10 min read Feb 01, 2024

Who Pays Closing Costs: Sellers or Buyers?

In a real estate transaction, people prepare to incur immediate costs. If you are a buyer, you save for the down payment and the purchase price. If you are a seller, you cover repair and improvement costs. But both parties have to bear closing costs separately.

Buyer closing costs range between 2% to 5% of the purchase value. However, the seller closing costs can be as high as 8% to 10% because it includes Realtor commissions.

Real estate commissions form the most significant chunk of the seller’s closing costs. You may spend up to 70% of your closing costs on commissions. The best way to reduce closing costs is to list your home For Sale By Owner.

The amount one spends on closing costs differs per location, home price, mortgage type, etc. Also, most closing costs are negotiable. Read further to know who pays what closing costs and ways to reduce them.

Key Takeaways

  • What are Closing Costs: Closing or settlement fees are charges incurred in addition to the purchase price of a property.
  • How Much are Closing Costs: Home buyers spend 2% to 5% of the purchase price, and sellers spend 8% to 10% of the sale price on closing costs.
  • Ways to Save on Buyer Closing Costs: You can request seller concessions, negotiate with lenders, or apply for closing costs grants.
  • Ways to Save on Seller Closing Costs: You can sell your home by owner, list with a Flat Fee MLS company, or negotiate with the buyer.

Who Pays Closing Costs: Buyer or Seller?

Sellers and buyers both pay their share of closing expenses. In most cases, the seller pays more in closing, typically about 8% to 10% of the sale price. Whereas the buyer closing costs range between 2% to 5% of the purchase value.

Who pays what closing costs depends on the property’s location. For instance, the seller pays the title insurance premiums in Southern California. Whereas in Northern California, it is customary for the buyer to pay for the title insurance policy.

Buyers and sellers can always negotiate who pays closing costs on a house. As a home buyer, you can ask for seller concessions. However, the seller can contribute only up to a certain amount towards buyer closing costs.

The seller concession limit depends on the type of home loan a buyer opts for and is as follows:

Mortgage TypeDown PaymentSeller Concession Limit
ConventionalLess than 10%3%
Conventional10% to 25%6%
ConventionalMore than 25%9%
Conventional Mortgage for Investment PropertyAny amount 2%
FHAAny amount6%
VAAny amount 4%
USDAAny amount6%

Who Pays Closing Costs in Cash Sale?

Both buyers and sellers pay closing costs in a cash sale. The seller pays more or less the same amount in a cash home purchase. However, the closing costs for buyers decrease significantly.

Cash home sale doesn’t involve a mortgage. So, the buyer skips all the mortgage closing costs bearing only property and paperwork-related costs. Closing costs for buyers in a cash sale are about 1% of the purchase price.

Who Pays Closing Costs on Land Sale?

Both the buyer and the seller have to cover closing costs on the sale of land.s

Seller closing costs on land sales are similar to conventional sales. However, buyers have to bear some additional settlement costs when buying land. These include environmental inspection, land survey, and soil percolation test fees.

Who Pays Closing Costs on New Construction Home?

Usually, the buyer has to bear all closing costs on new construction. Nonetheless, the builder may offer some incentives toward closing costs to make the property more attractive. Especially if the buyer works with their in-house lender.

Buyers have to pay some land closing costs. These include deposit registration fees, development fees, harmonized sales tax, meter installation fees, pro-rated property taxes, Tarion enrolment fees, etc.

How Much Are Closing Costs?

There is no set number for how much are closing costs. As a rule of thumb, the seller pays about 8% to 10% of the sale value in closing, whereas the buyer incurs 2% to 5% of the purchase price.

So, if you are buying a home worth $350,000, you would pay $7,000 to $17,500 in closing. And, if you are selling the house, you incur $28,000 to $35,000.

Closing costs for sellers are deducted directly from the net proceeds. For buyers, it is typically an out-of-pocket expense.

