In a Real Estate Transaction, Who Pays Closing Costs?

November 3, 2025

Understanding the Basics of Closing Cost Responsibilities

In a real estate transaction who pays closing costs is a common question. The short answer: both parties typically pay, but the specific breakdown varies based on your purchase agreement, local customs, and negotiation.

Quick Answer for Buyers:

Typically pay 2-6% of the loan amount in closing costs.
Costs include loan fees, appraisal, inspections, and prepaid expenses like insurance and taxes.
You may now also be responsible for your buyer’s agent commission (an additional 2-3%).

Quick Answer for Sellers:

Typically pay 6-10% of the sale price in closing costs.
Costs include real estate commissions, title insurance, transfer taxes, and prorated property taxes.
Costs may decrease by 2-3% if you don’t offer buyer concessions.

Closing costs are fees paid on closing day to complete the property transfer, covering everything from loan processing to title insurance. The average U.S. homebuyer pays about $6,905 in closing costs (including taxes), while sellers often pay more due to real estate commissions.

Most closing costs are negotiable. Market conditions, loan type, and local customs all influence who pays what. In a buyer’s market, sellers may offer to cover more costs. In a seller’s market, buyers might need to cover nearly everything.

I’m David Greiner, Esq., and with years of experience in real estate law, I’ve helped countless clients steer closing cost negotiations. My goal is to ensure you understand your obligations and opportunities before signing any agreement.

A Detailed Breakdown: In a Real Estate Transaction Who Pays Closing Costs?

Both buyers and sellers walk into closing day with their own set of fees. The final tally depends on your negotiated purchase agreement, local customs, and each side’s leverage. These fees make the transaction legally binding and protect everyone involved. The key is understanding which costs are traditionally yours and which are negotiable.

Your Real Estate Purchase Agreement spells out these responsibilities. Three days before closing, buyers receive a Closing Disclosure that breaks down every cost. This document, like this sample disclosure form, is your final chance to spot any surprises.

Common Buyer Closing Costs

As a buyer, expect closing costs between 2% and 6% of your loan amount. On a $400,000 loan, that’s $8,000 to $24,000. With recent commission rule changes, you might also pay your buyer’s agent directly, adding another 2-3%.

Key buyer costs include:

Loan-Related Fees: The largest portion of buyer costs. This includes a loan origination fee (0.5-1% of the loan), discount points to lower your interest rate, a credit report fee ($25-$50), and an underwriting fee ($300-$900).
Property-Related Fees: An appraisal fee ($500-$800) required by the lender and a home inspection ($300-$500) to check for issues.
Insurance: Lender’s title insurance protects the lender’s investment, and you’ll prepay the first year’s homeowner’s insurance premium.
Prepaid Expenses: You’ll prepay several months of property taxes into an escrow account.
Other Costs: These can include recording fees (~$125) to file the deed, a survey fee to verify property lines, and mortgage insurance (like PMI or an FHA upfront premium) if you put down less than 20%.

Understanding these costs is a vital part of the Real Estate Closing Process.

Common Seller Closing Costs

Sellers typically face higher closing costs, from 6% to 10% of the sale price, historically driven by real estate commissions.

Key seller costs include:

Real Estate Agent Commissions: Traditionally the seller’s biggest expense at 5-6% of the sale price. Recent changes mean buyers now often pay their own agent, which could significantly reduce this cost for sellers. However, some sellers still offer to cover it as a concession.
Owner’s Title Insurance: In many areas, the seller pays for this policy, which protects the buyer from future title claims.
Transfer Taxes: Government fees for transferring ownership, which vary wildly by location. The seller usually pays, but this is subject to local custom.
Prorated Costs: You’ll owe property taxes and HOA fees for the portion of the year you owned the home.
Other Costs: These may include attorney fees ($150-$350/hr), loan payoff penalties, termite inspection repairs, and fees to clear any judgments or liens against the property.

When you Contract to Sell Your House, understanding these costs helps you estimate your net proceeds.

Costs That Can Be Paid by Either Party

Many closing costs are negotiable, and who pays often depends on market leverage. These include:

Escrow or settlement fees
Title insurance policies
Transfer taxes
Attorney fees
Home warranty ($300-$600)

Market conditions are the deciding factor. In a seller’s market, sellers have the upper hand and are less likely to cover extra costs. Buyers may even offer to pay traditionally seller-paid expenses to make their offer stand out. In a buyer’s market, sellers are more likely to offer concessions, pay for a home warranty, or cover the buyer’s agent commission to get the deal done.

