When Selling a Home in California, Who Pays for the Closing Costs?
We often get this question.....Who is responsible for paying the closing costs? So, understanding how
these costs are typically divided between the buyer & seller we hope is helpful
What Are Closing Costs?
Closing costs are a variety of fees and expenses that are incurred during the final stages of a real estate
transaction. These can include loan origination fees, title insurance, escrow fees, transfer taxes,
recording fees, and more. The total amount of closing costs can vary widely depending on the
property’s price, location, and other factors, but they generally range 1% of the home’s sale price for a
seller & up to 3% for a buyer, depending on their loan cirumstances.
The Seller’s Responsibilities
In California, sellers typically pay for the following closing costs:
1. Real Estate Agent Commissions: This is often the largest expense for the seller. Compensation
is negotiated with a Listing Agent at the time the listing agreement is signed. Compensation for
a Buyer's agent is agreed upon when a buyer's offer is negotiated. Both of these fees are
negotiable, but historically we see them range from 2.5-3% per agent.
2. Title Insurance (Owner’s Policy): Sellers customarily pay for the owner’s title insurance
policy, which protects the buyer against title issues.
3. Transfer Taxes: California imposes a documentary transfer tax, which is generally the seller’s
responsibility. This fee varies by county and city.
4. Escrow Fees (Split): Escrow fees are shared between the buyer and seller
5. Repairs or Credits: If repairs are requested based on the buyer’s inspection, the seller might
pay for these or offer a credit at closing.
6. Home Warranty: In some cases, sellers agree to provide a home warranty for the buyer, which
is a one-year service contract for repairs or replacements of certain systems and appliances.
The Buyer’s Responsibilities
Buyers are generally responsible for the following closing costs:
1. Loan Origination Fees: These are fees charged by the lender to process the buyer’s mortgage.
2. Title Insurance (Lender’s Policy): The lender’s title insurance policy is typically a buyer’s
expense.
3. Escrow Fees (Split): As mentioned earlier, these are often divided between the buyer and
seller.
4. Appraisal and Inspection Fees: Buyers usually cover the cost of appraisals and home
inspections.
5. Prepaid Costs: These include property taxes, homeowner’s insurance, and mortgage interest.Negotiating Closing Costs
Closing costs are often negotiable, and who pays for what can be determined during the negotiation
process. For example, a seller might agree to cover some of the buyer’s costs as an incentive to close
the deal quickly.
Conclusion
Understanding who pays for closing costs when selling a home in California is important for planning
your finances and ensuring a smooth transaction. While sellers typically cover significant expenses like
real estate agent compensation, title insurance, and transfer taxes, buyers have their share of costs as
well. Always consult with your real estate agent and escrow officer to understand the specifics of your
transaction and to negotiate terms that work best for you.