Looking to sell your home and wondering what costs you’ll be responsible for? Here’s what you need to know about who pays closing costs.
When determining the profits for the sale of your home, be sure to account for closing costs.
The various fees expected at closing can run up to over 10 percent of the sale price of your home. However, most of the cost burden falls on buyers, while sellers are usually responsible for real estate agent commission fees.
One of the most common mistakes sellers make is inaccurately estimating the cost to sell. Closing costs vary widely because of differences in procedures from state to state, but they are predictable.
Taking out agent commissions, sellers’ costs typically run between 1% and 3% of the home’s price. That also doesn’t include costs associated with getting your home ready to sell.
For example, you may have to pay to stage your home, which cost a median of $400 in 2019. If you do repairs or a complete renovation, expenses easily run in the thousands of dollars.
But who pays transfer tax, title insurance, and attorney fees?
Here’s everything you need to know about who pays closing costs in the sale of a home.
What are closing costs?
Closing costs are charges associated with a real estate sale. They are typically separate from real estate agent commission fees, but include other costs, such as:
- Title search: This helps the buyer verify your ownership of the property and identify any liens. The cost for conducting a title search ranges from $300 to $600. Buyer usually pays for this.
- Title insurance: This protects the buyer/lender against any legal issues that aren’t revealed in the title search. Typically, the buyer pays for the lender’s policy premium, and the seller pays for the buyer’s policy premium. The average cost is about $1,000.
- Appraisal: This report, which can cost $450 to $650, details the value of the home for sale. The buyer usually pays for this expense as part of the cost of getting a mortgage loan approved.
- Home inspection: For about $300-$500, a home inspector will evaluate your home for any major issues that may impact the buyer’s offer. Most buyers pay for their own home inspection. But it’s not uncommon for sellers to pay for their own.
- Property survey: This document shows your property lines and is often required for the buyer to get a loan. Surveyors can charge $500 or more. Sellers usually have no reason to pay for a property survey.
- Credit check: For buyers taking out a loan, the lender will need to get a credit report from the three major bureaus, which typically costs $20 to $50. This is another cost not typically borne by the seller.
- Loan fees: Lenders charge origination fees, application fees, and sometimes one-time lump sum payments. These costs allow borrowers to achieve a lower interest rate. Again, sellers need not worry, unless negotiated otherwise.
- Mortgage payoff costs: Any remaining balance on the seller’s loan will need to be paid at closing. Some lenders may also impose a prepayment penalty if the term of the loan isn’t up yet. Sellers should definitely inquire on this cost.
- Other outstanding costs: If you owe property taxes, HOA fees, or utility bills, as the seller you will need to cover all of these outstanding costs at closing.
- Transfer tax: Most states require you to pay taxes on real estate transactions, but fees can vary. The National Association of Realtors has a document summarizing the fees in each state. You should also check with your local authority on taxation to confirm required fees.
- Recording fees: Whoever files the deed will need to pay an associated charge.
- Escrow/settlement/attorney fees: You’ll either need to pay your attorney or the title/escrow agent for their services. You might pay a flat rate or a percentage of your home’s sale price.
Some states may have additional closing requirements, and buyers are also expected to prepay certain costs, like homeowners insurance premiums.
Read More: Checklist for Selling a House
Buyer’s closing costs
Most closing costs are the responsibility of the buyer, but often buyers and sellers negotiate who pays what. Cash homebuyers save sellers money by avoiding loan-related fees. If a buyer asks you to split the closing costs, it’s important to be aware of what that will entail.
|Loan fees||Variable based on loan size and lender|
|Credit report fees||$20-$50|
|Transfer tax||$50-$5,000 (varies widely by state, can be paid by buyer, seller, or split)|
|Escrow fees||$500-$5,000 (usually split 50-50 between buyer and seller)|
|Title search fee||$300-$600|
|Attorney fee||$500-$1,000 (varies by state, often split 50-50)|
|Advance property tax||Varies widely by state, county, and month of sale|
|Property survey||$500 and up depending on lot size|
|Home inspection fee||$400-$750|
|Recording fees||Varies (can be paid by buyer, seller, or split)|
Related: 8 Reasons Pending Home Sales Fail
Seller’s closing costs
Sellers usually don’t have as many fees to worry about at closing, but if you don’t have much equity in your home, you may be required to bring cash to the sale. Some of the fees sellers incur include:
|Agent commissions||Up to 6% of home sale (3% for each real estate agent)|
|Transfer tax||$50-$5,000 (varies widely by state)|
|Escrow fees||$500-$5,000 (split 50-50 between buyer and seller)|
|HOA fees||$100-$500 (varies by community)|
|Attorney fees||$500-$1,000 (varies by state)|
|Prorated property taxes||Varies widely by state, county, and month of sale|
|Credits toward closing||Varies widely by what is negotiated|
|Title insurance||$1,000-$3,000 (buyer usually pays)|
|Appraisal fees||$500-$700 (buyer usually pays)|
|Seller inspection||$500-$750 (optional for seller)|
|Hidden costs||Other seller costs may include repairs, staging a home, and moving|
If you’re selling your home, buyers may try to negotiate seller concessions with you. This means they want you to pay a percentage of closing costs or cover line items to reduce the amount of cash they need to bring to closing.
In a buyer’s market, it might make sense to grant concessions to sell your home faster. But always do the math to make sure the total you’ll earn after concessions constitutes a fair offer price for your home.
Keep in mind that most lenders cap seller contributions at a percentage of the sale price or appraised value. For example, if the buyer is taking out a conventional loan and contributing less than 10% as a down payment, the seller can only contribute up to 3% of the home’s value at closing.
To avoid closing costs altogether and still get a fair price for your home, consider selling your house through Sundae. Sundae is the only marketplace that connects homeowners looking to sell their house as-is to the largest network of investors to ensure the highest possible offer. If you’re tight on money or need to move quickly, Sundae offers a worry-free transaction. You may even be eligible to take a $10,000 cash advance before closing. Learn more.