Closing Costs - The Who and The What

Who pays for closing costs may vary depending on the location and the market. Requirements differ in each state and sometimes in each city. For example, sellers normally pay for title insurance in Los Angeles, while in San Francisco the buyer typically pays. In a buyer's market, sellers may opt to cover the costs just to have a better chance of getting closer to the price they want.

What are closing costs?

Not only does the buyer need to bring cash to the closing table for the down payment, but also cash for closing costs. Those costs can include fees such as pre-paid taxes and hazard insurance required to fund the borrower's impound account set up by the lender, along with title insurance and recording fees, among others.

These fees are in addition to the purchase price. If closings costs are not figured correctly, the sale may possibly be affected. It's not common, but real estate closings have failed because the buyer is short on cash.

Buyers are typically expected to pay the following closing costs:
  • Fees for obtaining a mortgage
  • Inspection costs
  • Homeowner's insurance (must be prepaid for one year at closing)
  • Property taxes
  • Transfer taxes (although the seller may pay these or they may be shared 50-50 between buyer and seller)
  • Title insurance and settlement fees
  • Attorney's fees where applicable
Your real estate agent can tell you which fees the buyer in your area normally pays for. He can also calculate the estimated costs you will be responsible for, based on the sales price, so there will be no surprises at the closing table.

Sellers are typically expected to cover closing costs like:
  • Loan payoff fees
  • Real estate commission (in some cases, a portion of this may be paid by the buyer)
  • Termite repairs
  • Transfer taxes
  • Title insurance and settlement fees
  • Attorney's fees where applicable
Doing some research and asking around will familiarize yourself with the area where you are buying or selling so that you can understand what exactly you will be expected to pay.