Who Pays Closing Costs - Buyer or Seller? (2024)

FAQs

Who Pays Closing Costs - Buyer or Seller? ›

In New Jersey, as in most states, it's common for both the buyer and seller to have their own closing costs during a home sale. It's typical for sellers to pay for the real estate agent commissions, transfer fees relating to the sale of the home, and (in some cases) their own attorney fees.

There's no set number when it comes to closing costs. Typically, homebuyers pay around 2 percent to 5 percent of the home's sale price in closing fees, while sellers pay slightly more — between 6 percent and 10 percent of the home's price — when you factor in real estate agent commissions.

Buyers are responsible for the closing costs related to paying their mortgage lender as well as getting established in their new home. In general, the buyer pays all costs related to the home loan, the property and the required insurance policies.

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.

Why is the buyer usually responsible for the largest portion of closing costs? Expenses related to the mortgage loan and down payment make up the majority of the closing costs.

Lower Net Proceeds: The most apparent disadvantage for the seller is the reduction in net proceeds from the sale. Closing costs can include a variety of fees, taxes, and other expenses, which can add up to a significant amount. By covering these costs, the seller receives less money from the transaction.

On closing day itself, the homebuyer must sign lots of paperwork that finalizes the deal. Often there are many other parties present for closing day, including the seller, the lender, real estate agents, the closing agent and often an attorney who will also review the paperwork being signed.

The Bottom Line

Closing costs on a mortgage loan usually equal 3% – 6% of your loan balance. Appraisal fees, your attorney's fees and inspection fees are examples of common closing costs.

The amount you may want to reduce your home's asking price depends on many factors, including the median price in your area, what comparable homes nearby are selling for and the length of time the home has been on the market. According to a Zillow study, the average price cut is 2.9 percent of the list price.

Conforming loan down payments can vary from 3% to 20% or more, so for a $500,000 home, you'd need between $15,000 and $100,000. Conforming loans, once again, follow Fannie Mae and Freddie Mac guidelines and usually offer competitive terms.

Why does buyer want me to pay closing costs? ›

The main reason that buyers ask for closing costs is this: cash in hand. In the above example, if they are taking an FHA loan on the house, they are required to come up with a 3.5% down payment.

Seller closing costs in California can amount to 8%-10% of the final sale price of the home. This does not include the mortgage payoff. The biggest closing cost (5%-6%) the seller has to pay is the listing and buyer's agent commission.

You can generally expect the total to be between 1 and 5% of the price you are paying to buy your home. Payment for closing costs can sometimes be financed with your loan, in which case it will be subject to interest charges. Alternatively, you can pay your closing costs in cash, similar to your down payment.

Closing costs are paid according to the terms of the purchase contract made between the buyer and seller. Usually the buyer pays for most of the closing costs, but there are instances when the seller may have to pay some fees at closing too.

Seller Closing Costs

Commission is typically around 6% of the home's purchase price, with half going to each agent. Title insurance: Title insurance protects the home buyer and lender from any damages, outstanding liens, claims and unpaid taxes on the property's title.

When you are buying a home you generally pay all of the costs associated with that transaction. However, depending on the contract or state law, the seller may end up paying for some of these costs. Even if you don't pay the mortgage closing fees directly out of pocket, you might end up paying them indirectly.

The costs can include fees for the title search, appraisal, and other services. They may also include charges for loan origination, document preparation, and insurance. In Florida, buyers are typically responsible for paying the closing costs. However, in some cases, the seller may agree to pay a portion of the costs.

Closing costs in California typically average around 2.5% of the home's sale price for the buyer and around 7.5% for the seller. For example, if a house sells for $500,000, the buyer's closing costs would come out to around $12,500, while the seller's closing costs would be approximately $37,500.

The seller usually pays for recording charges (filing fees) necessary to clear all defects and furnish the purchaser with a marketable title.

As a general rule, Escrow Charges are split 50/50 between the buyer and seller. There are exceptions, notably in San Francisco buyers are expected to cover Escrow fees. These fees vary far more and it's worth checking your particular county guidelines. In San Francisco county, Title Fees are paid by the buyer.