When the time comes to complete a real estate transaction, understand that there are costs beyond the purchase price. Whether buying or selling a house, you'll experience closing costs. Some of these expenses consist of taxes, fees, or service costs by the title company. On average, sellers tend to pay more towards closing costs than the home buyer. In this article, we'll dive into the standard closing costs, along with calculating and reducing the overall expense.

 

What are Closing Costs in Real Estate?

If you're wondering, "What are closing costs in real estate?" Closing costs are expenses outside the purchase or sale of the house. There's a wide range of closing costs. Furthermore, these expenses come from lenders, title companies, and the city/township. Before the closing, everything is detailed and explained on a preliminary HUD. However, there's no way to avoid this expense, and buyers should budget an additional 5% to prepare for these fees.

 

Common Real Estate Closing Costs

• Lender's Fees. When purchasing a home, the buyer is responsible for the lender's application and processing fee.
• Inspection and Appraisal Fee. Buyers are expected to cover the inspection fee. An inspector searches for any property defects. Additionally, the inspection can be for buyers' educational purposes only or a requirement for the homeowner to repair. Appraisal fees are for the lender to determine if the loan is worth issuing based on the home's value.
• Title or Lawyer Fees. Based on your state, you'll be responsible for lawyer fees or title company charges. For example, New York is a lawyer state, so for closings, lawyers handle the sale. Pennsylvania uses licensed title companies to complete a real estate transaction. Title and legal fees cover the cost to clear the title and transfer the ownership of the property.
• Transfer Tax. Most of the time, each side handles its own transfer tax. However, some buyers will elect to cover all transfer taxes to make their offer more appealing.
• Agent Commissions. Agent commissions are typically covered by the seller. Although sellers can elect not to cover the buyer's agent commission. Therefore, between 2-3% of the sale price can come out of the buyer's pocket for agent fees.

 

Who Pays Closing Costs?

As mentioned above, both buyers and sellers are responsible for paying closing costs. However, the amount of costs can vary, along with the exact cost for each side. It's vital to be aware of closing costs before looking to buy or sell a home. These expenses need to be budgeted as a buyer or understood as a seller.

 

How to Calculate Closing Costs?

Essentially, the exact figure on closing costs can't be determined until the preliminary HUD. However, on average, buyers pay closing costs at roughly 2-5% of the sales price. While sellers pay between 6-10% of the sales price. It's important to note, these expenses vary by state. Check with a local real estate professional to determine your exact costs when participating in real estate.

 

How to Reduce Closing Costs?

While there's no way to eliminate closing fees. There are multiple ways to reduce closing costs & make homeownership more obtainable.

• Receive multiple quotes from lenders, mortgage companies, or banks. Each company has different interest rates and fees associated with its services.
• Similar to shopping around lenders. Do the same for inspectors and insurance companies. These pros aren't required to charge the same amount, so the price of their services will vary.
• Potential to negotiate with the seller. Depending on the inspection report or other factors. The buyer can request the seller's concession, which reduces the sales price, or have the seller cover some fees.
• Assist programs. Programs such as FHA can make it cheaper for first-time home buyers or low-income individuals, reducing some closing costs, down payment, or other fees.
• Work with an agent who will take reduced commission. Some realtors are willing to take a smaller percentage to make the deal work. Additionally, sellers aren't required to offer buyer agent commission, which saves roughly 3% in itself.
• Consider different routes to sell a property. At times, selling directly to a home investor can eliminate the agent commission and inspection fees, along with a swift sale. However, utilizing a realtor can help the seller achieve the most money possible. Weigh out the pros and cons of both home selling routes before making the large decision.

 

Closing Costs Are Part of Real Estate

It's not cheap to buy or sell a home. In addition, closing costs cannot be eliminated, so it's important to reduce any expenses possible. If you're considering purchasing property, budget and expect up to 5% of your price range. Furthermore, sellers must understand that their costs can add up to 10%, so explore different home selling routes. However, closing costs vary depending on the state and the circumstances. Some real estate professionals offer reduced rates for their services, and certain states offer programs or lower taxes. Research local property sale requirements and multiple routes to purchase or sell a property. Real estate doesn't have to be overwhelming or complicated. Use real estate professionals to handle the transaction and simplify the process.

 

 

Published 6/17/25