Closing Costs: What Homebuyers and Sellers Need to Know Before the Deal Closes

What Are Closing Costs in Real Estate?

Closing costs are the fees and expenses you pay when finalizing a real estate transaction; above and beyond the property's price. These costs cover a range of services needed to process and complete the sale, including lender fees, title insurance, appraisal charges, and more.

While many buyers focus on the down payment, closing costs can add up to 2%–5% of the home’s purchase price. That’s why it’s crucial to understand what these costs include and plan ahead so you’re not caught off guard on closing day.

Who Pays Closing Costs?

Both buyers and sellers typically pay closing costs, but the types of fees they cover are different. Buyers usually pay more in overall fees, especially when taking out a mortgage, including loan origination, appraisal, and inspection fees.

Sellers often pay the agent commissions (usually 5%–6% of the sale price), along with title transfer fees and prorated taxes. However, in some negotiations, one party may agree to cover more of the costs to make the deal happen; especially in a competitive market.

What's Included in Buyer’s Closing Costs?

For buyers, closing costs often include loan-related fees (such as underwriting and processing), title insurance, appraisal fees, credit checks, prepaid taxes, and homeowner’s insurance. Some of these are one-time fees, while others may be prepaid costs for future services.

It’s common to receive a Loan Estimate from your lender early in the process, and then a Closing Disclosure a few days before the settlement. These documents break down your expected closing costs and help you avoid surprises.

What Are Typical Seller Closing Costs?

Sellers usually pay the real estate agent commission, which is split between the buyer’s and seller’s agents. They may also cover title transfer fees, outstanding property taxes, and in some cases, home warranty costs to sweeten the deal.

Although sellers don’t typically pay as many line items as buyers, the commission percentage can be a significant amount. Sellers should factor this into their profit calculations to get a clear picture of their net proceeds after the sale.

Can You Reduce Your Closing Costs?

Yes; closing costs are often negotiable. Buyers can shop around for lenders, title companies, and inspectors to find better rates. You can also ask the seller to contribute to your closing costs as part of your offer.

Sellers might be able to lower costs by negotiating commission rates or choosing a title company with competitive fees. Being informed and proactive can make a real difference in how much you spend at the closing table.