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Closing Costs: The (Relatively) Small Fees That Can Cause Big Problems

Closing CostsSo, you found a house you love. It's in your price range, you've made an offer and - great news - the seller accepted it. On one condition... You pay closing costs.

On the flip side, say you're selling your home and your agent informs you that you've received an offer that's very close to your asking price. As you read through the offer, you see that the buyer wants you to - you guessed it - foot the bill for closing costs.

Talk about a roller coaster of emotions as all your stress and anxiety gives way to excitement, only to be replaced with more stress, anxiety, confusion, or even anger.

Closing costs are fees commonly associated with closing on a home, and there's often confusion about which party is responsible for paying them. The most common closing costs are:

  • Attorney's fees
  • Title service fees
  • Recording fees
  • Document or transaction stamps or taxes
  • Survey fee
  • Brokerage commission
  • Mortgage application fees
  • Points (pre-paid interest in exchange for a lower overall interest rate)
  • Appraisal fees
  • Inspection fees
  • Home warranties
  • Prepaid homeowners insurance
  • Prorated property taxes
  • Prorated homeowners' association dues
  • Prorated interest

Individually, these fees aren't too major, but together they can cause big problems. Many home sale negotiations have become bitter - and some have even fallen apart - over who's going to pay them. (To calculate what your closing costs might be, there are several online calculators such as this one.)

So who is responsible for paying the closing costs? In a perfect world, the buyer and the seller would share the burden. But this is not a perfect world, so there's no clear-cut answer. However, there are some that clearly should be the buyer's responsibility and some that should fall to the seller.

Mortgage application fees, any points, inspection fees and pre-paid insurance (often required by lenders for the first year of the mortgage) should rest in the buyer's hands. Sellers, on the other hand, should be responsible for brokerage commission. The buyer and the seller should both be responsible for their pro-rated shares of property taxes and homeowners' association dues.

That leaves a lot of gray area with more than half of these fees open to interpretation - and negotiation. Actually, most if not all are open to negotiation. The above list of buyer's and seller's costs is merely presented to provide a little understanding of the "typical" split (when a buyer and seller actually agree to split the costs). Some can be paid by one party but reimbursed by the other.

The best advice is to call on your lender and agent, both of whom are members of that strong team you've assembled to help you through this process. You did pull that team together, right? Unless you're a serial flipper or serial mover, you probably haven't been involved in many home sales or purchases. For your agent and lender, on the other hand, this is what they do every day. They've been through the negotiation process dozens, if not hundreds, of times, and have a better understanding of closing costs than you'll probably ever have - or want to have.

So while there are certain expectations on the part of both buyers and sellers, there are, unfortunately, no real guidelines for who should pay certain closing costs. It all depends on the buyer, the seller, their agents and their lenders. The good news is that as frustrating as the process can be, if handled correctly by a skilled agent, it can remain amicable and there is very often some give and take on who will pay what. So if you can grit your teeth, stay positive, and try to be patient, the negotiation,- no matter how painful it may feel at the time - will be over soon enough.

And you may be pleasantly surprised by the outcome.

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