Knowing how to negotiate these shared costs is essential. Our California Real Estate Contract Guide can help you understand what’s negotiable in your situation. Almost everything in real estate is negotiable if you know what to ask for.

Key Factors That Influence Closing Costs

The final dollar amount of your closing costs can swing wildly depending on several key factors. Where you’re buying, your financing, and the property type all play significant roles.

How Closing Costs Vary by Location and Market Conditions

Location matters tremendously. State and local laws, along with regional customs, create vastly different closing cost landscapes.

California is a perfect example. In Southern California, sellers customarily pay for the owner’s title insurance and transfer tax. In Northern California, these costs are often split or paid by the buyer. These are not laws but local customs, as detailed in this Guide To Closing Costs in California.

Other states have unique rules. Florida has a “documentary stamp tax” ($0.70 per $100 of value) typically paid by the seller. States like Connecticut require an attorney at closing, adding mandatory legal fees.

As mentioned, market conditions also influence who pays. In a hot seller’s market, buyers have less negotiating power and may offer to pay more costs to win a bid. In a buyer’s market, sellers often offer concessions to attract a sale.

How Loan Type Affects Closing Costs

Your mortgage choice significantly impacts your closing costs, as different loan programs have unique fee structures and rules about seller contributions.

Conventional Loans: Seller contributions are capped based on your down payment: 3% (for <10% down), 6% (10-25% down), and 9% (>25% down). For investment properties, the limit is 2%.
FHA Loans: Popular with first-time buyers, these loans require an Upfront Mortgage Insurance Premium (UMIP) of 1.75% of the loan amount. Seller concessions can go up to 6% of the sale price.
VA Loans: For eligible veterans, these loans come with a VA funding fee (up to 3.3% of the loan amount) but limit seller concessions to 4% of the appraised value.
USDA Loans: Designed for rural properties, these cap seller contributions at 6% of the sales price.

A smaller down payment usually means paying for mortgage insurance (PMI, MIP, or a funding fee), adding to your closing expenses. The property type also matters, as a condo may have HOA transfer fees that a single-family home does not.

Strategies for Managing and Reducing Closing Costs

Knowing who pays closing costs is the first step; actively reducing them is the next. With proactive planning and smart negotiation, both buyers and sellers can significantly lessen their financial burden.

Seller Concessions and How They Work

Seller concessions (or seller credits) are when the seller agrees to contribute money toward the buyer’s closing costs. This allows a buyer to finance those costs rather than paying them upfront, often by offering a slightly higher purchase price in exchange for the credit.

However, lenders impose limits on seller concessions based on the loan type and down payment. For conventional loans, caps are 3-9%, while FHA loans allow up to 6% and VA loans cap them at 4%. Additionally, the home must appraise for the higher purchase price, or the deal may need renegotiation. Structuring these negotiations in your Agreement to Buy a House requires careful consideration.

Can Closing Costs Be Rolled Into the Mortgage?

Yes, closing costs can sometimes be rolled into your mortgage, often through a “no-closing-cost” loan. Typically, this involves lender credits, where the lender covers your closing costs in exchange for a higher interest rate. This means less cash is needed upfront, but your monthly payments will be higher for the life of the loan.

Whether this is worthwhile depends on your situation. If you plan to stay in the home long-term, paying costs upfront for a lower rate is usually cheaper. If you plan to sell or refinance soon, rolling costs into the mortgage might make more sense. We help clients understand these trade-offs when reviewing their Home Purchase Agreement Template.

How can buyers reduce what they pay in closing costs?

Shop for lenders: Request Loan Estimates from at least three lenders and compare their fees, not just interest rates.
Negotiate fees: Ask your chosen lender if they have flexibility on origination or processing fees.
Ask for seller concessions: This is a powerful negotiation tool, especially in a buyer’s market.
Look for assistance programs: Many federal, state, and local assistance programs offer grants or loans for closing costs.
Time your closing: Closing near the end of the month reduces the amount of prepaid interest you owe at closing.

These strategies are key for buyers navigating California Real Estate Law and Buyers Purchase Agreement requirements.

How can sellers reduce what they pay in closing costs?

