What Are Closing Costs?

When you’re preparing to sell or buy a home, the phrase “closing costs” will be spoken (and written) on both sides of the transaction table. These numbers impact your financial standing — either cutting into your sale proceeds or increasing your monthly mortgage payments. But what are closing costs?

Understanding these costs upfront can help you budget properly and avoid surprises. This guide provides an easy overview of closing costs, who pays them, and how much you can expect to pay.

We’ll offer insights on how both sellers and buyers can save on closing costs.

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What are closing costs?

Closing costs are the fees and expenses paid at the closing of a real estate transaction. They cover a wide range of services that turn the gears of a home sale or purchase. These costs (also known as settlement costs) vary based on location, the property’s sale price, and the details of the deal.

Who pays closing costs?

Both buyers and sellers pay closing costs, but their responsibilities differ.

Sellers typically cover:

• Real estate agent commissions (the largest portion of seller costs)
• Title insurance to protect the buyer’s ownership rights
• Transfer taxes and recording fees
• Any agreed-upon closing cost contributions for the buyer (concessions)

Buyers usually pay:

• Loan-related fees, such as origination and underwriting costs
• Appraisal and home inspection fees
• Title search and lender’s title insurance
• Prepaid property taxes and homeowners insurance

While some costs are negotiable, most follow standard practices based on local market norms.

Examples of common closing costs

Let’s take a closer look at the specific fees sellers and buyers might encounter.

Seller closing cost examples

Sellers generally pay a larger share of closing costs, primarily due to real estate agent commissions and title-related expenses. Here are some of the most common closing costs sellers may need to cover:

• Real estate agent commissions: These are fees paid by the seller to the listing agent. In the past, sellers were also expected to pay the buyer’s agent compensation, but new commission rules have decoupled this responsibility. However, many sellers are still offering to cover this cost as a way to attract buyers.
• Title insurance for the buyer: A policy that protects the buyer against claims on the property’s title. While the buyer is responsible for a lender’s title insurance policy, the seller often pays for the owner’s policy as part of the offer negotiation.
• Owner’s title policy endorsements: Lenders sometimes require additional protections called title endorsements which are added to the standard title insurance policy. The buyer is usually responsible for paying these extra fees, but the seller may contribute.
• Escrow and closing fees: These are charges paid to the escrow or title company for handling the transaction, including processing paperwork, holding funds, and distributing payments at closing.
• Prorated property taxes: Property taxes are paid in advance or arrears, depending on the location. At closing, the seller must cover their share of the taxes up to the sale date.
• HOA fees and transfer charges: If the home is in a homeowners association (HOA), the seller may need to pay outstanding dues, a transfer fee to change ownership records, and sometimes a capital contribution fee.
• Attorney fees: Some states require a real estate attorney to review and finalize closing documents. Sellers are responsible for these fees if an attorney is involved in the transaction.
• Seller concessions: If negotiated, the seller may agree to pay part of the buyer’s closing costs, also known as a “seller assist.” This is often used as an incentive in competitive markets or when buyers need assistance covering expenses.

Are agent commissions a closing cost?

Real estate agent commissions are technically not a closing cost but are often treated as such, as we have done by including them in this post. This is because they are typically paid at the same time as other closing costs and are deducted from the seller’s proceeds. True closing costs refer to various fees like title insurance, escrow fees, and transfer taxes, separate from the commission paid to the agents involved.

That said, many real estate industry professionals will refer to agent commissions as a closing cost to help sellers better understand their expenses and plan their budgets. The commission is usually a percentage of the home’s sale price, and while rates vary by market, these fees are a standard part of most real estate transactions.