closing cost calculator to help you better understand all of the closing costs associated with your transaction (and or) have the escrow company, title company, (and or) lender provide buyer and seller an estimated closing cost workup sheet.
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