Can You Avoid Closing Costs? Tips to Reduce Them

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Whether you’re buying or selling, you’re probably wondering how to avoid closing costs. They’re a pain no matter what side of the transaction you’re on; for buyers, they can add to an already expensive purchase; for sellers, they take a sizable chunk out of the sale price of their home.

Unfortunately, there’s no way to eliminate them altogether, but there are ways you can lower your closing costs regardless of the state of the market. Not all of them are straightforward, and not all will save you a huge chunk of cash.

In this guide, we’ll explain tactics that buyers and sellers may consider to reduce their closing costs. Keep in mind that the viability of any strategy will depend on the particulars of each sale and overall market conditions.

Reduce Closing Costs With a Cash Offer

HomeLight’s Simple Sale platform provides you an all cash offer for your home, helping you avoid both a listing agent’s commission and reduce closing costs.

How buyers can reduce their closing costs

Buyers are typically on the hook for the following closing costs:

However, closing cost etiquette varies in different locales. For example, Maribel Frey explains that in San Antonio, where she is a top real estate agent, it’s actually customary for the seller to pay the title fees, not the buyer.

HomeLight’s Closing Costs Calculator can help you understand your costs as a buyer. The tool takes factors such as your type of mortgage into account to give you as accurate a figure as possible.

Here are a few ways you might be able to lower those costs:

Shop around for a mortgage lender

Before you get pre-qualified for a home loan, consider shopping around for a mortgage to get a better interest rate and possibly lower fees. Many of the buyer’s closing costs in the transaction come from costs associated with the mortgage, so this is a big opportunity to save.

Some banks offer deals on mortgages to existing customers. For example, they might waive or reduce the recording fee.

Shop around for other services, too

Many lenders recommend companies to get your other services from, such as title and home warranty companies. But don’t hesitate to look around at other options. Speak with your real estate agent to see if they have any recommendations for trusted companies in the area who might be able to give you a discount, or at least a lower price than some of their competitors.

Request a closing cost credit

Buyers can ask sellers to pitch in for some of their closing costs. This is called a financing concession.

While this is more common in a buyer’s market where buyers have a bit more leverage over sellers, buyers can always ask — especially if they’re in a unique situation, or if the house has been sitting on the market for a long time.

The rules around concessions depend on what kind of loan your buyer obtains, the type of residence that the loan is financing (whether it’s a primary, secondary, or investment property), and the size of the buyer’s down payment.

In some cases a buyer may offer the seller a higher price along with a request for a closing cost credit. While this does not technically reduce costs, it does reduce the amount of cash the buyer needs when the transaction closes.

This strategy can have challenges, however. Such an offer may not always appeal to sellers, and may create difficulty if the appraisal comes in less than the contract price. “You have to do your homework to make sure that the house could value out for that,” Frey explains.

Request repair credit or seller agreement to make repairs

Inspections can reveal issues with a house that a buyer may want to see fixed, and the list of issues the inspector flags will alert potential buyers to which issues are health and safety concerns and which are cosmetic. In some cases, the buyer, their lender, or the law may insist that the repairs be completed before the sale closes. In other cases, the buyer may be interested in moving forward with the sale, but may request that the cost of completing the repair be credited by the seller.

How sellers can reduce their closing costs

Sellers typically pay for the following closing costs:

Seller closing costs typically range between 9% to 10% of the sale price. The actual percentage, including your agent’s commission rate, can differ depending on where you live. You can use HomeLight’s Agent Commissions Calculator to find what agents in your area typically charge.

Some of these costs will be unavoidable, but here are a few strategies to consider for reducing them:

Go “For Sale By Owner”

The biggest closing cost incurred in the transaction is the agent’s commission, which typically clocks in at 5% to 6% of the sale price. The seller pays the commission for both the buyer’s and the seller’s agent, meaning that 5% to 6% is typically split roughly down the middle between the two agents.

To avoid at least a listing agent commission (you may still have to pay the buyer’s agent’s commission), you can consider going For Sale By Owner (FSBO) — selling your home without the help of an agent. While it can be the right move for some people, it presents many challenges for the average seller.

FSBO sellers are responsible for doing all their own marketing, communicating with potential customers, working with the buyers’ agents, and negotiating offers. So even though you’re forgoing a seller’s agent, you’ll still have to have the know-how to communicate with the buyer’s agent — and likely pay them.

At the end of the day, FSBO sales tend to be a false economy: top agents may be able to sell your home for more, at an amount that, statistically, is likely to cover, or in some cases exceed, the cost of their commission.

Request an all-cash offer

Another option to possibly reduce closing fees is to work with a property investor or house buying company.

Investors paying cash are often willing to help cover a seller’s closing costs knowing that sellers with homes that need some work or who need cash quickly don’t always have the funds for it.

Selling your house for cash can also eliminate the cost of agent commissions and home prep, as investors are often willing to purchase homes “as is.” However, you will likely receive a lower offer than if you listed, so that’s an important consideration to weigh.

Many cash buyers today have front-facing websites where sellers can request a cash offer online after filling out a short questionnaire. If you’re interested in a low hassle way to sell your house with minimal fees, consider HomeLight’s Simple Sale platform as a starting point.

With Simple Sale, you tell us a bit about your home, such as whether it’s a single-family home or condo and how much work it needs. From there we’ll provide you with a full cash offer in as little as a week with the ability to close in as few as 10 days.

