Who Pays Closing Costs When Selling a House?
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Richard Haddad Managing EditorRichard Haddad is the managing editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
When you bought your home, you probably remember paying closing costs beyond the purchase price. It was likely part of your buying budget, and you may have had to skimp and stretch to make ends meet. But you made it happen. Now you’re preparing to sell, and a common question for first-time sellers is, “Who pays closing costs when selling a house?”
This guide will help clear up confusion about seller closing costs; how much they might cost you, and who pays for what. We’ll also share tips to potentially reduce these expenses.
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Who pays closing costs when selling a house?
When it comes to closing costs, both sellers and buyers have their own sets to cover. Generally, the seller is responsible for a larger portion of these costs, which can include various fees and charges related to the sale of the home.
However, the exact distribution of these costs can vary by location, negotiation, and the specific terms of the sale agreement. In the next few sections, we’ll break down what you can expect.
How much are seller closing costs?
For sellers, closing costs typically range from 6% to 10% of the home’s selling price. This percentage encompasses a variety of fees, including agent commissions, which represent a significant portion of the costs.
While this range can give you a general idea of what to expect, the exact amount will depend on several factors related to your specific sale. In the following section, we’ll break down these costs further to give you a clearer picture of what sellers are often responsible for at closing.
What closing costs do sellers pay?
When you sell your home, you’re responsible for several closing costs. Here’s a rundown of common expenses sellers typically cover:
- Agent commissions: This is often the largest expense, traditionally up to 6% of the selling price, split between the buyer’s and seller’s agents. However, Realtor fee changes may be on the horizon. (See info box below.)
- Title insurance: Sellers usually pay for the buyer’s title insurance policy, which protects the buyer from any title issues.
- Transfer taxes: This tax is charged by the state or local government to transfer the title from the seller to the buyer.
- Property taxes: Sellers must prorate property taxes up to the closing date.
- Home warranty: In some cases, the seller might offer a home warranty to entice buyers, covering certain repairs within the first year after purchase.
- HOA fees: If the property is part of a homeowners’ association, sellers need to cover any owed dues up to the closing date.
- Attorney fees: Depending on the location, sellers might need to pay for their own legal representation during the sale.
Agent fee changes on the horizon
On March 15, 2024, the National Association of Realtors (NAR) announced a landmark lawsuit settlement that will change the way real estate agent commissions are handled in the future. These changes will “decouple” seller and buyer agent compensation. Industry experts predict that this decoupling will likely lower agent fees and give buyers the ability to negotiate commission amounts directly. Learn more.
How much are buyer closing costs?
Buyer closing costs typically range from 2% to 5% of the home’s purchase price. These costs include a variety of fees, from loan origination charges to prepaids, and can vary greatly based on the purchase location, negotiations between the buyer and seller, the loan type, and how much deposit they put down. Higher costs usually come up for buyers who make a smaller down payment, which can lead to an upfront private mortgage insurance (PMI) payment.
Buyer closing cost example: Using the same median home price in our earlier example, a buyer purchasing a $385,000 home can expect to pay anywhere from $7,700 to $19,250 in seller closing costs.
As you can see, the buyer typically pays less closing costs than the seller. However, because of the greater number of variables related to financing and negotiating, closing costs often swing in a wider arc for buyers.
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What closing costs do buyers pay?
Here is a list of typical closing costs a homebuyer can expect:
- Loan origination fees: Charges by the lender for processing the loan. This fee is one of the biggest closing costs buyers will encounter when taking out a home mortgage loan.
- Appraisal fees: Fees paid to a licensed appraiser to assess the home’s market value.
- Title search and insurance: Fees for researching the property’s history and insurance to protect the lender from title disputes.
- Homeowners insurance: Your first homeowners insurance premium (and possibly other related fees) may be required at closing.
- Inspection fees: Costs for professional inspections, such as home, pest, or radon inspections.
- Prepaid expenses: These include prepaid interest, property taxes, and homeowner’s insurance.
- Recording fees: Charges for recording the deed and mortgage in public records.
- Survey fees: Costs for verifying property lines, if required.
- Attorney fees: As noted above, you may want — or legally need — to hire a real estate attorney to review documents and contract agreements.
Do sellers and buyers ever split or trade costs?
Yes, it’s not uncommon for sellers and buyers to negotiate the split or trade of certain closing costs. This process, often part of the broader negotiation over the sale price and terms, can vary based on local market conditions, regional laws, the motivation of both parties, and the specifics of the property.
For example, in a buyer’s market, sellers might agree to cover more of the closing costs to close the deal. Conversely, in a seller’s market, buyers may take on a larger share of closing costs to make their offer more appealing. It’s all about finding a balance that works for both parties, ensuring a fair transaction.
Lenders can place limits on seller concessions
Mortgage lenders place limits on closing cost credits. These caps vary by loan type and deposit amounts but can range from 3%–9% of the home price. The restrictions are meant to ensure that seller contributions do not negatively affect the loan’s integrity or the property’s market value. They dictate the maximum amount a seller can contribute to help a buyer. For example, if a buyer offers $350,000, and the seller concession limit is 3%, the seller can only offer to contribute up to $10,500 toward the buyer’s closing costs.
Tips to reduce closing costs
Whether you’re buying or selling, there are strategies to minimize closing costs:
- Shop around for services: Don’t just go with the first provider you meet; compare prices for lenders, title companies, and inspectors.
- Negotiate with the lender: Some fees, especially those associated with your mortgage, may be negotiable. Ask your lender about waiving or reducing certain charges.
- Ask the seller to contribute: Buyers can negotiate with sellers to cover some or all of the closing costs.
- Apply for first-time homebuyers: Many first-time buyer programs can help reduce buyer closing costs. These might offer downpayment assistance or fee waivers.
- Close at the end of the month: You can reduce the amount of prepaid interest you owe by scheduling the closing at the month’s end.
- Negotiate a lower agent commission: Sellers can discuss options with their agent to lower Realtor fees. Some brokers also offer discount services.
- Review the closing disclosure carefully: Ensure there are no mistakes or unnecessary fees charged.
For the highest proceeds, hire a top agent
As you look for ways to minimize closing costs, don’t forget that you can also maximize your home sale proceeds by partnering with a top agent who knows how to help you balance both sides of the financial teeter-totter.
A top-rated agent will bring market knowledge, negotiation skills, and a network of potential buyers to the table, ensuring you get the highest proceeds from your sale. In fact, our data shows that the top 5% of agents across the U.S. sell homes for as much as 10% more than the average real estate agent.
Ready to take the next step? Use HomeLight’s free Agent Match tool to discover how we can help you find the perfect Realtor for your needs, streamlining your selling process for the best outcomes.
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