Who Typically Pays Closing Costs? Buyer or Seller?

The search for a home can be a months-long process. And even after all the hunting, waiting, and negotiating, there’s one thing standing in the way of homeownership: closing day. This is where the final paperwork is signed and the transfer of ownership becomes pen-and-ink official. 

Closing day is an exciting event for first-time home buyers and seasoned homeowners alike. But because of the expenses associated with closing day, known collectively as closing costs, it can also be an expensive one. So, who typically pays the closing costs? The buyer or the seller? We’ll explore common closing costs and how this responsibility is generally divided below. 

Introduction to Closing Costs: An Overview

Buying a home is a complex business transaction. It involves the transfer of property ownership, for one, but in most cases, it also involves lenders, lawyers, and other professionals. These individuals and institutions all play a vital role in ensuring the transaction goes smoothly. Naturally, their services come at a cost. 

You can expect loan origination fees, title search and title insurance, property taxes, home inspection fees, and the list can go on and on. Home buyers historically bear most of the responsibility, paying between 3 and 6 percent of their chosen property’s value in closing costs. But sellers aren’t entirely off the hook. While their closing costs tend to be lower in general, real estate commissions can send this number as high as 10 percent. 

Understanding how much closing costs are for sellers vs. buyers can help in preparing for these expenses. As we’ll discuss later, variables like market conditions and negotiations can cause closing cost responsibility to shift from buyer to seller (or seller to buyer), making the actual costs unique to every sale. 

Impact of Closing Costs on the Transaction

Closing costs can have a significant impact on a real estate transaction, with sellers and buyers being impacted in different ways. The reason for this difference comes down to how closing costs are paid. For starters, buyers pay their closing costs in addition to what they’re in the process of paying for the property. On a $300,000 mortgage, that could mean an extra $9,000 to $18,000 to pay out of pocket before, during, or immediately after an already significant purchase. 

Sellers, on the other hand, typically pay their closing costs using proceeds from the sale. But while this can take some of the sting out of closing costs, it can also impact future plans or long-term financial goals. For many homeowners, a home is their biggest asset, and paying closing costs can feel like losing tens of thousands of dollars from an investment. This can mean less equity to go towards the next property or less money to fund a retirement plan. This reality also underscores the importance of planning for these fees and that both buyers and sellers can be equally impacted by closing costs. 

Breakdown of Typical Closing Costs

A crucial part of planning for typical closing costs is understanding what these costs might look like. But, what do closing costs include? Here’s a breakdown of some of the most common closing costs buyers and sellers can expect to see. 

Administrative Fees

One of the first fees associated with closing costs is issued right when the loan is approved. Lenders charge loan origination fees to cover the cost of filing a loan application. These fees typically amount to 0.5 to 1 percent of the total value of the loan. But this isn’t the only administrative fee buyers and sellers should look out for. Recording fees, which cover the cost of entering the sale into the public record, can also be expected. 

Inspection & Appraisal Fees

Home inspection and professional appraisal fees also arise sooner in the home buying process—generally right after a seller accepts an offer from a buyer. This is because most lenders require a home inspection to ensure that the property is sound before issuing a loan, and a home appraisal to confirm that the property is worth the loan amount. Either a seller or a buyer (or in some cases, both) may pay for these fees, depending on whether a seller chooses to get their home appraised or inspected prior to listing. 

Both inspection and appraisal fees are on the lower end, with home inspections ranging from $250 to $500, and home appraisals landing nearby at $450. Note, however, that this cost can vary significantly depending on the size and location of the property. 

Title Search & Insurance

Before allowing a borrower to proceed with their purchase, lenders will want to know that the property is not already owned by someone other than the seller. This is where title searches come in. For a fixed fee of roughly $100, title search companies look for any liens or ownership claims against the property, like an unknown relative of a former owner with the deed in hand or another lender with the home listed as collateral. 

While title searches look for ownership claims, title insurance protects against them, should one arise down the road. And for around 1 percent of the home’s mortgage value, title insurance will protect a buyer for the life of their loan.¹

Taxes & Miscellaneous Fees

Property taxes make up another piece of the closing costs puzzle, with both buyers and sellers typically paying a portion of these costs. Due to how these costs are calculated, determining what either side owes can be a puzzle all its own. Fortunately, lenders and real estate professionals will typically crunch the numbers to make the math as simple as possible. 

Other taxes and fees tend to arise. Depending on where the sale is taking place, transfer taxes—for the legal transfer of the title from one party to another—can also factor into the equation. Other expenses, like credit checks and homeowners’ insurance, can also add to the overall balance. 

Buyers’ Responsibilities

Factoring in realtor commission fees, sellers’ closing costs can equal or exceed those of buyers. But line by line, buyers generally have more closing costs to look out for. Some of these costs include:

• Loan Origination Fee: .5–1 percent of mortgage 
• Appraisal Fee: ~$450
• Home Inspection Fee: $250–$500 depending on property size
• Title Search & Insurance: $100 for title search, ~1 percent of mortgage for title insurance
• Recording Fee: – ~$125

Many buyer closing costs have seemingly small price tags, but they can quickly pile up. To avoid unexpected costs and associated headaches, buyers should begin budgeting for these expenses early in the home buying process.  

Sellers’ Responsibilities

A seller’s list of the typical closing costs, on the other hand, is much shorter. These generally include: 

• Real Estate Agent Commissions: ~6 percent of the home’s sale price 
• Property Taxes: A prorated amount depending on when the sale takes place
• Transfer Taxes: Dependent on location; zero, in states like Kansas, Missouri, and Texas²

This list may grow (or shrink) in size depending on the individual sale, as closing costs are often used as a bargaining tool. For this reason, sellers should over-estimate their share of closing costs and budget accordingly. 

