Explaining Closing Costs to Clients: Who Pays What and Why?
For many clients, closing fees have a significant impact on the price at which they’d like to buy or sell a home. There’s often no obvious rhyme or reason to the division of closing costs, but what they are, and who pays, have become standard throughout the years.
Here are some of the biggest fees at a closing and who pays:
Your commission.
Your commissions are almost always paid for by the seller at closing. The buying and selling agents will split the commission as specified in the sales contract.
Seller concessions.
As may be obvious, seller concessions are paid by the seller. However, many times these concessions can be baked into other costs. For example, a seller concession of $5,000 might either mean that the seller must pay an extra $5,000, or, less commonly, that the purchase price has been reduced by $5,000. Buyers usually prefer a seller concession toward closing costs as opposed to a price reduction.
Legal fees.
In general, each party will pay their own legal fees if attorneys are used. Legal fees are usually fixed at the outset.
Title company fees.
Title company fees are almost always paid by the buyer at closing unless specified differently in the contract. Title company fees include things like title insurance, notary fees, recording fees and so on.
Appraisal and lending fees.
The buyer pays lending fees at closing. These typically include costs such as the appraisal, an origination fee, prepaid interest, a survey and so on.
Insurance.
Property insurance is either paid for by the buyer directly at closing, prior to closing or as part of funding the escrow account. The exact details are usually resolved between the buyer, the buyer’s lender and the insurance company prior to the closing.
Taxes.
Property taxes are paid by the seller up until the moment of closing. In the case of overpayments, the seller receives a credit for the amount of taxes already paid, usually negotiated between the seller, title, company and buyer’s bank.
Buyers will receive a loan estimate form from their title company or lender prior to closing. In fact, quite frequently buyers will receive such an estimate even before the underwriting process with their bank begins. This can help give buyers a sense of how much cash they will need to bring to the closing table. Regardless, however, using your experience and the nature of the transaction, you should be able to give a good estimate of closing costs at the outset of the sale!