Reduced or no fees

Sellers almost always pay $0 for home renovations, $0 for open houses, and $0 for agent fees when going through Simple Sale.

Skip repairs

No need to call the roof inspector or drain your savings to replace the HVAC. HomeLight will provide an offer for homes in almost any condition.

Sell when it’s convenient

Want to get out right away? Or need a little more time to pack? Either way, we’re flexible. Pick a move date that works for your schedule within 30 days of closing.

Close with certainty

Cash buyers don’t need a lender’s involvement to purchase a home, meaning they can move nimbly and quickly compared to someone who needs financing.

Curious to know more about the Simple Sale experience? Hear it first hand from one of our valued clients.

Negotiate a lower agent commission

Frey wants sellers to know that everything is negotiable, including your agent’s fee.

“​​You’re trying to make your client happy, and you’re trying to make it work,” Frey comments. “So, if that’s something where you’re trying to make it work and financially it’s something that can be a win-win for both sides, then that’s something that could be negotiated.”

However, there’s real value to the work that agents do, so don’t think that your agent is going to jump at the chance to slash their commission too much.

Some agents also advertise themselves as “low commission agents,” meaning they charge a much lower commission than their peers, usually in the 2% range. However, working with such an agent can be a much different experience than working with a top agent. Frey comments that some agents in this category only seem to put their clients’ homes for sale on the multiple listing service (MLS), without doing much marketing work. So be sure to do your research before signing any contracts.

Or, work with a top real estate agent

Getting more money for your home can help offset your closing costs. HomeLight’s data shows that the country’s top 5% of real estate agents sell homes for as much as 10% more than the average real estate agent.

To find a top agent in your area, consider using HomeLight. We analyze over 27 million transactions and thousands of reviews to determine which agent is best for you. Our service is 100% free, with no catch. Agents don’t pay us to be listed, so you get the best match.

Pocket More Money By Selling With a Top Agent

Often, homeowners consider a FSBO sale because they want to save money by avoiding having to pay a listing agent’s commission. Counterintuitively, working with a top agent can often let sellers walk away with more, thanks to the higher prices top agents statistically sell homes for.

To maximize your chances of getting the maximum value from your home sale, our Agent Matching platform can connect you with local agents who go above and beyond.

Prioritize agent-recommended repairs

Another way to get the most money for your house is to freshen it up and add value. Your real estate agent can recommend repairs and updates that are worth your while and have a reasonable return on investment based on what buyers in your area want. A higher price can help to cover any necessary closing costs and selling expenses that will be deducted at closing.

However, keep in mind that some costs are calculated as a percentage of property value. In those cases, the more your house sells for, the more you pay — but certain updates can still be well worth it.

Price competitively

On the other hand, if you price your house competitively in a seller’s market — meaning less than a similar house in the area might go for — a buyer may recognize that they’ve struck a good deal on price and be less likely to request assistance with their closing closets.

Which closing costs can buyers and sellers negotiate?

While buyers and sellers each have specific closing costs they customarily cover, there are a few that buyers and sellers often negotiate.

If your area is currently experiencing a seller’s market, buyers are more likely to take on some of these closing costs to help entice their offer to the seller. On the flip side, in a buyer’s market, sellers are more likely to pay these negotiable costs to help entice the buyer.

Still, Frey says she sees some sellers not bothering to ask buyers to pay for negotiable closing costs because they’re already getting more out of the transaction than they thought they would.

“It’s not like a do or die thing,” she explains. “They go, ‘Well I mean, I’m getting this much, am I really gonna fight for another $800 or $1,200?’ when they got a lot more than they were anticipating.”

Here are a few of the closing costs that are negotiable or split between buyers and sellers:

Settlement fees

Depending on where you live, you may use a title company, escrow company, or real estate attorney to close your deal and handle all the final paperwork. Because this closing agent is impartial to both parties, typically both the buyer and the seller pay their fee. In some areas, it may be customary for either the buyer and the seller to pay them in full. However, you can negotiate who pays for these fees.

Title fees

Title fees cover insurance policies that protect the buyer and the seller in case an issue arises with the title after the home is purchased. While it’s often customary for the seller to cover the new owner’s title policy and the buyer to cover their lender’s policy, norms vary depending on the location where the property is located, and these fees can sometimes be negotiated between parties.

Property taxes

Property taxes are typically prorated for both buyer and seller. For example, if the seller moves out in June, they may have to pay the property taxes from January to June. The new owner will be responsible for taxes from July to December.

Whether the money changes hands between the buyer and the seller at closing or directly to the state and county depends on if your area pays for taxes in arrears or upfront. It’s typical for both the buyer and seller to pay just what they owe, but once again, the cost may be negotiable in many instances.

Home warranty

Sellers may offer home warranties to buyers to help cover anything that might go awry with the house during their first year of occupation. Typically, warranties are used in a case where the buyer is concerned with an aging factor of the house.

However, a buyer may choose to purchase this policy themselves, depending on factors such as the state of the house and what the seller is willing to give.

Reducing closing costs is possible

Many aspects of a real estate transaction are up for negotiation, and there are often ways to save money during your home purchase or sale — it’s just a question of how. To cut down on closing costs, consider these strategies, whether you’re buying or selling.

Header Image Source: (Bailey Alexander / Unsplash)