Buyer vs. seller: Who pays closing costs?

A man and woman seated on the couch look at their finances on their laptop and printed paper.Image: A man and woman seated on the couch look at their finances on their laptop and printed paper.

In a Nutshell

Both the buyer and seller typically pay closing costs in a home sale. You can avoid surprises by knowing what to expect and budgeting for these expenses.
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Whether you’re the buyer or the seller of a home, you’ll need to plan for closing costs.

Closing costs are the fees and expenses that both buyer and seller pay to finalize a home sale. For the buyer, these expenses typically include loan origination fees, appraisal fees and prepaid expenses such as taxes.

On the seller side, expenses usually include real estate agent commissions, seller credits and attorney fees.

We’ll take a closer look at the closing costs that buyers and sellers can expect to pay in a real estate transaction.

Who pays closing costs?

When it comes to closing costs, the homebuyer is typically on the hook for the bulk of the out-of-pocket expenses. Homebuyers closing costs are typically between 2% and 5% of the overall purchase price of the home.

But sellers also have closing costs, generally paying the real estate agent commissions for both the buyer and the seller. This commission, which is usually 5% to 6% of the home’s selling price, is typically split between the listing agent and the buyer’s agent.

Other seller expenses typically include such items as transfer taxes, seller credits and, depending on your state’s laws, attorney fees.

Learn more about how real estate agents get paid.

Common closing costs for buyers

The homebuyer usually needs to cover several costs at closing — including one-time fees such as appraisal and home inspection fees, loan origination fees and taxes. In addition to these one-time expenses, buyers may also have ongoing costs such as property taxes, private mortgage insurance (or PMI) and HOA fees.  

Here are some of the typical closing costs for buyers.

  • Loan origination fee — This is what the lender charges for administrative services, including application processing, loan underwriting and funding the mortgage.
  • Credit report fee — A credit report fee, which is usually less than $30, covers the cost of obtaining a borrower’s credit report to assess their credit health.
  • Appraisal fee — The appraisal process helps determine the worth of a property. Buyers will usually pay a fee to the appraiser as part of closing costs.
  • Home inspection fee — A buyer can usually expect to pay between $300 and $500 for a home inspection, which sheds light on the physical condition of a house.
  • Title service fee — This includes the title search fee, the premium for the lender’s title insurance policy, as well as other costs and services associated with issuing title insurance. Depending on where you live though, these fees may be paid by the seller though.
  • Recording fee — These fees are issued by local governments for recording deeds, mortgages and other documents related to a home loan.
  • Prepaid expenses — These costs will likely include prorated property taxes, interest until your first payment is due and homeowners insurance. Your mortgage lender may set up an escrow account for these expenses and depending on where you live, an escrow account could be required by law.

Common closing costs for sellers

If you’re getting ready to sell your home, it’s a good idea to know what fees you may have to pay and how much they could cost.

Here are some of the typical closing costs for sellers.

  • Real estate agent commissions — This commission typically amounts to 5% to 6% of the home’s sale price.
  • Transfer tax — This is a tax on the transaction imposed by the state or local government.
  • Seller credits — These are funds that the home seller may contribute to pay for a portion of the buyer’s closing costs or for necessary repairs.
  • Attorney fees — These would apply if the state legally requires that an attorney be present at closing or if the parties involved prefer to have one present.
  • Title insurance — Title insurance helps protect the buyer from financial losses that can occur when the title to a property is not free and clear. Depending on where you live, the policy can be paid by the buyer, the seller or split between both parties.

How to reduce closing costs

Closing costs can add up for both buyers and sellers. But there are steps you may be able to take to help reduce closing costs.

As a homebuyer shopping for a loan, you can ask about expenses and fees that might affect the cost of your loan. These costs may include items such as appraisal fees, pest inspection and insurance. By shopping around and getting multiple loan offers, you may have more leeway to negotiate.  

Buyers may also want to consider asking the seller to cover some of the closing costs — known as seller concessions. If you take this route, the seller may require you to pay a higher price for the home to cover the cost of these concessions. Seller concessions, which allow buyers to pay less money upfront at closing, can make a home more affordable by effectively rolling the costs into the buyer’s mortgage.

What’s next?

While both buyers and sellers face closing costs in a home sale, the amount can vary depending on a variety of factors, including home price, the type of mortgage loan, potential seller concessions and the location of the property.

Additionally, certain aspects of the transaction can be negotiated, with buyers and sellers divvying up expenses. With so much at stake in a property sale, factoring closing costs in advance can help you budget for them and steer clear of any unwelcome surprises.

Estimate your closing costs

If you’re buying a home, try our closing costs calculator to get a better idea of how much your closing costs could be.

Closing Cost FAQs

What is the most a seller can pay in closing costs?

There’s no cap on how much a seller can pay in closing costs. The seller’s largest expense is typically the real estate agent commission, which is usually 5% to 6% of the total sale price of the home. Other seller expenses may include transfer taxes, seller concessions and, depending on state laws, attorney fees.

Who pays the most closing costs — buyer or seller?

While the buyer has a wider variety of fees and expenses at closing, the seller typically ends up paying more. Sellers typically pay the real estate agent commission, which is usually 5% to 6% of the home’s selling price. For homebuyers, closing costs generally run between 2% and 5% of the overall purchase price of the home.

About the author: Jacqueline DeMarco is a freelance writer based in southern California who graduated from the University of California Irvine with a degree in literary journalism. She writes about a wide range of topics, including fin… Read more.