Updated May 8th, 2019

After an offer is accepted, there’s a lot of paperwork and fees that need to be taken care of before the house changes hands. These fees are called closing costs and can seem complicated, especially to first-time home buyers.

Who Pays the Closing Costs on a Home Sale?

Both the buyer and the seller have costs associated with closing on a home. While the buyer has several smaller fees to pay, the seller usually ends up paying the bulk of the charges. In a buyer’s market, a seller may end up paying some of the closing costs. Closing costs are often part of the negotiation process, especially if the buyer has less cash on hand.

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Do Buyer and Seller Split Closing Costs?

Both parties have their own set of fees to pay in closing. The only charge that gets split down the middle is the escrow fee. Aside from that, the bulk of the buyer’s costs come from working with a lender to get a mortgage, and the majority of the seller’s costs come from fees associated with the title changing hands. A detailed list of the expenses related to closing each party is responsible for is usually provided before closing.

How Do You Calculate Closing Costs?

Closing costs are a bit complicated — and can be somewhat expensive. The buyer can expect to pay anywhere from 2% to 5% of the price of the house. In other words, if you purchased your new home for $350,000, you can expect to pay between $7,000 and $17,500! The seller doesn’t get off easy, either. In fact, with the seller paying a 6% total commission to the seller’s and buyer’s agent, the seller usually ends up paying more than all the buyer’s fees combined! So, how do you calculate the costs? As with everything, it depends on many factors.

Closing Costs for Seller

The seller’s closing costs may include, but is not limited to, the following fees:

  • Owner’s title insurance policy *: This is the lender’s financial protection against any future legal action taken against the home in an attempt to make money or take ownership of the property.
  • 1/2 escrow fee: This pays for the attorney or escrow agent who manages the escrow funds and oversees the transfer of funds.
  • Excise Tax *: Tax paid upon sale of the house.
  • Real estate commissions *: If you are using a seller or/and buyer’s agent, the seller typically pays their commission out of the proceeds from the sale of the house
  • Prorated utility costs: The water, electricity, and waste bills, apportioned to cover the time the seller owned the home.
  • Loan Balances: At the time of sale, the seller agrees to settle any and all debts with the loans associated with the home.
  • Documentation preparation fees (power of attorney, etc.): Used to transfer interest from buyer to seller.
  • Miscellaneous costs (i.e., wire, courier, signing fees): Not as standard, but occasionally added to the fees if a third party is needed to pick up and deliver the documents.
  • Prorated property taxes: Depending on the value of your property and the location your house is in, this is the annual tax the homeowner pays– apportioned to cover only the amount of time that year that the seller legally owned the property
  • Home warranty (if offered): Occasionally a warranty will be provided to cover damages to the house that is outside of owner control.
  • HOA fees (if applicable): While not every neighborhood has an HOA, these fees are mandatory for those living in communities that are regulated by HOA.

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Calculating closing costs

Closing Costs for Buyers

The list of the closing costs for buyers is a bit more extensive:

  • Lender’s title insurance policy *: This is the lender’s financial protection against any future legal action taken against the home in an attempt to make money or take ownership of the property.
  • 1/2 of the escrow fee: This pays for the attorney or escrow agent who manages the escrow funds and oversees the transfer of funds.
  • Recording Fees: These cover the costs of recording the sale and make it public record.
  • Surveys: This goes to a surveyor who measures and plots the boundary line of your property.
  • Insurance: Homeowners insurance is mandatory for most loans to protect your (and their) investment from natural disasters and fires.
  • Documentation preparation fees (i.e., quitclaim deed, etc.): Used to transfer interest from buyer to seller.
  • Miscellaneous fees (i.e., wire, courier, signing fees, etc.): Not as standard, but occasionally added to the fees if a third party is needed to pick up and deliver the documents.
  • Prorated property taxes: Depending on the value of your property and the location your house is in, this is the annual tax you will pay on your property, prorated so that you are only paying from the time you legally own the house.
  • Home warranty (if offered): Occasionally a warranty will be provided to cover damages to the house that is outside of owner control.
  • HOA Fees (if applicable–usually due for entire year upon sale): While not every neighborhood has an HOA, these fees are mandatory for those living in areas that are regulated by HOA. Furthermore, make sure you check out the guidelines you must adhere to in the HOA if you want to avoid more fees.
  • Home inspection: This ensures that you are not purchasing a house that is in worse condition than the seller let on. A typical inspection checks the foundation, chimneys, attic, etc. and looks for mold, cracks, insect or rodent infestations, etc.
  • Lender Fees including:
    • Appraisal
    • Credit report
    • Loan origination fee*
    • Loan interest*
    • Private mortgage insurance*

Calculating and negotiating the payment of your closing costs can be a daunting task, but it doesn’t have to be. Make sure to find a qualified lender and real estate broker who will walk through this process with you, and it is sure to be a manageable hurdle in the buying/selling process.

To save on your closing costs, work with a Clever Partner Agent. For the seller, you’ll only pay a flat $3,000 listing commission (or 1% if your house is over $350,000). If you’re buying, you can receive $1,000 as a buyer’s rebate, helping mitigate much of your closing costs. A great real estate agent will also help negotiate your closing costs, saving you additional money.

*Fees to be determined by sale price or loan amount