Closing Costs Explained: Who Pays What and Why

Closing Costs Explained: Who Pays What and Why

You’ve made it to the final stretch of buying or selling a home—but before you celebrate, there’s one last hurdle to clear: closing costs.

So what exactly are closing costs, who pays for what, and why do they even exist? Let’s break it down so you can walk into your closing day with confidence.

What Are Closing Costs?

Closing costs are the fees and expenses (outside of the purchase price) that buyers and sellers must pay to complete a real estate transaction. These costs cover everything from paperwork processing to taxes and insurance.

On average, closing costs range between 2% to 5% of the home’s purchase price.

Common Closing Costs for Buyers

Buyers typically pay the bulk of closing costs, including:

1. Loan Origination Fee

Charged by the lender for processing the mortgage.📌 Usually 0.5% – 1% of the loan amount.

2. Appraisal Fee

Covers the cost of a professional home appraisal (required by lenders).💵 Typically $300 – $600.

3. Home Inspection Fee

Optional but recommended. Ensures the home is structurally sound and safe.💵 Usually $300 – $500.

4. Title Search & Title Insurance

Ensures there are no legal claims or liens against the property.📌 Required by most lenders.

5. Credit Report Fee

Covers the cost of pulling the buyer’s credit report.💳 Usually $30 – $50.

6. Escrow Fees

Paid to the title or escrow company for managing funds and documents.⚖️ Sometimes split between buyer and seller.

7. Property Taxes & Homeowners Insurance

Lenders often require prepayment of these items into an escrow account.

8. Recording Fees

Charged by the local government to officially record the new ownership.

Common Closing Costs for Sellers

While sellers don’t pay as many line items, they’re responsible for a few big-ticket ones:

1. Agent Commission

The seller typically pays the real estate agent commissions (both buyer's and seller's agents), which is usually 5% to 6% of the sale price.

2. Title Fees

Includes title transfer and sometimes title insurance for the buyer, depending on the state.

3. Escrow Fees

In many areas, escrow fees are split 50/50 between buyer and seller.

4. Outstanding Property Taxes or HOA Fees

These must be paid in full at closing.

5. Seller Concessions (If Any)

Sometimes sellers agree to cover part of the buyer’s closing costs as an incentive to close the deal.

Can Closing Costs Be Negotiated?

Yes! Some costs are fixed, but others can be negotiated. For example:

• Buyers can ask sellers to contribute toward closing costs (especially in slower markets)

• Sellers may offer credits in lieu of making repairs

• Lenders may offer closing cost credits in exchange for a slightly higher interest rate

Tip: Always discuss these strategies with your real estate agent.

Quick Summary: Who Pays What?

Cost	Buyer	Seller
Loan Origination Fee	✅
Appraisal Fee	✅
Home Inspection Fee	✅
Title Insurance (varies by state)	✅	✅
Agent Commission		✅
Escrow Fees	✅/Split	✅/Split
Recording Fees	✅
Property Taxes (prorated)	✅	✅
Seller Concessions	Sometimes	✅

Final Thoughts

Closing costs are a necessary part of completing any real estate transaction—and while they can feel overwhelming, they don’t have to be a surprise. Knowing who pays what and why helps you prepare financially and avoid last-minute hiccups.

Have questions about what your specific closing costs might look like? I’d be happy to walk you through a customized estimate based on your property and location.