Closing the Deal: The Debate of Who Should Pay Closing Costs

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Are you ready to take the leap into the exciting and complex world of real estate? Whether you’re a first-time home buyer or a seasoned seller, navigating the maze of legal and financial considerations can be overwhelming. But with the right guidance and support, you can turn your real estate dreams into reality.

In this post, we’ll be tackling commonly asked questions and issues when it comes to closing costs. Who should be paying them? What’s the industry standard? And is it normal to stray from the traditional standard?

Let’s get into it.

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What are closing costs?

Closing costs are the expenses and fees associated with buying or selling a property. These costs are in addition to the purchase price of the property and can include a variety of expenses such as appraisal fees, title insurance, legal fees, and taxes. Closing costs can vary depending on the state, location and property type, but they can typically add several thousand dollars to the overall cost of buying or selling a property.

Who usually pays closing costs?

Closing costs are typically split between the buyer and seller in a real estate transaction. The specific costs that each party pays can vary depending on the state or location, but generally speaking, the buyer is responsible for paying for costs such as the loan origination fee, appraisal fee, and title insurance, while the seller is typically responsible for paying for costs such as the real estate agent’s commission, transfer taxes, and any outstanding property taxes.

Typically, the buyer is responsible for paying for:

Loan origination fee: This is a fee charged by the lender for processing the loan application. It can range from 0.5% to 1% of the loan amount.
Appraisal fee: This is a fee charged by an appraiser to determine the value of the property. It can range from $300 to $700.
Title insurance: This is insurance that protects the lender and the buyer from any issues with the property’s title. The cost can vary depending on the value of the property, but it can range from $500 to $1,500.
Survey fee: This is a fee charged by a surveyor to prepare a survey of the property. It can range from $300 to $600.
Credit report fee: This is a fee charged by the lender to obtain the buyer’s credit report. It can range from $25 to $50.
Escrow fee: This is a fee charged by the escrow company to handle the closing process. It can range from $300 to $800
Pest inspection: This is a fee charged by a pest inspector to inspect the property for any issues with pests. It can range from $50 to $200
Homeowners Insurance: This fee is to purchase insurance to cover potential damage to the property.

The seller is typically responsible for paying for:

Real estate agent’s commission: This is a fee paid to the real estate agent for their services in selling the property. It can range from 5% to 6% of the sale price.
Transfer taxes: This is a tax charged by the state or local government for transferring the title of the property. It can range from 0.1% to 2% of the sale price.
Any outstanding property taxes: This is a fee that the seller needs to pay if they haven’t paid the property taxes for the current year or previous years.
Any unpaid HOA fees: This is a fee that the seller needs to pay if they haven’t paid their homeowners association fees.

Advantages of buyer paying closing costs

The buyer may have more control over the closing costs and can shop around for the best rates and fees.
The buyer can lower the purchase price, which can be beneficial when negotiating with the seller.
The buyer can also lower the down payment, which can make the purchase more affordable.

Disadvantages of buyer paying closing costs

The buyer may have to come up with more cash at closing, which can be a challenge for some buyers.
The buyer may have to pay higher interest rates on the mortgage to offset the cost of closing.

Advantages of seller paying closing costs

The seller can make the home appear more attractive to potential buyers by rolling the cost of closing into the purchase price.
The seller may be able to sell the home faster and at a higher price by offering to pay closing costs.

Disadvantages of seller paying closing costs

The seller may receive less money from the sale of the property, as the cost of closing is rolled into the purchase price.
The seller may not have the funds available to pay closing costs, especially if they are facing financial constraints.

In conclusion

It really is ultimately up to the terms of the contract, and you’re free to write it up however you want, provided that both sides agree on all terms. However, there is a typical industry standard, and the majority of contracts follow it.

Hopefully, we’ve clarified the numerous costs and fees you’ll typically find, as well as outlined all the advantages and disadvantages to help guide your decision. If you have any questions, feel free to contact us. We love to hear from our readers!