When closing on a real estate purchase, a question comes up: who pays closing costs? While the buyer is generally responsible for what is usually identified as closing costs, who pays closing costs buyer or seller can be answered very differently in very different circumstances.
Who Pays Closing Costs, Buyer or Seller?
According to themortgagereports.com, buyers and sellers each pay their own closing costs. A home buyer is likely to pay between 2% and 5% of their loan amount in closing costs, while the seller could pay 5% to 6% of the sale price to their real estate agent.
At the end of the day, both parties are going to be expected to pony up at least a certain amount of money for the various costs that come at the end of a sale, and who covers closing costs can vary depending on a lot of circumstances.
Ultimately, real estate closing costs can be negotiated under different circumstances, and though there are common rules, those rules can be changed depending on how negotiations go.
What is the buyer responsible for?
Does the buyer or the seller pay closing costs? Most of what is traditionally seen as closing costs are generally the buyer’s responsibility. Some of these costs may include:
- Notary fees
- Organization fees
- Appraisal fees
- Prepaid Interest
- Prepaid Insurance
- Tax Servicing Fee
- Title Insurance
- Credit Report Fee
- Bank Processing Fee
- Recording Fee
This will generally cost the buyer two to five percent of the overall purchase price. While, on average, these things are considered the buyer’s responsibility, it is not uncommon for buyers to negotiate for the seller to cover a few of these fees. Anything related to insurance is going to be the buyer’s responsibility with very few exceptions, but some things like the appraisal fee and notary fee may be negotiated for the seller to cover, especially if the seller is desperate to move the property.
A seller may be convinced to cover more closing costs if the buyer provides a stronger offer, offers to close quickly, and does not make a lot of other demands. The easier, quicker, and more profitable a sale is for a seller, the more likely they are to cover closing costs to make things simpler and to keep the buyer happy.
With that said, generally speaking, the buyer is responsible for most closing costs.
What is the seller responsible for?
There are some costs that the seller is responsible for, though these are not generally considered closing costs. Sellers are responsible for covering the realtor fees at the end of a sale, assuming they have used a realtor for the sale. This is not generally considered an actual closing cost, but since it is something the seller pays at end of a sale, it is easy to see where the confusion comes from.
The realtor fee tends to be about 6% of the sale, and while the seller is responsible for realtors on both sides, that 6% is usually split between parties.
Sellers are also responsible for any improvements that may be needed during the closing, such as new paint or replacement parts. So, if anything is noticed in an appraisal or during the sale, it is on the seller to make these fixes, unless the sale is specifically listed as an ‘as is’ sale.
Moving fees and one-time loan repayment fees on a mortgage are also costs that, while not really considered closing costs, are things that will need to be paid and are sometimes forgotten about when it comes to the final expenses, so keep those in mind.
Escrow accounts hold the documents and funds that will be used to purchase the real estate. When it comes to real estate closing costs, escrow fees are usually split evenly between the buyer and the seller, as the escrow account is generally benefitting both parties evenly.
With that in mind, escrow fees and the responsibility to cover them can change depending on the wording of the contracts. It isn’t uncommon for sellers to sweeten the deal by offering to cover all escrow fees, so depending on what your offer and speed of closing is, you may convince a seller to cover all of the escrow fees, saving yourself a little bit of money in the closing costs.
Paying cash does not change the responsibility of covering the closing costs. Even if the buyer is paying cash as opposed to using a loan, they are still generally responsible for the closing costs. With that in mind, paying cash will cut out the need for a bank, which will cut out bank fees, making the overall closing costs significantly cheaper.
When it comes to real estate closing costs, the responsibility for the closing costs is generally on the buyer. However, with effective negotiation, sellers can be convinced to cover some of the costs, as long as the buyer is making this worth their while.