What are Closing Costs?
Closing day is coming! This is an exciting day — it means a real estate deal is almost complete. The price has been set, and buyers might be eager to start planning the next step — moving in. But, the deal isn’t over and done with quite yet. When the buyer sees the closing paperwork, they will realize that there are more costs in buying a house than just the negotiated sale price.
Closing costs are the miscellaneous fees paid to various third parties in the transaction. Real estate agents, lenders, appraisers, insurance companies, and the tax authorities among others will need to paid. The Good Faith Estimate and HUD-1 form provided by the lender will itemize these costs.
Typical Closing Costs Paid by the Buyer
The buyer will typically pay for closing costs associated with obtaining a mortgage and doing due diligence on the property. This means they are generally responsible for paying for borrowing money, and ensuring that the property condition and boundaries are as advertised. Below is a list of closing costs paid by buyers:
Origination fee: This is the cost the borrower pays to obtain a loan.
Points: Prepaid interest at closing. The buyer puts extra money up front in exchange for a reduced interest rate for the monthly payments.
Appraisal Fee: The buyer will pay for the lender required appraisal to assess the fair market value of the house. Survey Fee: The buyer and lender will want to be sure of the exact boundaries of the property before the purchase. Homeowner’s Insurance: Prior to closing the buyer will get a quote from an insurance company to cover the house. The first year’s premiums are paid upfront at closing.
Typical Closing Costs Paid by the SellerTypically the buyer has fewer charges, but pays a total larger amount. Many of the closing costs could be a few hundred dollars or less. The brokerage commission though can be thousands of dollars on one itemized line. Brokerage Commission: The seller will pay the brokerage fee, which is then split between the real estate agents. It is often 6% of the sale price.
Closing Costs Negotiations Between Buyers and SellersWho pays the closing fees can be a matter of negotiation. Many sellers may offer a fixed amount to cover the buyer’s cost. Let’s look at some of the fees which can often be negotiated. Title Services and Insurance: The company providing closing services, title research and insurance can be paid by either party. The seller might pay for the costs of hiring the title company to manage the closing process. Likewise, the buyer will probably pay for the actual insurance for themselves and the lender. Inspection Fee: Buyers want to know the property is in good shape. A seller might decide to pay for inspections as a show of good faith to motivate buyers. Home Warranty: A buyer can always purchase a home warranty if they desire. A seller might offer to pay for it to act as an incentive. Perhaps the seller is willing to pay the first year’s premium to boost buyer confidence.
Please download the complete file(PDF) for Who Pays What in California here:
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