See more tips on how to pay closing costs.

Negotiating Closing Costs

The price of the home is often the most negotiated factor, but it’s far from the only one. Throughout the homebuying process, virtually any aspect of the sale can become subject to negotiation, leaving closing costs with a high degree of variability. Negotiations can play a vital role in determining who pays more closing costs—the buyer or the seller. And, depending on whether the housing market favors buyers or sellers, these negotiations may become even more prevalent.

When buyers request that sellers cover some of their closing costs, these are known as "seller concessions." These concessions can be especially appealing and impactful in a buyer’s market, where low demand for housing puts buyers at an advantage. Things like appraisal and inspection costs, loan origination fees, and prorated property taxes are common points of negotiation. 

But sellers can negotiate closing costs, too. In some instances, a seller at an advantage may negotiate that their buyer splits some of the real estate commissions potentially reducing seller-side closing costs by thousands.  

Negotiation is a skill refined over decades of experience and hundreds of real estate transactions. Should you choose to work with a real estate professional, they’ll be able to negotiate in your favor—whether you’re a buyer or a seller. 

Regional Variations in Closing Costs

Geography can also influence closing costs. In Missouri, for example, where there are no transfer taxes and the average price of a new home is around $240,000, closing costs are just $2,061— the lowest in the country. This is in stark contrast to a state like Delaware, where a new home is only slightly higher at $330,000 yet closing costs are nearly $18,000.³

So, what’s responsible for this wide range? For the most part, regional differences in local laws and taxes are to blame. The lack of transfer taxes can make a sizeable difference, but even in states with transfer taxes, you’ll find a high degree of variability. Take Colorado and Florida, for example. Colorado’s transfer taxes are a mere $.01 for every $100, amounting to just $30 for a $300,000 home. In contrast, the tax rate in Florida— $.70/$100—would equate to $2,100.⁴

Pair this regional variation with location-specific market conditions and the price both buyers and sellers pay for closing costs can fluctuate wildly. The best way to navigate this variation is to do your research ahead of time, ensuring you’re prepared to take on whichever closing costs come your way. 

5 Tips for Reducing Closing Costs

You may not be able to control closing costs related to your geography, but there are certain things you can do to reduce overall closing costs. These are our five tips for buyers and sellers. 

1. Shop Around

Because many closing costs come from lenders, many of the services—like appraisals, inspections, and others—are provided by vendors chosen by lenders. To reduce closing costs, both buyers and sellers can shop around for alternative providers with a lower closing fee. 

2. Negotiate

As we’ve mentioned repeatedly, negotiation between buyers and sellers can have a huge impact on the total closing cost. However negotiating with mortgage lenders and service providers can also make a big difference for both parties. At every stage of the home buying or selling process, negotiate wherever you can. Even the slightest discount can help reduce each of your closing costs. 

3. Time Your Closing Right

Certain closing costs, like property taxes, can grow more expensive depending on when in the month (or year) you choose to close. But this isn’t the only way that good timing can make a difference. In fact, timing your transaction according to market conditions, or even annual trends, can be a great way to dramatically reduce your closing costs. If you don’t want to wait for the market to turn, you can always look at the best times of the year to sell or buy a home to give yourself even a slight advantage. 

4. Consider For Sale by Owner (FSBO)

Seeing as real estate commissions are one of the biggest closing costs for sellers, the decision to list your home as For Sale By Owner (FSBO) can save you thousands in your total closing cost. With that said, quite a lot goes into selling a home, and throughout this process, you might find that partnering with a professional would have been worth the added expense. 

5. Truehold’s Sell and Stay Transaction

For sellers, one of the best ways to skip out on closing costs is to avoid the traditional sale process altogether. Truehold’s sell and stay transaction allows you to do just that. With Truehold, you sell your home in exchange for your home equity and then continue living in your home as a renter. 

This can be a great option for multiple reasons. First: If you choose to sell your home and then purchase another, you’ll be paying closing costs twice. Contrast this with Truehold’s sell and stay transaction, in which Truehold charges a 5.5% transaction fee on your purchase price. The other advantage of Truehold is that you can buy time, waiting out the market or waiting for the right property to arise rather than rushing straight into your next purchase. Overall, Truehold’s sell and stay transaction can be a game-changing alternative for both sellers and soon-to-be buyers.  

Truehold: The Better Way to Sell, Close & Stay

Whether you’re selling a home or buying one—or selling a home and buying one—closing costs are largely unavoidable. Fortunately, there are a few ways to reduce your closing costs, with Truehold’s sell and stay transaction being chief among them. 

Connect with one of our representatives today to learn more about our sell and stay transaction and how it can improve your homebuying and selling experience. 

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Sources: 

1. Investopedia. Origination Fee: Definition, Average Cost, and Ways to Save. https://www.investopedia.com/terms/o/origination-fee.asp 
2. Rocket Mortgage. What Title Fees Will You Pay At Your Closing? https://www.rocketmortgage.com/learn/title-fees 
3. Bankrate. Closing costs: What are they and how much are they? https://www.bankrate.com/mortgages/what-are-closing-costs/ 
4. National Association of Realtors. View Average Closing Costs by State. https://www.nar.realtor/magazine/real-estate-news/stub-for-148570 
5. Bankrate. What are real estate transfer taxes? https://www.bankrate.com/real-estate/transfer-taxes/