Closing costs in a real estate transaction can add up to a surprising amount, from 3 percent to 5 percent of the purchase price. Though there are some variances, these costs generally include agents' commissions, loan fees, title charges and government recording charges. Most of these costs are on the buyer's side, though buyers can ask the seller to cover the fees.
Closing Costs Defined
Closing costs vary depending on the area and type of transaction but generally include: the closing agent's fee for performing the transaction; loan origination fee; commissions for the seller's and buyer's agents; the cost of conducting surveys, assessments, inspections and appraisals; title search fees; mortgage and deed preparation costs; recording, courier and funds transfer fees; and others. If you are confused about any fees, don't hesitate to ask your mortgage broker or agent to explain them.
Most of the fees listed above are associated with the buyer's side of the deal, so it's typical for buyers to bear the responsibility of payment. One exception is the agents' commissions, which are paid by the seller in the vast majority of land transactions and do not affect the buyer. Because closing costs can vary depending on the state, type of transaction and agencies involved, buyers should obtain an estimate of the fees so there's no surprise at closing.
Sellers have a shorter list of fees in a real estate transaction. These include loan payoff costs and any associated penalties, agents' commissions, transfer taxes, homeowner association fees and notary fees. If an inspection finds issues with the property, the seller may also agree to give the buyer a credit toward repairs at the closing.
Options for Payment
Because the majority of fees fall to buyers, the onus is on them to determine how they want to pay. Buyers may choose to pay outright, which means they'll walk into the closing with a cashier's check to cover the fees or arrange for a wire transfer. Another option is negotiating with the seller to cover all or part of the costs as part of the sale. This can be risky if there are competing offers on the table, as it might make your offer less attractive. Buyers can also choose to roll closing costs into the mortgage, paying a slightly higher amount each month rather than a lump sum at closing. This can be attractive if buyers are strapped for cash, but it also means you'll be paying more in the long run because interest is factored in.