What are closing costs, exactly?
Closing costs when selling a house are the various fees that need to be paid to real estate agents, attorneys, lenders, and the government, and for things like a title search, home inspection, and appraisal fee. The buyer usually pays for some of these closing costs, while the seller pays for others.
What is included in closing costs for a seller?
Seller closing costs typically include a real estate agent commission, transfer tax, attorney’s fees, prorated property taxes, and an escrow fee. Sellers pay an average of 8%–10% of the house’s sale price on closing costs. They also sometimes pay for some of the buyer’s costs.
Real estate agent commissions
If you sell a house with the help of a real estate agent, you’ll pay them a commission, historically about 2.5%–3% of the home sale price. This is a fee to compensate them for the work they do to help you sell the house, like advising you on how to prepare your house for sale, listing the property, and negotiating offers with potential buyers. Sometimes, the seller will pay the buyer’s real estate agent commission as well, as a concession to get the buyer to agree to the sale or pay more for the house.
Transfer tax
Another seller closing cost is real estate transfer tax. This is a fee that is determined by the state or local government when a property is sold. In some places, it’s paid by the buyer and in others, it’s paid by the seller. Whether you need to pay transfer tax depends on which state you live in. The states that don’t charge a real estate transfer tax are Alaska, Idaho, Indiana, Kansas, Louisiana, Mississippi, Missouri, New Mexico, North Dakota, Texas, Utah, and Wyoming. In the other states, the tax is usually a percentage, although in Arizona it’s a flat fee of $2. Real estate transfer tax percentages range from 0.01% of the home sale price in Colorado to 4% in Delaware.
Attorney’s fees
Many sellers pay for a real estate attorney to help negotiate deals, create or review the home-selling contract, deal with title issues, and check the closing paperwork to make sure all the legal loose ends are tied up. According to David Reischer, a real estate attorney and CEO of LegalAdvice.com, attorney fees for a home closing can range from $750–$1250. The final cost can depend on location, the type of property being sold, and how complicated the home sale is.
Prorated property taxes and homeowners insurance
Two more closing costs to sell a house are the property tax and homeowners insurance. Unless the property is sold on the exact day property taxes are due, the seller will have to pay part of the house’s property tax for the year of the sale. For instance, if property taxes are due in September, but the house is sold in June, the homeowner will need to pay the taxes due from the previous September up until the property transfers to the new owner in June (the time period that the seller still owns the house). This cost varies based on location and when the house is sold in the property tax cycle. The same concept applies to homeowners insurance.
Escrow fee
Escrow is money from the buyer, saved in a neutral bank account to safeguard it so that it goes to the right parties upon the house closing. It’s considered a good faith gesture from the buyer that they intend to follow through on the sale. This money is typically used to pay part of the down payment after closing†. It can also be used for taxes and insurance, or it can be given to the seller if the contract falls through due to the fault of the buyer. The fee to open an escrow account usually costs around $500–$2,000 but can sometimes cost up to 1%–2% of the house’s purchase price. This fee is typically split 50/50 between both parties, so the seller would be responsible for $250–$1,000†.
Buyer closing costs
On average, buyer closing costs can range between 2%–6% of the loan amount and include a home appraisal fee, optional discount points, escrow account funds, flood determination and monitoring fees, government recording fees, loan-origination charges, and a pest inspection (only required in some locations, but recommended). They also include prepaid expenses like home insurance, prorated property tax, and interest on the mortgage that accrues between the date of closing and first mortgage payment due date.
These costs are typically paid by the buyer, but sometimes the seller will offer to pay some of them as a concession in order to close the sale or get a higher price for the house. Sellers do have limits on what they can offer toward the buyer’s closing costs with a conventional loan, though. If the down payment is 25% or more, the seller can offer to pay up to 9% of the mortgage amount toward the buyer’s costs. If the down payment is 10%–24.99%, it’s 6%, and for down payments of less than 10%, the seller can pay 3%. For an FHA loan, the limit is 6%, and for a VA loan, it’s up to 4%.
What does the seller pay at closing?
Here’s a breakdown of how much you can expect to pay in closing costs as a seller, not including any concessions, with example costs based on the sale of a $200,000 house:
- Real estate agent commission – 2.5%–3% ($5,000–$6,000)
- Transfer tax – dependent on state, anywhere from 0%–4% ($0–$8,000)
- Attorney’s fees – flat fee ($750–$1,250)
- Escrow fee – flat fee; sometimes 1%–2% of the purchase price ($250–$4,000)
- Property tax & homeowners insurance – Dependent on when you sell the house; you’ll pay a prorated amount for the time you still own the house during the current billing cycle.
- Buyer closing costs (optional) – Up to 3%–9% of the mortgage amount, dependent on how much of a down payment the buyer makes, what type of mortgage loan they have, and how much you want to offer in concessions.
Save on closing costs when selling a house.
You can save on these costs in a number of ways. Here are the most frequently used options.
Sell FSBO.
If you’d rather avoid real estate agent commissions, you can sell FSBO (for sale by owner). This means that you’ll take over all the tasks that a real estate agent would normally do and sell the house on the traditional market yourself. That includes preparing the house for sale by doing repairs and renovations, staging the house, having it photographed, posting the house listing on real estate websites, conducting showings and open houses, and negotiating with buyers.
Negotiate with providers or buyers.
Some service providers, like real estate attorneys and home appraisers, charge different rates, so you can shop around for the best ones and negotiate with them to lower their prices. You could also negotiate with the buyer instead, to see if they’d be willing to pay some or all of your closing costs in exchange for a lower house price.
Sell to an iBuyer.
An iBuyer will typically charge a flat fee or a lower percentage than a real estate agent would for commissions, but you’ll still have to pay some closing costs. The price you’ll get will also be lower than you could get on the traditional market.
Sell to an off-market home buyer.
One way to avoid closing costs altogether is to sell to an off-market home buyer who pays all closing costs for you. With this method, you sell the house “as is” for a discounted price in exchange for a fast closing and no need to pay closing costs. Off-market home buyers also usually don’t require the seller to make any repairs or renovations before they buy the house.
Work with HomeVestors® and pay none of the typical closing costs†.
Closing costs on a house can add up quickly, amounting to a significant percentage of your home sale price. When you sell your house to HomeVestors®, America's trusted home buyer, you don’t have to worry about any of the typical closing costs—we’ll pay them. We don’t charge any commissions or hidden fees, either†. Our simple, 3-step process includes an in-person consultation at your house, a quick offer, and a fast closing. Read seller reviews to see how we got our stellar 95%* nationwide customer satisfaction rating, and check out our FAQs to find out more about HomeVestors and our home-buying process. Contact us today to schedule a meeting and save on closing costs.
This blog is for informational purposes only and should not be considered legal advice.