Negotiate agent commissions: Real estate commissions are not set in stone. You can negotiate a lower rate with your listing agent.
Shop for title and escrow services: You often have the right to choose your own providers. Compare quotes and ask about a “reissue rate” on title insurance if you’ve owned the home for several years.
Offer concessions strategically: In a slow market, paying some of the buyer’s costs can lead to a faster sale, saving you money on holding costs.
Understand your market leverage: In a hot seller’s market, you can often refuse to pay discretionary costs.
Consider going FSBO: “For Sale By Owner” eliminates agent commissions but requires you to handle all marketing, paperwork, and legal compliance yourself.

Understanding these strategies is a key part of Real Estate Contracts Explained.

The New Landscape: Real Estate Commission Rules

The rules for real estate commissions have changed significantly, impacting in a real estate transaction who pays closing costs. A major settlement with the National Association of Realtors (NAR) has created more transparency and negotiation power for consumers.

Previously, sellers typically paid a 5-6% commission, split between both agents, with the offer advertised on the Multiple Listing Service (MLS). That system is now gone. Here’s what’s different:

Buyer Responsibility: Buyers are now primarily responsible for paying their own agent’s commission.
Written Agreements: Before touring homes, buyers will likely sign a written representation agreement that outlines services and compensation.
MLS Changes: Listing brokers can no longer advertise buyer agent compensation on the MLS. Any seller offer to pay this cost must be handled separately.

What does this mean for buyers? You must now budget for your agent’s commission, typically 2-3% of the purchase price. This fee is negotiable with your agent, and you can ask the seller to help cover it through concessions (subject to lender limits).

What does this mean for sellers? Your closing costs could drop significantly. However, offering to help with the buyer’s agent commission can be a powerful negotiation tool to make your property more attractive, especially in a competitive market.

This new landscape makes experienced legal guidance more valuable than ever to steer your purchase or sale agreement.

Frequently Asked Questions about Closing Costs

Here are answers to some common questions about in a real estate transaction who pays closing costs.

What is the average amount of closing costs?

Average closing costs differ for buyers and sellers.

For buyers, costs are typically 3% to 6% of the loan amount. With new commission rules, you might need to add another 2-3% for your agent’s fee.
For sellers, the historical range has been 8% to 10% of the sale price, mainly due to agent commissions. This may now decrease if the seller doesn’t pay the buyer’s agent.

According to CoreLogic’s ClosingCorp, the U.S. average is about $6,905, including taxes. However, your actual costs will depend heavily on your location and transaction specifics.

Are closing costs tax-deductible?

For buyers, most closing costs are not tax-deductible. The main exceptions are mortgage interest points paid to reduce your interest rate and prepaid property taxes, which are generally deductible in the year you pay them.

For sellers, the situation is more favorable. You can typically deduct closing costs, such as real estate agent commissions, as selling expenses. This reduces your capital gains tax liability.

Always consult with a qualified tax professional about your specific situation, as tax laws can change.

Are closing costs part of the down payment?

No, closing costs are completely separate from your down payment. They are two distinct expenses due at the same time.

Your down payment is your initial equity investment in the property itself.
Closing costs are the fees for the services required to complete the transaction (appraisal, title insurance, loan processing, etc.).

When budgeting for a home, you must plan for both. For example, on a $400,000 home with a 20% down payment, you would need $80,000 for the down payment plus an additional amount for closing costs.

Conclusion

Understanding in a real estate transaction who pays closing costs is manageable and gives you power in your real estate transaction. While the numbers can seem daunting—buyers facing 3-6% of the loan amount and sellers 6-10% of the sale price—knowledge is your greatest asset.

We’ve established that both buyers and sellers share the closing cost burden, but almost everything is negotiable. Your leverage depends on market conditions, your loan type, and local customs. The recent changes to real estate commission rules have only increased the need for careful planning and negotiation.

Three days before closing, you’ll receive your Closing Disclosure. Review it carefully and question anything that doesn’t make sense. Understanding your California Residential Purchase Agreement and Joint Escrow Instructions Fillable is equally critical, as it sets the foundation for who pays what.

For expert legal guidance on your California real estate transaction, understanding your contract, and navigating closing costs, consult with the experienced team at Greiner Law Corp. We serve clients throughout Victorville, Riverside, San Bernardino, and Los Angeles, helping them manage risk and maximize opportunities. Whether you need clarity on Legal Fees for Real Estate Closing or a strong advocate in your corner, we’re here to help.

With the right guidance, you can approach your next purchase or sale with confidence.