Real Estate Closing Costs Explained

Closing costs are the various fees and expenses buyers and sellers pay to finalize a real estate transaction. Understanding these costs helps you avoid surprises and budget accurately for your home purchase or sale.

💰 Common Closing Costs for Buyers

  • Loan Origination Fees: Charged by the lender to process, underwrite, and fund your mortgage — including application, credit report, and underwriting fees.
  • Appraisal Fee: Paid to a licensed appraiser to confirm the home’s market value meets the loan amount.
  • Title Search & Title Insurance: Covers the cost of verifying ownership and protecting against title defects or liens. Buyers can also purchase optional owner’s title insurance for added protection.
  • Escrow Fees: Paid to the title company or attorney managing the closing and disbursing funds.
  • Prepaid Costs: Funds set aside for taxes and homeowners insurance in escrow for future payments.
  • Mortgage Points: Optional fees paid upfront to lower your mortgage interest rate.
  • Inspection Fees: Covers professional home inspections to identify potential issues.
  • Transfer Tax: Charged by local or state governments on the property transfer.
  • Recording Fees: Paid to record the property’s deed and ownership change with the county.
  • Attorney Fees: Required in some states where a real estate attorney must review or conduct the closing.

🏡 Common Closing Costs for Sellers

FSBO sellers also face several costs at closing, though usually fewer than buyers. These often include:

  • Agent or Buyer’s Commission: If the buyer is represented by an agent, sellers typically pay that commission (often 2.5–3%).
  • Title & Escrow Fees: Shared costs for handling title verification and closing documentation.
  • Transfer Taxes: State or local tax for transferring ownership.
  • Outstanding Liens or HOA Fees: Any balances due on the property must be settled before closing.
  • Attorney or Settlement Fees: In attorney-required states, the seller may share or cover legal fees.

📘 Why Understanding Closing Costs Matters

Closing costs can range from 2% to 6% of a home’s price — a major expense that catches many buyers off guard. Whether you’re working with a lender or selling FSBO, knowing what to expect ensures smoother negotiations and a stress-free closing.

💬 Frequently Asked Questions About Closing Costs

1. Who usually pays closing costs in a real estate transaction?

In most cases, both the buyer and seller share closing costs. Buyers typically pay loan-related and title fees, while sellers pay agent commissions and transfer taxes. These costs can be negotiated as part of the offer.

2. Can closing costs be negotiated?

Yes. Many closing costs are negotiable — especially title services, lender fees, and even who pays certain costs. Sellers sometimes offer credits to help buyers reduce their out-of-pocket expenses.

3. How much are typical closing costs for buyers?

Closing costs usually range from 2% to 5% of the home’s purchase price. The total depends on loan type, location, and whether the buyer pays discount points or prepays taxes and insurance.

4. Are closing costs tax deductible?

Some closing costs may be deductible, such as mortgage interest, property taxes, and certain origination fees. Always consult a tax professional for advice based on your situation.

5. How can FSBO sellers reduce closing costs?

FSBO sellers can save thousands by using a Flat Fee MLS service like Brokerless instead of paying a 6% listing commission. You stay in control while reaching buyers through the MLS.