What are closing costs and who pays them?

As a real estate expert with years of experience in the industry, I've seen firsthand how closing costs can be a significant part of the home buying process. Closing costs are fees and expenses that must be paid at the time of closing a real estate transaction. They are in addition to the price of the home and can vary depending on the location and the specifics of the transaction.

### What are Closing Costs?

Closing costs encompass a variety of fees and charges that are incurred by both the buyer and the seller in a real estate transaction. For buyers, these costs typically include:


1. Loan Origination Fees: The cost to process the mortgage loan.

2. Appraisal Fee: The fee charged by a licensed appraiser to estimate the value of the property.

3. Credit Report Fee: The cost to obtain a credit report for the buyer.

4. Title Insurance: A one-time fee paid for a policy that protects the buyer and lender from title defects.

5. Escrow Fees: The fee charged by the escrow company for handling the transaction.

6. Recording Fees: The cost to record the deed and mortgage with the local government.
7.
Homeowners Insurance: The cost of insurance to protect the property.
8.
Survey Fee: The cost to have a survey conducted to determine property boundaries.
9.
Prepaid Expenses: Such as property taxes and homeowners association fees that are prorated at closing.

For sellers, closing costs can include:


1. Real Estate Commission: Typically the largest expense, paid to the real estate agents involved in the transaction.

2. Transfer Taxes: Fees that may be required by the state or local government when transferring property ownership.

3. Closing Agent Fees: Fees charged by the closing agent or attorney for facilitating the closing.

4. Document Preparation Fees: Costs associated with preparing legal documents for the sale.

5. Prorated Taxes and Fees: Adjustments for property taxes, homeowners association fees, and other expenses that are prorated to the date of closing.

### Who Pays Them?

The allocation of closing costs can vary significantly based on local customs, the agreement between the buyer and seller, and the specific terms of the real estate contract. Generally, buyers tend to pay most of the closing costs, which can range from about 2 to 5 percent of the purchase price. This is in addition to their down payment and other upfront costs associated with purchasing a home.

However, the seller often pays for certain costs, such as the real estate commission, which is typically a percentage of the sale price and is negotiated between the seller and the real estate agent. The commission is often split between the listing agent and the buyer's agent.

It's also common for the seller to pay for some of the buyer's closing costs as part of the negotiation process. This can be particularly true in a seller's market, where the seller may have more leverage to negotiate lower closing costs for themselves.

### Negotiating Closing Costs

Negotiating who pays the closing costs is an important aspect of the home buying process. Buyers can often negotiate with sellers to cover some or all of the closing costs as part of the purchase agreement. This can be particularly beneficial for buyers who are on a tight budget or who need to minimize their upfront costs.

Sellers may be willing to pay some of the buyer's closing costs to make the property more attractive or to secure a quick sale. However, sellers should also be mindful of their own costs and the impact on their net proceeds from the sale.

### Conclusion

In conclusion, closing costs are an essential consideration for both buyers and sellers in a real estate transaction. Understanding the various fees and expenses involved, and who is typically responsible for paying them, can help both parties navigate the closing process more effectively. It's always a good idea to consult with a real estate professional or attorney to ensure that you are fully informed about all aspects of closing costs and to negotiate the best possible terms for your situation.

Usually, the buyer faces more line-item expenses, but the seller pays the commission. In a closing, both buyers and sellers have costs. Home buyers pay between about 2 to 5 percent of the purchase price in closing fees, but are faced with more line-item expenses than the seller.May 30, 2017