• Closing costs are the expenses associated with transferring a property. In a standard real estate transaction, the homebuyer pays some closing costs, and the home seller pays other closing costs. 
  • Buyers commonly pay closing costs related to loan origination and due diligence, while sellers commonly pay closing costs related to title insurance and administrative processing of the transfer. Both parties are responsible for real estate agent compensation, prorated property taxes, and any attorney fees.
  • Home sellers can incentivize buyers to choose their property by offering financial concessions to help buyers cover some of their closing costs.  

Whether you’re buying a home or selling one, real estate closing costs can add up quickly. Knowing which party is traditionally responsible for which closing costs and how to negotiate those expenses can potentially save you money. 

This article will explain who pays closing costs and how you can use strategic concessions to get what you want out of your upcoming purchase or sale.

Who Pays Closing Costs in Real Estate?

In a standard real estate transaction, both the homebuyer and the home seller are responsible for paying closing costs. However, each party incurs different types of closing costs.

Homebuyer Closing Costs

Specific closing costs paid by the homebuyer may vary by location, but common examples include:[1]

  • Loan origination fees: Fees to cover the administrative cost of opening a new mortgage loan.
  • Appraisal fees: The cost of hiring a licensed real estate appraiser to confirm the property’s value. 
  • Survey fees: The cost of hiring a surveyor to verify property boundaries.
  • Title search fees: Fees for title researchers who examine property records to make sure the chain of ownership is clear and free from outstanding claims, such as liens, unpaid taxes, or legal disputes.
  • Homeowner’s insurance: Premiums for the required homeowner’s insurance policy that provides financial protection in case of damage or loss. 
  • Escrow reserves: Funds in an escrow account that lenders can use to pay critical expenses like property taxes or insurance premiums on the buyer’s behalf, even if they fall behind on mortgage payments.
  • Miscellaneous fees: Additional minor expenses such as pulling credit reports, having documents notarized, or hiring a courier to transport original documents.

Home Seller Closing Costs

Home sellers often incur fewer closing costs than buyers. While these vary by state, it is common for sellers to cover: 

  • Owner’s title insurance: A policy that protects the buyer from title defects not found in the title search, such as past liens, ownership disputes, or recording errors.
  • Transfer fees: Charges from escrow companies, title companies, developers, or even HOAs for the administrative processing of a transfer.
  • Any home warranty offered by the seller: A service contract that covers the repair or replacement of major home systems and appliances that break down within a specific timeframe following the sale of the property. 

Closing Costs Paid by Both Parties or Either Party

Some costs are incurred by both parties, split between the parties, or may be incurred by either party depending on the state. 

  • Real estate agent compensation. Before August of 2024, real estate commissions were nearly always paid by the seller. The seller would pay a substantial fee (usually 5-6% of the sales price) to their listing agent, who would split that fee with the buyer’s agent. Following a legal settlement, buyers and sellers are now each responsible for their own agent’s fees.[2] As has always been the case, agent compensation is negotiable. 
  • Attorney fees. Some states require the involvement of a real estate attorney in processing the transfer of ownership. Even when an attorney is not required, some buyers and sellers opt to have an attorney review the paperwork before closing the deal. 
  • Prorated property taxes. If taxes are paid in arrears (meaning they cover the previous year), the seller gives the buyer a credit at closing for their share of the unpaid taxes. The buyer then pays the full bill when it comes due. If taxes are paid in advance, the buyer reimburses the seller at closing for the portion covering the time the buyer will own the home. 
  • Prorated homeowners association (HOA) fees: Contributions to maintaining shared spaces in HOA communities, such as pools, clubhouses, and private roads. If paid in arears, the seller gives the buyer a credit for their prorated share through closing. If paid in advance, the buyer reimburses the seller for their prorated share at closing.
  • Transfer taxes. In many states, such as California and New York, the seller pays a tax on the transfer of the property. In others, like Delaware and Nebraska, the buyer pays this tax. Some states, like Pennsylvania, split this tax between the parties. 

How Negotiations and Seller Concessions Affect Closing Costs

Closing costs can often be negotiated between the buyer and seller. In an extreme seller's market, for example, a buyer may be willing to pay some of the seller’s closing costs to make their purchase offer more appealing. 

In a buyer’s market, sellers may be motivated to cover some of the buyer’s closing costs to facilitate a quick deal. These concessions can be structured as a percentage of the purchase price or a fixed dollar amount. For example, a seller may offer 2.5% of the sales price to the buyer to cover the buyer’s agent’s compensation.

Importantly, there may be limits to seller concessions, based on loan type and lender rules. For example, FHA loans cap seller concessions at 6% of the home’s sale price. 

While seller concessions can reduce the upfront expense for buyers, they may be factored into the purchase price, indirectly passing the expense back to the buyer. 

Closing Cost FAQs

How Much Do Homebuyers Pay in Closing Costs?

Buyer’s closing costs vary widely depending on the state, loan type, and lender. On average, buyers pay 2-6% of the loan amount in closing costs.[3] Now that buyers are responsible for their agent’s compensation, they may pay an additional 2-3% to cover real estate fees if the seller is unwilling to help with this expense.[4]

You can use a closing cost calculator to estimate your expenses as a buyer. 

How Much Do Home Sellers Pay in Closing Costs?

Seller’s closing costs vary widely depending on location and market conditions. When offering a concession to cover the buyer’s agent’s fees, sellers typically pay 6-10% of the sales price.[5] If the buyer does not need a concession, this amount could decrease by 2-3%, leaving the buyer to pay 3-8%. 

Can Buyer’s Closing Costs Be Rolled into the Loan?

Some lenders offer "no closing cost mortgages": mortgage loans with some, or all, of the closing costs included in the loan to minimize out-of-pocket requirements for homebuyers. It is important to remember that this increases the amount of the loan, which can lead to a larger interest expense over the life of the loan.   

How Can I Reduce Closing Costs?

Homebuyers can choose a home loan lender with reasonable fees to lower their mortgage-related closing costs. They can also request seller concessions, understanding that such requests could make their purchase offer less desirable for the seller but that this could save money if the seller agrees. 

Both buyer and seller can negotiate compensation amounts with their respective real estate agents. Just remember that your real estate agent may be negotiating on your behalf during the transaction, so it is in your interest to hire a strong negotiator, even if that means paying them a bit more. 

The Bottom Line

Properly transferring real estate to a new owner requires a team of professionals, diligently working to make sure every detail of the transaction is handled correctly. Closing costs cover the expense of these valuable services. 

Understanding who pays which closing costs and how negotiations can shift those expenses can help you make financially prudent decisions in your next real estate transaction.