Closing Costs Math: Who Pays What?
Closing costs are a standard part of any home purchases. In addition to the asking price, the closing costs represent one of the biggest portions of the cost of buying or selling a home. For the most part, both buyers and sellers will have to pay for some portion of the total closing costs.
In general, buyers will cover the majority of these costs but the home seller will also be responsible for a commission fee. Typically, by the time you have agreed upon a deal for a property, you will have a fairly accurate idea of how much the closing costs will be. If you’ve never purchased or sold a home before, here’s a quick rundown of how these costs are tallied up and divided.
Buyer Closing Costs
In a typical home sale, the buyer will be responsible for most of the costs associated with the property purchase. In addition to paying the cost of the actual home itself, buyers also have to take care of a large number of fees and charges to keep the sale moving forward.
For example, buyers will have to pay several fees to have their loan approved and their offer accepted by the seller. They may have to pay a fee for their credit report, for the home appraisal and inspection and the fee for having important documents notarized. In addition to these fees, they will also be held responsible for purchasing several types of insurance on the home, including title insurance.
In general, it’s a good idea for buyers to obtain a list of all the fees for which they are responsible before moving forward with the home purchase. This will give them a chance to shop around for better deals and lower interest rates.
Seller Closing Costs
Although buyers have to pay a greater number of costs, sellers usually have to pay the largest amount in closing costs. This is because home sellers are held responsible for paying the real estate commission on the sale. Because this commission fee is based on the total value of the property, it can be a relatively large amount.
Sellers may also have to pay any outstanding property taxes or homeowner fees in order clear their end of the deal.
Sharing Costs
In many cases, buyers and sellers can come to an agreement to share some of the closing costs to make a better deal for everyone involved. For example, a buyer may include a request to share these costs as part of their negotiations. A buyer may ask a seller to take on some of the closing costs instead of negotiating for a reduction in the total price of the home.
While a price reduction may shave a small amount off the total of the mortgage, it won’t add up to quite as much since it is stretched out over so many years. However, if a seller agrees to take on some of the closing costs, the buyer can see major savings right away. This is a good deal for both parties. The seller gets the full asking price of the home while the buyer gets to save some money.
Closing costs aren’t too difficult or complex but you should make sure to discuss them in detail with your real estate agent. You may be able to negotiate an arrangement that benefits everyone.