Closing Costs When Selling A House

Pekic/Getty Images: Illustration by Issiah Davis/Bankrate

While the buyer is the one footing the bill for a home purchase, there are also expenses involved for sellers. Before you start counting the money you’ll make from your sale, remember to consider the closing costs. The exact amount varies by state and with each individual transaction. Here’s a closer look at seller closing costs, and around how much you can expect to pay.

What are closing costs?

“Closing costs” is a catchall term for the various fees and expenses associated with closing a real estate transaction. They can include things like loan origination fees, legal fees, title insurance costs and more. Some of these are paid by the seller, others by the buyer. In many cases, who pays for what is negotiable, and the distribution of costs will vary depending on what state you’re in.

In total, closing costs can add up to around 2% to 5% of the loan amount, according to Freddie Mac. For example, let’s say your home sold for $400,000, and your buyer put down a 20% down payment, which leaves them with a mortgage loan of $320,000. The total closing costs on the transaction would likely range somewhere between $6,400 and $16,000.

This does not include real estate agents’ commission fees, which are often grouped under the same umbrella as closing costs. Sellers who use a real estate agent will have to pay their agent’s commission fee (and possibly their buyer’s agent’s fee as well, depending on the deal).

Common closing costs for sellers

There are a number of expenses and fees the seller has to shoulder as part of a transaction’s closing costs. If there’s an existing mortgage on the house, that will have to be paid off as well.

“Seller closing costs often come in the form of taxes and transfer fees, though these can vary by state,” says Andrew Dehan, senior home-lending writer at Bankrate. Closing costs for buyers, meanwhile, tend to include line items related to the mortgage, such as appraisal fees, title fees, origination fees and more.

Here are some common closing costs when selling a home, beyond agent commissions:

When are closing costs paid?

As the name implies, closing costs are due when you close on the sale of your home — the final step before you hand over the keys to the buyer. You will pay these fees when you and the buyer meet with the closing agent, title company and/or attorneys to disburse the funds and sign the documents necessary to complete the sale.

Note that you should take “due when you close” literally: Be sure to have your checks or money orders prepared in advance, and physically bring them with you to the closing. You’ll turn them over on the spot, not at a later date.

The law requires that both the buyer and seller receive closing disclosure documents that provide the details of the transaction at least three business days before closing. These documents will include an itemized list of closing fees, so you’ll know the exact amounts due.

Tips for reducing closing costs

The good news for sellers is that closing costs usually come out of the proceeds they receive from the sale, so you probably won’t have to come up with the cash out-of-pocket. However, there are a few ways that you can try to lower your costs:

• Negotiate with the buyer: Many typical closing costs can be split between the buyer and the seller.
• Negotiate with your agent: Agent commissions are negotiable, too, and the difference between, say, 3% and 2.5% can be significant, especially on a higher-priced home. You might also consider working with an agent who offers discounted services, or who works for a flat fee rather than a percentage of the sale price.
• Negotiate with service providers: The fees for attorneys, title companies and other providers can sometimes be negotiated, too.
• Sell on your own: Acting as your own agent, known as listing for sale by owner, means you avoid a listing agent’s commission fee and hang on to more of your home’s sale price. It’s a lot of work, though.
• Sell to a cash homebuyer: Selling directly to a homebuying company is another way to reduce your closing costs. These outfits typically charge no fees and bypass the need for an agent’s involvement. However, they’re likely to offer you a lower price for your home that you would get with a traditional sale.

Keep in mind that your seller closing costs are in addition to any repairs and staging you may have done to spruce up the house before listing, and once the house is sold you will likely have moving costs to think about as well. Be sure to budget for all these expenses when calculating how much you expect to earn, and how much you can afford for a new home once you sell.

Frequently asked questions

• Do sellers have to pay closing costs?
  

  Yes. In a real estate transaction, both buyers and sellers have their share of closing costs — though what a seller pays will vary depending on what state you’re in, how much the home sells for and how your contract has been negotiated. Typical closing costs for sellers include things like transfer taxes, title-related fees and escrow fees.

• What are the biggest closing costs usually paid by sellers?
  

  The biggest expense involved in selling a home is often the commission owed to your real estate agent. This cost typically runs between 2.5% and 3% of the home’s sale: On a $400,000 home, for example, 3% comes to $12,000. If you agree to pay your buyer’s agent’s fee as well (which is common, but not mandatory), expect to double that amount. If your home still has a mortgage on it, paying that off will also cost a sizable amount.