Closing Costs Explained: What Buyers and Sellers Should Know

Buying or selling a home is one of the biggest financial decisions you’ll ever make. While most people focus on the purchase price, it’s equally important to understand closing costs—the additional fees and expenses due at the end of the transaction. These costs can sometimes surprise both buyers and sellers if they aren’t prepared. Let’s break it down so you know exactly what to expect.

What Are Closing Costs?

Closing costs are the fees associated with finalizing a real estate transaction. They cover everything from legal and administrative services to taxes and lender fees. These costs typically range between 2% to 5% of the home’s purchase price, though the exact amount can vary depending on location, lender, and contract negotiations.

Closing Costs for Buyers

As a buyer, your closing costs often include:

• Loan Origination Fees – Charged by the lender for processing your mortgage application.

• Appraisal Fee – Ensures the property’s value matches the loan amount.

• Home Inspection Fee – Paid to evaluate the property’s condition (optional but highly recommended).

• Title Search & Title Insurance – Confirms the seller has legal ownership and protects you against future claims.

• Prepaid Taxes & Insurance – Includes homeowner’s insurance premiums and property taxes placed in escrow.

• Recording Fees – Charged by the local government to record the property transfer.

👉 Tip for buyers: You can sometimes negotiate with the seller to contribute toward your closing costs, especially in a buyer-friendly market.

Closing Costs for Sellers

Sellers also have expenses to cover, though theirs look a bit different:

• Real Estate Agent Commissions – Typically the largest seller expense, usually 5–6% of the sale price (split between buyer’s and seller’s agents).

• Title Transfer & Escrow Fees – Covers the cost of transferring ownership.

• Outstanding Liens or HOA Fees – Any unpaid balances tied to the property must be settled at closing.

• Prorated Property Taxes – Sellers must cover taxes up to the closing date.

• Concessions (if agreed) – Sometimes sellers agree to help pay part of the buyer’s closing costs to sweeten the deal.

👉 Tip for sellers: Review your settlement statement carefully so you know exactly how much you’ll net from the sale.

Who Pays What?

The division of closing costs can depend on local customs and contract negotiations. In some areas, sellers typically pay for certain title fees while buyers cover loan-related expenses. However, everything is negotiable—so it’s important to understand your market norms and use them to your advantage.

Final Thoughts

Closing costs may feel like an afterthought compared to the excitement of buying or selling a home, but they play a major role in your bottom line. Whether you’re a buyer planning your budget or a seller calculating your net proceeds, being aware of these costs upfront can help you avoid surprises and make confident decisions at the closing table.