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Buyer or Seller: Who Pays Closing Costs?

August 31, 2016

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The time has come: You’ve found the home of your dreams, you’ve completed the negotiations with the seller, been approved for your loan and are ready to sign the papers closing your loan. Now comes a big question, and a potentially costly one at that – who pays the closing costs?

By this point, your closing costs shouldn’t be a surprise. Your lender should have disclosed any fees related to purchasing a home well before the time you reach closing as part of the Loan Estimate during the pre-approval stage. These fees may include:

  • A fee for running your credit report.
  • A loan origination fee.
  • Attorney’s or realtor’s fees.
  • Inspection, survey and appraisal fees.
  • Discount points.
  • Title insurance.
  • Title search fees and background checks.
  • Escrow deposit.
  • City or county land record.
  • Underwriting.

Added together, closing costs can quickly become anywhere between 2 and 5 percent of the total purchase price. Such a significant cost raises a fundamental question: Who pays these fees?

“Closing costs can be anywhere between 2 and 5 percent of the total purchase price.”

Typically, closing costs are paid on some level by both the buyer and the seller, though the distribution of these costs can vary. According to Zillow, buyers typically pay a higher volume of distinct costs while the seller may pay fewer line items, but more significant ones. Since the majority of the aforementioned fees are related to the loan itself, these tend to fall to the buyer to pay.

That said, there is nothing that bars sellers from taking on some portion of the closing costs. Many sellers will do so as an enticement to buyers to close the deal faster, akin to offering a discount on the sale price. Sellers do often pay the real estate commission fee, as well as any existing property taxes incurred by the home so as to clear the title. 

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