Buyer vs Seller: Navigate Who Pays Closing Costs
What if buying a home could be easier and more stress-free than you realized?
A surprisingly large number of would-be homeowners are already shopping for the best homeowners insurance before they start asking some key questions. That includes questions like “Who pays closing costs?” and “How much are the average closing costs?”
These questions can make an anxious time even more stressful, especially for first-time buyers. Fortunately, learning everything you need to know now can help make the final stages less stressful. Ready to buy with real peace of mind? Keep reading to discover everything you need to know.
Understanding Closing Costs in Real Estate
Before you can figure out who will cover the closing costs, it is important to understand these fees. This generalized term refers to a variety of different fees, some of which have to do with the property itself. Other costs relate to your lender’s role in this purchase and the paperwork required to finalize your mortgage.
In order to comprehend how these fees work, it is important for homebuyers to recognize how the roles of the buyer and seller inform who pays what when buying a home. The roles of buyer and seller are negotiable for most points during a sale, so keep that in mind. Below is a quick breakdown of the most essential information.
Buyer and Seller Roles in Sale
On paper, the roles during the mortgage loan process are strictly defined and easy to understand. The seller is, of course, the person hoping to sell the home and make a profit from the sale. The buyer hopes to buy their dream house at the best possible price.
Of course, many others get involved and blur the lines a bit. For example, if the seller works through a real estate agent, you will most likely interact with agents and other third parties (including bank officials) during the sales process. The seller is still making critical decisions during this process, and even if it is through an agent, the buyer may try to negotiate for certain perks, including the seller taking care of all the closing costs.
The Breakdown of Buyer’s Closing Costs
By now, you have likely noticed that “closing costs” is an umbrella term. That umbrella is so large you may wonder what the buyer is paying for when they cover the finalization costs.
Many costs make up the final number, some of which are required and some of which are optional. Below, you will get a better idea of what the buyer must take care of during this time.
Typical Expenses for Buyers at Closing
It is possible to change who pays for what during negotiations. Generally speaking, buyers pay for closing costs and other costs for things like the appraisal, home inspection, credit report, title service, and loan origination.
Assuming you are working with a lender, they can provide a better overview of your exact fees and a more granular breakdown of your expenses. They can also walk you through the process of how you can try to negotiate with the seller to have them assume more of these particular costs.
Can Buyers Negotiate Their Share?
The honest answer to the question, “Who pays closing costs?” is: “It depends on negotiations.” The default state is that certain fees are paid by both parties. However, it is possible for buyers to negotiate for sellers to take on more of these fees.
That being said, there are certain non-negotiable fees buyers will likely be stuck paying. This includes appraisal fees, government fees, courier fees, and property taxes and home insurance if it is built into your mortgage, which is normal. That’s why it is important for new homeowners to know about insurance. The more you know about these costs going into the mortgage loan process, the less you are to be taken by surprise.
What Sellers Need to Know About Closing Costs
Closing costs are a very big deal to anyone trying to sell a home. In the current market, selling is a great way to make a major profit, but these fees can eat into how much you make. For example, anywhere between 6%-10% of the sale price might go to these fees, which includes your real estate agent’s commission.
However, much like with buyers, exactly how much you pay will be determined by your negotiations. Learning more about the various fees you are likely to pay can keep you from getting blindsided.
Common Seller Contributions During Closing
Unless negotiated otherwise, certain finalization costs are almost always the responsibility of the seller to pay. These include transfer taxes, real estate agent commissions, title insurance, attorney fees, and seller credits.
Strategies for Sellers to Manage Closing Expenses
Instead of fighting over who pays closing costs, sellers should negotiate with the buyer and agree on who pays for what. This can keep sellers from paying too much, as can negotiating lower fees and commission rates from attorneys and realtors. Finally, while it is not recommended for every seller, you can very directly manage expenses by selling the home yourself rather than working through an agency.
Navigating Negotiations Over Closing Costs
Can sellers pay closing costs? They can, but only if you successfully negotiate this into the contract. In order to save as much money as possible, it is important to learn how to navigate negotiations.
The negotiation process is a bit different for buyers and sellers. Below, you will find information for each party to improve your bargaining skills.
Crafting Your Offer: Tips for Buyers and Sellers
For sellers, negotiating closing costs is mostly a matter of convincing the buyer you have proposed a fair arrangement. When most buyers see that you are willing to cover several of the fees, they will be more willing to pay their own share. If your main priority is simply saving money, you are better off focusing on negotiating for a better commission rate from your agent, which can reduce fees and help you make more profit.
Buyers looking to save are, in many cases, better off negotiating with the lender as much as the seller. You can shop around for the best loan rates ahead of time, which can help you get the best rate and pay the fewest fees. Speaking of shopping around, if you must pay for things like appraisals and home inspections, you can call around until you find professionals offering the most competitive rates.
Regional Considerations in Closing Costs
Nobody likes paying too much in finalization fees, and there are certain things buyers and sellers can do to control how much they pay. However, one thing that you cannot easily control is where you live. Whether or not your new home is part of an HOA will affect your closing feels (as well as your homeowners insurance costs).
Buyers often wonder, “Can sellers pay closing costs or am I stuck with these fees?” Below, you will find info about just how bad the fees may be depending on where you live.
Who Pays What? Closing Costs Across States
As the saying goes, everything in real estate is about “location, location, location.” For example, closing costs can be wildly different across different states. Since closing costs for buyers are a percentage of your loan amount, choosing to live in an expensive area, such as Washington D.C. versus somewhere like Alabama where housing costs and the cost of living are much lower, will have a direct impact on the actual amount you must fork over for closing costs. These costs for buyers typically run from 1%-5%.
As Forbes reports, those in Iowa can expect to pay an average finalization cost of $2,272, and residents of Washington D.C. can expect to pay a much higher average of $29,330. Sometimes, even neighboring states differ dramatically; for example, residents of Alabama pay an average of $2,371 for closing, whereas Florida residents pay an average of $8,213.
Spotlight on Texas: Special Rules and Norms
They say everything is bigger in Texas. Fortunately, that does not include closing costs. In this state, there are no transfer taxes on real estate sales, bringing those fees down. Additionally, unlike many other states, Texas does not mandate title insurance, which helps further reduce how much you pay.
Buying a House Soon? Get a Free Quote on Homeowners Insurance
Now you know more about who pays closing costs when buying a house. This guide has given you the tools you need to better negotiate, both with the other party and with lenders, attorneys, and real estate agents. Peace of mind is now within reach once you are armed with these techniques and information.
The only thing missing is finding the best homeowners insurance. At InsureOne, we are devoted to protecting your home and everyone inside of it. When you are ready for the protection you deserve, come get a quote online. Of course, you can also pick up the phone and give us a quick call at 800-836-2240. Finally, feel free to find an InsureOne office near you.