Home buyers receive the closing disclosure three days before the closing, which lists the exact closing expenses. Sellers, on the other hand, receive the net sheet from their agents several times during the sale. The seller’s net sheet gives an estimate of the overall cost of the transaction.

Calculate Your Closing Costs

Do not wait for the net sheet or the closing disclosure. Use the below closing cost calculator to estimate your closing costs.

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What Closing Costs Do Sellers Pay?

Seller closing costs comprise 8% to 10% of the sale price, and it typically consists of:

  • Realtor Commission: This forms the biggest chunk of the seller’s closing costs. Real estate commissions comprise 5.5% to 6% of the sale price. It covers both the listing and buyer agent’s commissions.
  • Title Fee: These are costs incurred to transfer the property title from the seller to the buyer.
  • Escrow Fee: In most cases, the seller and buyer split the escrow fees. So, as a seller, you need to pay your share.
  • Outstanding HOA Fee: The seller needs to pay the outstanding HOA fees if the property is a part of the Homeowner’s Association.
  • Property Tax: The seller has to pay the unpaid property taxes before selling the house. The closing disclosure reflects the closing costs as seller closing costs.
  • Transfer Tax:  In most states, the seller has to pay the transfer tax. However, in some places like Pennsylvania, it is customary to split this cost between buyers and sellers. No transfer tax is levied on a real estate transaction.
  • Seller Credits: If the seller offers credits or concessions then it becomes part of the seller’s closing costs.

Apart from these, the seller might have to pay additional costs depending on the negotiations with the buyer. Use seller closing cost calculators available online to get more accurate estimates.

» How Much are Closing Costs for Seller: List of All Closing Costs Covered by Sellers.

What Closing Costs Do Buyers Pay?

Home buyers spend 2% to 5% of the purchase price on closing. Closing costs when buying a house can be divided into three categories:

1. Mortgage Related Costs

This includes the money you spend to finance your new home. Expenses like loan origination fees, application fees, processing fees, etc., come under this category.

Closing costs on the mortgage also depend on the type of home loan the buyer opts for. Let’s take a look at who pays the closing costs for different types of home loans:

  • Conventional Loan: Lenders require buyers to purchase Private Mortgage Insurance (PMI) if they make a down payment of less than 20%. The average rate of PMI for conventional loans ranges from 0.5% – 1.86% of the original loan amount.
  • USDA Loan: Buyers opting for USDA loans pay 1% of the loan amount as a USDA guarantee fee. In addition to this, buyers have to pay an annual fee, which is equal to 0.35% of the loan amount.
  • FHA Loan: All FHA loans require mortgage insurance. Buyers need to pay an upfront premium and an additional annual payment. The payment amount depends on the size of the loan.
  • VA Loan: Buyers opting for VA loans have to pay a VA funding fee. This is a one-time fee paid to the Department of Veterans Affairs (VA). The VA funding fee depends on the down payment. Buyers who make a down payment of less than 5% have to pay a VA fee. It ranges between 2.3% to 3.6%.

2. Property Related Costs

These include the costs to inspect, appraise, and survey the property. Additionally, taxes such as property tax and transfer tax also fall in this category. 

3. Paperwork Related Costs

These consist of real estate attorney fees, recording fees, notary fees, tax monitoring and research fees, etc.

» What is Included in Closing Costs for Buyer: List of All Closing Costs Paid by Buyers.

How to Reduce Closing Costs?

There is no way to waive closing costs completely. However, there are ways through which both sellers and buyers can reduce their closing costs.

How to Reduce Closing Costs for Sellers?

Here are the ways to reduce closing costs as a seller:

  • Work With Flat Fee MLS Companies: Real estate commission forms the biggest part of seller closing costs. Work with Flat Fee MLS Companies to save thousands in commissions. Flat Fee Companies like Houzeo offer high-tech tools and MLS listing at a flat fee. This eliminates the need to hire a full-service agent.
  • Choose “For Sale By Owner” (FSBO): For Sale By Owner is the method of selling your home without an agent. You can use For Sale By Owner websites to list your property. Best FSBO sites allow buyers to make offers directly on your property, saving you the buyer agent commission.
  • Research and Compare Services: Research local real estate professionals near you. Compare real estate attorneys, escrow companies, title companies, etc. in your area to discover affordable options.
  • Negotiate Closing Costs With the Buyer: In a hot seller’s market, buyers may agree to cover the seller’s closing costs.

