At just about the close of the month we want to discuss closing costs. We understand that some may be unaware that buying or selling a home involves more than just the purchase price. One of the most important financial aspects to consider is closing costs—the various fees and expenses that must be paid before the property officially changes hands. Whether you’re a buyer or a seller, your friends and agents with the Jesse Warmka Team at Your Home Sold Guaranteed Realty can help with understanding these costs can help you budget properly and avoid last-minute surprises. In this week’s article we will breakdown what closing costs include, who pays what, and how to prepare for them.
What Are Closing Costs?
Closing costs refer to the fees associated with finalizing a real estate transaction. These costs cover services such as title searches, lender fees, and taxes. Typically, buyers pay between 2% and 5% of the home’s purchase price in closing costs, while sellers typically pay around 4% to 7%, mainly due to agent commissions.
Closing Costs for Buyers
As a buyer, you’ll need to cover a variety of fees related to securing financing and transferring ownership. Here are the most common closing costs you can expect:
1. Loan-Related Fees
- Origination Fee: Charged by the lender for processing the loan (typically 0.5%–1% of the loan amount).
- Credit Report Fee: Covers the cost of pulling your credit report (usually $50–$150).
- Appraisal Fee: Pays for a professional appraisal of the home to confirm its value ($400–$1000).
- Discount Points: Optional fees paid to reduce the interest rate on your mortgage.
2. Title & Legal Fees
- Title Search: Ensures there are no outstanding claims or liens on the property ($200–$400).
- Title Insurance: Protects the buyer and lender from future title disputes ($500–$1,500).
- Title Fees: If a real estate attorney is required, legal fees can range from $400 to $1,000.
3. Prepaid Expenses
- Property Taxes: Buyers often prepay a portion of property taxes at closing.
- Homeowners Insurance: Lenders usually require buyers to prepay the first year’s premium.
- Escrow Account Setup: Some lenders require an escrow account to cover future property taxes and insurance.
4. Government Fees
- Recording Fees: Paid to the local government to officially document the sale ($50–$250).
- Transfer Taxes: Some states and cities charge taxes on real estate transactions (varies by location).
Can Buyers Negotiate Closing Costs?
Yes! Buyers can:
- Ask the seller to cover part of the closing costs (seller concessions).
- Shop around for better mortgage rates and lender fees.
- Use lender credits, where the lender covers some costs in exchange for a slightly higher interest rate.
Closing Costs for Sellers
Sellers also have financial obligations at closing. While buyers cover most of the transaction fees, sellers often pay a larger percentage of the home’s sale price due to agent commissions.
1. Real Estate Agent Commissions
- Typically 5%–6% of the sale price, split between the buyer’s and seller’s agents.
- For example, if you sell a $300,000 home, commission costs could range from $15,000–$18,000.
2. Title & Legal Fees
- Title Insurance for the Buyer: In many states, the seller pays for the owner’s title insurance policy.
- Title Fees: If required, seller’s legal fees may range from $400 to $1,000.
3. Taxes and Government Fees
- Transfer Taxes: Some locations require sellers to pay a tax for transferring property ownership.
- Prorated Property Taxes: If taxes have been paid for the year, sellers may receive a credit for unused months.
4. Other Possible Seller Costs
- Home Warranty: Some sellers offer a home warranty to make the property more appealing.
- Repairs & Concessions: If the buyer requests repairs after the home inspection, sellers may need to cover costs or lower the sale price.
Who Pays What? (Buyer vs. Seller Responsibility)
| Closing Cost | Who Pays? |
| Loan Origination Fee | Buyer |
| Appraisal Fee | Buyer |
| Home Inspection | Buyer |
| Title Search | Usually Buyer |
| Title Insurance | Varies (Buyer or Seller) |
| Transfer Taxes | Varies by Location |
| Recording Fees | Buyer |
| Property Taxes | Both (Prorated) |
| Real Estate Commissions | Both |
| Attorney Fees | Both (If Required) |
| Home Warranty | Usually Seller |
| Seller Concessions (if negotiated) | Seller |
How to Reduce Closing Costs
For Buyers:
- Compare lenders to find lower fees.
- Request seller concessions in negotiations.
- Opt for a no-closing-cost loan (higher interest rate in exchange for lower upfront fees).
For Sellers:
- Sell during a strong market to maximize profits.
- Negotiate closing costs with the buyer.
That was a lot to take in, we know. But closing costs are an essential part of the home-buying and selling process. While they can add up, understanding what to expect and planning ahead can help you budget effectively. Whether you’re a buyer looking for ways to lower costs or a seller preparing for fees, being informed ensures a smoother transaction. Of the Jesse Warmka Team won’t leave you hanging. Our agents will help you understand all that goes into closing a home.
