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Buyer vs Seller: Who Actually Pays the Closing Costs?

By The HomeGo Team On 2019-11-20

When selling a home, you may think about the money you will make. Unfortunately, many sellers don’t calculate expenses associated with selling a home–fees that cut into their profits.

So does the buyer or seller pay closing cost? And how much can it reduce your profit when selling a house?

How Much are Closing Costs?

Closing costs, which might be called settlement charges, cover any costs associated with transferring the property from your name to the buyer’s name and originating a new mortgage loan for the buyer.

The national average for closing costs is $3,800, according to a recent survey from Bankrate. While this number can seem reassuringly low, it may not be representative of the closing costs for your sale.

Three factors affect the amount of closing costs: where you live (as states set different rates), which mortgage lender you use (same consideration), and the size of the mortgage loan.

A typical closing cost is anywhere from 2 to 5 percent of the home’s purchase price. So what do those numbers actually look like?

Say a home sold for $300,000. Closing costs for the deal would be anywhere from $6,000 to $15,000 — a big range.

It’s worth noting that in the three most expensive home buying states — California, Texas, and New York — costs may run higher.

In addition to the percentage, a broad range of fees could be tacked on, increasing the closings costs. It might seem like there are fees for everything, such as:

  • Survey Fee
  • Recording Fee
  • Title Insurance
  • Title Exam Fee
  • Home Appraisal

Most deals will accrue some fees, but not the full spectrum of fees that exist.

Does the Buyer or Seller Pay Closing Cost?

Now that you have a better idea of what costs are associated with real estate deals, who actually pays for the closing costs?

In most cases, the buyer will pay for the majority of closing costs, but there are always exceptions. Buyer expenses are those you’d think would come with selling a home: paying for a home inspection, paying fees associated with the mortgage loan, purchasing homeowners insurance, and paying any homeowners association fees or dues.

Sellers cover some fees at closing, though usually less than what a buyer must pay. Usually, home sellers pay for the real estate agents’ commissions, prorated real estate taxes and utility bills to cover the time period from an accepted offer to transfer of title, and the fees for transferring the title to the new owner.

These general guidelines may shift depending on the real estate market: Consider that in a buyer’s market, for example, a home seller may want to cover some or all of a buyer’s closing costs to encourage a good deal.

That seems extreme, but if you think about paying more months on your mortgage while you wait for another offer to come in versus paying a few thousand dollars to conclude the deal, you can see how some sellers would pony up extra cash.

Even when the market doesn’t favor buyers, buyers may ask you to make seller concessions to reduce their closing costs. For example, buyers might ask for a seller concession if they can’t afford closing costs on their own, or if they have desired home improvements they want to make or need to make home repairs (say, put on a new roof).

Even though the seller is responsible for fewer closing costs, generally speaking, the real estate commission tends to be the priciest cost. Thus, the seller might wind up paying more money at the closing than the buyer, even though the buyer is paying for a greater number of fees and services.

Can I Skip Closing Costs if I Sell Non-Traditionally?

Closing costs can feel penalizing, especially when there’s not a lot of equity in the property. Selling to an online buyer, AKA an iBuyer, might seem tempting as a way to avoid closing fees, but there can be hidden downsides.

Online buyers often tack on transaction fees, which can go as high as 13 percent — far higher than a closing cost.

Most online buyers or real estate investors require some type of closing costs. Fortunately, HomeGo is different: we make a fair offer for your property and never charge closing costs or commissions.

You’ll keep more of the profits in your pocket and skip the stress associated with traditional real estate deals.

Closing costs are expensive any way you look at it. You may have to assume some amount of the buyers’ closing costs, and you’ll definitely have to cover seller expenses when you sell traditionally.

Skip closing costs, fees, and commission by selling to HomeGo. To learn more about our process, or to get a quote for your home, contact us.

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