How to Reduce Closing Costs for Buyers?

Here are some tips that can bring down your buyer closing cost estimates:

  • Ask for Seller Concessions: You can ask the seller to contribute to your closing costs through concessions or credits. However, the percentage of seller concession varies per the mortgage type.
  • Research Closing Costs Assitance Programs: There are grants to assist buyers with closing costs for government loans. Typically, local or state housing authorities or nonprofits offer these grants. Research the eligibility criteria for each type of grant before you apply.
  • Shop for Mortgage Lenders: Research mortgage lenders and compare their rates. Choose a lender that has a lower mortgage cost and offers competitive rates for the loan of your choice. You can also consider working with a lender that provides no-closing costs mortgage. Remember, no closing costs mortgages have a higher interest rate.

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Bottom Line

You have to budget for closing costs irrespective of whether you are a home buyer or a seller. In most transactions, sellers and buyers both pay their parts, but it’s common to negotiate closing costs.

Home buyers can ask for seller concessions, negotiate with lenders, or opt for a no-closing costs mortgage to save on closing expenses. On the other hand, sellers should discover ways to reduce real estate commissions, which form the most significant chunk of their closing costs.

With Houzeo, sellers can save thousands in commissions. Houzeo gets home sellers on the MLS and equips them with tools to manage the selling process without an agent.

Also Read

Frequently Asked Questions

1. Do closing costs include down payment?

No, closing costs do not include the down payment. Down payment is the amount buyers directly pay to the sellers. Whereas, the buyer pays closing costs to mortgage lenders, real estate attorneys, closing agents, inspectors, appraisers, etc.

2. How are closing costs determined?

Closing costs are a sum of specific settlement expenses. These vary according to the location, mortgage rates, and real estate market conditions. You can determine your closing costs using Houzeo's closing cost calculator. It is a free tool sellers and buyers can use to get a close estimate of settlement costs.

3. Who pays title fees at closing?

It depends on the location. In some states, it is a convention for the seller to pay the lender's title insurance, and the buyer covers the owner's title insurance. Mostly, the buyer also pays for the title search and recording fees. In some states, it is the other way around. However, irrespective of the state, you can always negotiate who pays title insurance in a real estate transaction.

4. Who pays attorney fees at closing?

Usually, the seller pays for the real estate attorney at closing. However, sellers and buyers can negotiate upon it and may choose to split the attorney fee. In some states hiring an attorney is not mandatory, and you can close the entire deal without them.

5. Who typically pays closing costs?

In most cases, buyers and sellers split and pay their share of closing costs. However, the buyer covers the maximum number of closing costs. But, due to hefty real estate commissions, sellers usually spend more on closing costs.

6. Can you pay closing costs with a credit card?

Fannie Mae allows home buyers to cover some mortgage closing costs with credit cards. However, your closing costs financing by credit card cannot exceed 2% of the mortgage amount. As per Fannie Mae, buyers can cover the following closing costs through credit cards:

1. Application fees
2. Origination fees
3. Lock-in fees
4. Commitment fees
5. Credit report fees
6. Appraisal fees

7. Do sellers pay closing costs?

Yes, sellers pay closing costs. Closing costs when selling a house include the following:

1. Real estate commissions
2. Title fee
3. HOA fee
4. Real estate attorney fee
5. Escrow fee
6. Unpaid property taxes

8. Do buyers pay closing costs?

Yes, buyers pay closing costs. Buyer closing costs can be categorized into three types:

1. Mortgage-related costs
2. Property-related costs
3. Paperwork costs

Who Covers Closing Costs in Each State?

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