The journey to buying or selling a home often starts with excitement. Mr. Seller lists the house. Mrs. Buyer falls in love with said house, and they quickly agree on a price and closing date. Everything feels fairly straightforward—until closing day gets closer. Mr. Seller awaits his closing disclosure, feeling a growing sense of anxiety as he wonders, “Wait… who pays closing costs when selling a house?”
Closing costs can seem overwhelming, but they don’t have to be. In this guide, we’ll break down what closing costs include, closing costs for the seller, closing costs for the buyer, and how both can avoid surprises when it’s time to sign on the dotted line.
What Are Closing Costs?
When you buy or sell a home, there’s more to consider than just the sale price. Closing costs are the fees and expenses that ensure the transaction is finalized properly. They cover things like lender fees, title insurance, property taxes, and even services like appraisals.
Who Pays Closing Costs When Selling a House–Buyer Or Seller?
Both! Buyers and sellers each have their share of closing costs, but the exact amounts can vary based on the home price, loan type, and even the location of the property. If you know what to expect, you can head into the closing day with confidence—and no last-minute surprises.
How Much Are Closing Costs?
On average, closing costs range between 3% to 6% of the home’s price, though most buyers and sellers end up paying closer to 3.5% to 4.5%. For a $250,000 home, that’s roughly $8,750 to $11,250.
Both buyers and sellers have unique responsibilities when it comes to closing costs, and the final breakdown often depends on the terms negotiated in the contract.
Closing Costs for the Buyer
Buyers handle the fees related to their mortgage, securing ownership, and future expenses. These include:
- Loan Origination Fees: These fees are charged by the lender to process the mortgage.
- Appraisal Fees: These fees are typically $500 to $800 to verify the home’s market value.
- Prepaids and Escrow: These are upfront payments for property taxes (9 months worth) and homeowners insurance (up to 15 months worth).
- Title Insurance: This protects both the lender and buyer against potential hidden liens. Title company fees hover around $1,000-$1,400. In some areas, this is paid by the seller.
- Reimbursements: Buyers must reimburse sellers for any expenses they have paid that extend beyond the closing date, such as HOA dues or property taxes.
Closing Costs for the Seller
In addition to paying any real estate agent fees and paying off the mortgage on the home they’re selling, sellers cover fees that facilitate transferring ownership of the home. These include:
- Title Transfer Fees: These are costs associated with officially transferring the property.
- Taxes and Recordation Fees: These vary depending on state or county laws.
- Title Insurance: This protects both the lender and buyer against potential title claims. In certain states, this is paid by the seller.
It’s important to remember that closing costs can be negotiated. Buyers may ask for seller concessions to cover some of their costs, while sellers might offer to pay specific fees to keep the deal on track. Understanding these options allows both parties to reach a fair agreement and avoid unexpected surprises on closing day.
Reducing Closing Costs
The Impact of Loan Type on Closing Costs
The type of mortgage a buyer chooses can significantly influence her closing costs. Different loan structures come with unique requirements that affect how much a buyer will need to pay upfront.
For example, if the buyer is making a smaller down payment (less than 20%), lenders often require Private Mortgage Insurance (PMI), which adds to her monthly expenses. This is because a lower down payment represents a higher risk to the lender. The lender mitigates his risk by requiring the buyer to pay PMI.
Understanding how loan type impacts closing costs can help a buyer budget wisely and explore options that minimize upfront expenses.
The Impact of Seller Concessions on Closing Costs
Seller concessions are a way for sellers to help buyers with closing costs by agreeing to pay some of the fees at closing. This reduces the cash buyers need to bring to the table, making the transaction more manageable. It’s important to note, however, that seller concessions aren’t unlimited—loan programs like Fannie Mae and Freddie Mac place caps on how much sellers can contribute. And, since sellers are mindful of the profit they will make, they must balance the cost of the concessions with the benefit of closing quickly on the sale.
The Impact of Closing Date on Closing Costs
Choosing the right closing date can help buyers save on interest. Closing near the end of the month reduces the amount of prepaid interest lenders collect, as they only charge for the remaining days of the month. For example, closing on the 28th of the month instead of the 10th could save a buyer hundreds of dollars in upfront costs.
Buyers and Sellers: Working Together
Understanding the Buyer’s Perspective
For buyers, minimizing upfront expenses is often the top priority. Closing costs can add up quickly, so buyers may:
- Work with their mortgage lender to roll closing costs into their mortgage, spreading out the expense over time.
- Negotiate seller concessions to have the seller cover part of their closing costs.
By exploring these options, buyers can ease the financial burden of closing day while still making a competitive offer.
Understanding the Seller’s Perspective
Sellers, on the other hand, aim to keep their closing costs as low as possible to maximize their profit from the sale. To achieve this, sellers might:
- Negotiate certain fees, such as title costs or other closing expenses, to reduce their out-of-pocket costs.
- Offer to cover some of the buyer’s closing costs to make their property more appealing, especially in a competitive market.
Balancing these strategies allows sellers to protect their bottom line while attracting serious buyers.
Collaborative Approach to Closing Costs
Closing costs don’t have to be a point of tension. Buyers and sellers can work together to create a win-win solution:
- Negotiate closing cost responsibilities as part of the contract.
- Explore options like rolling closing costs into the mortgage or using gift funds from family to cover expenses.
- Collaborate with real estate agents who can guide both parties toward a fair and mutually beneficial agreement.
By taking a collaborative approach, buyers and sellers can streamline the process and keep closing day stress-free.
Closing Costs Made Easy: How Charm City Builders Can Help
Closing costs are an unavoidable part of buying or selling a home, but they don’t have to be overwhelming. Buyers and sellers can confidently navigate these expenses by understanding what’s included, negotiating wisely, and planning ahead. Strategies like carefully selecting a loan, adjusting the closing date, and leveraging seller concessions can help reduce costs and create a smoother transaction for everyone involved.
And, if you are a seller who is overwhelmed with these details, consider working with a company like Charm City Builders. As a trusted, veteran-owned company, we offer fair cash offers with no hidden fees, often covering typical closing costs ourselves. Whether you’re facing a time crunch or simply want to avoid the hassle of a traditional sale, we’re here to make the process quick and worry-free. Contact us today for a no-obligation consultation!
