Pekic/Getty Images: Illustration by Issiah Davis/Bankrate
Key takeaways
- Closing costs encompass the various fees and expenses associated with completing a real estate transaction.
- Buyers aren’t the only ones who pay closing costs — both the buyer and the seller are responsible for at least some amount.
- Typical closing costs for sellers can include transfer taxes and escrow fees. If there is an existing mortgage on the house, that will have to be paid off as well.
While the buyer is the one footing the bill for a home purchase, that doesn’t mean there aren’t any expenses involved for sellers. Before you start counting the money you’ll make from your sale, remember there are closing costs to consider. The exact amount of closing costs varies by state and with each individual transaction. Here, we’ll take a closer look at seller closing costs, and how much you can expect to pay.
What are closing costs?
“Closing costs” is a catchall term for the various fees and expenses associated with closing a real estate transaction. They can include things like loan origination fees, legal fees, title insurance costs and more, some paid by the seller and some paid by the buyer. In many cases, who pays for what is negotiable, and the distribution of costs can also vary depending on what state you’re in.
In total, these fees can add up to around 2 to 5 percent of the loan amount, according to Freddie Mac. The most recent data from CoreLogic’s ClosingCorp shows that the national average for closing costs is 1.81 percent of a home’s sale price, not including Realtor commissions.
On a median-priced U.S. home — which runs $416,700, according to August 2024 data from the National Association of Realtors — 1.81 percent comes to $7,542. However, this amount is not shouldered entirely by one party; it’s split between the home’s buyer and seller.
Common closing costs for sellers
First, let’s clear up a common misconception: Closing costs are not the same thing as real estate commissions, though they are often grouped under the same umbrella. Commissions are paid at the closing, though, and sellers who use a real estate agent will have to pay their agent’s commission fee. This typically runs between 2.5 and 3 percent of the home’s sale price; for a $400,000 sale, a 2.5 percent commission would equal $10,000. While it used to be that sellers also paid the buyer’s agent’s commission, that is no longer necessarily the case — whether or not the buyer pays their own agent is now up for negotiation and will vary from one deal to the next.
Here are some common closing costs for sellers, beyond agent commissions:
- Transfer taxes: Most states will charge some form of transfer tax to officially transfer ownership of the property. Some counties or municipalities may charge local transfer taxes, too. The cost varies widely but is typically dependent on the home’s sale price.
- Title-related fees: Home sellers in many areas are responsible for paying the costs of a title search and title insurance, which protect against potential ownership issues. The cost can vary from a few hundred dollars to $1,500 or more, according to data from My Mortgage Insider.
- Escrow fees: If any funds are held in escrow during the course of the transaction, there will likely be fees owed to the escrow company. Per My Mortgage Insider, these can range from $300 to $700, or sometimes more.
- Attorney fees: Some states actually require home sellers to hire a real estate attorney, and even when it’s not required, many sellers choose to do so anyway to ensure their interests are protected. The legal fees will be due at closing.
- Mortgage payoff: If you still have a mortgage on the home you’re selling (which is not uncommon), that will need to be paid off before the sale is finalized. The amount will vary depending on your outstanding balance, and wiring the cash to your mortgage servicer may incur additional fees.
- Seller concessions: It’s common for a seller to offer a credit for some of the buyer’s closing costs — to cover the cost of a needed repair, for example. This practice, referred to as seller concessions, isn’t mandatory but can help make a home more attractive to potential buyers.
When are closing costs paid?
This is an easy one: Closing costs are so named because they are literally due when you close on the sale of your home — the final step before you hand over the keys to the buyer. You will pay these fees when you and the buyer meet with the closing agent, title company and/or attorneys to disburse the funds and sign the documents necessary to complete the sale.
Note that you should take “due when you close” literally: Be sure to have your checks or money orders prepared in advance, and physically bring them with you to the closing. You’ll turn them over on the spot, not at a later date.
The law requires that both the buyer and seller receive closing disclosure documents that provide the details of the transaction at least three business days before closing. These documents will include an itemized list of closing fees.
How to reduce closing costs
The good news for sellers is that closing costs usually come out of the proceeds they receive from the sale, so you probably won’t have to come up with the cash out-of-pocket. However, there are a few ways that you can try to lower your costs:
- Negotiate with the buyer: Many typical closing costs can be split between the buyer and the seller.
- Negotiate with your agent: Agent commissions are negotiable, too, and the difference between, say, 3 percent and 2.5 percent can be significant, especially on a higher-priced home. You might also consider working with an agent who offers discounted services, or who works for a flat fee rather than a percentage of the sale price. (However, you may receive less marketing than you would otherwise with these options.)
- Negotiate with service providers: The fees for attorneys, title companies and other providers can sometimes be negotiated, too, and it doesn’t hurt to ask.
- Sell on your own: Acting as your own agent, known as listing for sale by owner, means you avoid a listing agent’s commission fee and hang on to more of your home’s sale price. It’s a lot of work, though.
- Sell to a cash homebuyer: Selling directly to a homebuying company, whether it’s a small local operation or a national chain like We Buy Houses, is another way to reduce your closing costs — these companies typically charge no fees and bypass the need for a Realtor’s involvement. However, they are likely to offer you a lower price for your home that you would get with a traditional sale.
Bottom line
Selling a house isn’t all profit — there are costs associated with a home sale, which typically come out of your profits at closing. Keep in mind that your seller closing costs are in addition to any repairs and staging you may have done to spruce up the house before listing, and once the house is sold you will likely have moving costs to think about as well. In addition, you’ll be on the hook for your own agent’s commission and potentially that of your buyer’s agent too. Be sure to budget for all these expenses when calculating how much you expect to earn, and how much you can afford for a new home once you sell.
FAQs
Read the full article here
