Seller Closing Costs: Here’s Everything You Need to Know

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In every real estate transaction, both buyers and sellers are responsible for certain costs during the closing process. Put simply, closing costs are the various fees (e.g. taxes, commissions) paid in the process of finalizing a closing on a home. 

As a seller, you incur quite a bit of cost to sell your home: around 10% of your home’s sales price when everything is said and done. If you’re selling a home, you’re usually also buying a home, so it’s important to consider expenses on both sides of the transaction. 

This guide will take you through everything you need to know to minimize those costs and keep more money in your pocket. 

Closing costs can vary greatly depending on where you live, how much the home costs, and your mortgage. Some costs are recurring while others are one-time fees. 

Here are a few common examples of closing costs:

• Settlement fees

• Home inspections

• Property tax

• Credit report

• Home appraisal

• Lender’s title insurance

• Real estate agent commissions

• Escrow fee

• Notary, attorney, and courier fees

• Land survey fee

The above list are common closing costs for buyers and sellers. In the next section, we’ll dive into who pays what in the transaction.

Who pays closing costs and how much are they?

Both buyers and sellers pay closing costs, but it’s not an even split. 

In general, buyers pay around 2-5% of the home sale price in closing costs. A majority of these costs go to the mortgage loan lender. According to CostCorp, the average cost to buyers at closing is $5,749 including taxes. These fees typically consist of the lender’s title, owner’s title, appraisals, settlement fees, recording fees, land surveys and transfer tax.

Meanwhile, sellers owe closing costs equivalent to 8-10% of the final sale price. Given the U.S. median home value of $247,084, this comes out to an average of $19,000-$24,000, which is a huge weight on sellers. The biggest chunk of a seller’s closing costs goes to real estate agent fees. Because the seller usually pays for both their own agent and the buyer’s agent fees, commissions average 5-6% of the home sale. An additional 2-4% of the seller’s closing costs come from taxes and fees.

Let’s look a little closer first at what closing costs are covered by the seller.

What are the closing costs for the seller?

As we’ve said, the seller pays for a majority of closing costs. Often, this adds up to 8-10% of the total sale price. Before diving into how the totals, let’s define the common seller closing fees you’ll commonly see as a seller:

• Title search: A title search ensures there is no outstanding legal action or claim on the property and establishes that the seller is the rightful owner.

• Title insurance: There are usually two types of title insurance policies: the home buyer’s and the lender’s title insurance policies. Both policies cover situations in which problems arise with ownership of the property. The seller usually covers the home buyer’s title insurance while the lender’s policy is paid by the buyer.

• Escrow fee: These fees are paid to a title company or to an escrow company for their services (e.g. paperwork) in setting up escrow. Typically, earnest money is included in escrow. In a real estate transaction, this closing fee is split between buyer and seller.

• Transfer tax: Some states tax the transfer of property from one owner to the other. When they do have this fee, this is called a transfer tax. Note: It is different from property taxes. 

• Outstanding amounts owed: This fee includes prorated items like property tax and utilities. It is the seller’s responsibility to pay for these up to the date of the sale, at which point the buyer takes over the costs.

• Real estate commissions: Real estate commission is the largest single cost that home sellers face. On average, total commission costs are 6% of a home’s final sale price.

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Here’s a table to help you understand how these fees quickly add up: 

Type of Seller Closing FeeAverage cost

Real estate agents commissions5% – 6% of total home sale

Title search$150 – $400

Title insurance$1,000 – $4,000

1/2 escrow fee1/2 of 1% of home sale price

Transfer taxVariable

Outstanding amounts owed (e.g. utilities, property tax)Variable

Costs will vary greatly upon where your property is located. It’s not even just between states that these values will differ; counties can have different rules, too. For example, transfer tax in New York State is $2 per $500 of the home’s sale price. But, in New York City, this tax can increase up to 2.625% of the home’s value. So, if you sell your home for $200,000 outside of NYC, the transfer tax will be $800. Meanwhile, the same home in New York City would accrue a tax of $5,250.

What closing costs do buyers pay?

Considering a majority of the buyer’s closing costs come from lender fees, it should be noted that different lenders have different costs. So, it benefits buyers to shop around for mortgage plans and go with the one that offers both fair terms and low closing costs. A closing cost calculator like this one can help you determine average costs and compare lenders. 

Buyers need to consider the different types of mortgage available. 

A few common loans include:

• Fixed-rate vs. adjustable-rate mortgages (ARMs): A fixed-rate mortgage locks the borrower in at a fixed interest rate for the lifetime of the loan. An ARM locks in a rate for a certain duration and then resets every period to the current market interest rate.

• FHA, VA, and USDA loans: These are government-backed mortgage loans that each come with a special set of requirements and terms. This Forbes article has information on each type, along with their advantages and disadvantages. 

As a buyer, you should get a Loan Estimate from multiple lenders so you can determine which lenders offer what services and you can tally expected closing costs. Within a Loan Estimate, notice and compare the sections titled “Services You Can Shop For” and “Services You Cannot Shop For”. The Consumer Finance Protection Bureau has an excellent tool to understand Loan Estimates, which can help you shop around for the best deals.

How can I avoid paying closing costs?

The “I” in the question above can be either the seller or the buyer. Let’s first start by talking about what a seller can do to reduce how much they pay in closing costs.

How sellers can avoid paying closing costs

The single biggest cost to home sellers is the real estate commission fee, which averages between 5-6% of the home’s final sale price. 

Many sellers try to negate this fee by going with a flat fee MLS service where they end up paying a flat fee ranging from $100 to $3000. They get their home listed on the MLS, but to attract buyers they still need to offer the buyer’s agent commission fee (effectively a “bounty” for buyers agents to collect that incentivizes them to show your home to sellers). You’re typically looking at between 2.5% and 3% of the home’s value in buyer’s agent commission, even if you go with a flat fee MLS.

Then there’s the headache of handing showings, photography, marketing, negotiations, and paperwork for your home. Only 8% of real estate transactions were sold FSBO in 2020, likely due to the high time investment required to sell a home without an agent.

So you need an agent, but how can you reduce the commission fee? 

Well, a great place to start is working with a real estate company that has pre-negotiated commission rates. Using a site like Clever can save you a significant amount in closing costs because Clever commissions are fixed at 1% or $3,000. 

You still enjoy benefits like working with full service, top-rated agents, but Clever also finds the best agents and negotiates their services at a lower, fixed rate. Discover how you can save.

 

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