Pekic/Getty Images: Illustration by Issiah Davis/Bankrate
- Closing costs encompass the various fees and expenses associated with completing a real estate transaction.
- Both the buyer and the seller are responsible for at least some amount of closing costs, though the buyer usually shoulders the bulk of them.
- Typical closing costs for sellers include transfer taxes and escrow fees, as well as the commissions for both real estate agents involved in the sale.
While the buyer may be the one footing the bill for the purchase of a home in a real estate transaction, that doesn’t mean there aren’t any expenses involved for sellers. Before you get too caught up in the profits you’ll make from your sale, remember there are closing costs to consider: the fees associated with completing the sale and transfer of a home. The exact amount of closing costs varies by state and with each transaction. Here, we’ll take a closer look at average closing costs for sellers.
What are closing costs?
“Closing costs” is a catchall term for the various fees associated with closing a real estate transaction. They can include things like escrow fees, loan origination fees, title insurance and more, some paid by the seller and some paid by the buyer. In many cases, who pays for what is negotiable, and the distribution of costs can also vary depending on what state you’re in.
In total, these fees can add up to around 2 to 5 percent of the loan amount, according to Freddie Mac. Data from CoreLogic’s ClosingCorp shows that the national average for closing costs in 2021 was about 1.8 percent of the home’s sale price, not including Realtor commissions. On a median-priced U.S. home — which runs $387,600, according to November data from the National Association of Realtors — 1.8 percent comes to $6,977. However, this amount is not shouldered entirely by one party; it’s split between the home’s buyer and seller.
Closing costs for sellers
First, let’s clear up a common misconception: Closing costs are not the same as real estate commissions, though they are often grouped under the same umbrella. Commissions are also paid at the closing, and usually by the seller. These typically run between 5 and 6 percent of the home’s sale price. For a $400,000 sale, a 5 percent commission would equal $20,000. The buyer’s and seller’s agents typically split this fee down the middle — so yes, you as the seller are paying both your own agent and your buyer’s agent. (Note: There is an ongoing lawsuit about this process currently in the courts, but it will likely take quite a while before anything is definitively resolved.)
Here are some of the typical closing costs for sellers, beyond agent commissions:
|Varies by geographic location
|$300 to $1,500+
|$300 to $700+
|Outstanding amount owed on mortgage
Closing costs for buyers
Although both homebuyers and sellers pay some amount of closing costs, the buyer is usually responsible for the bulk of them. However, it’s common practice for the seller to offer a credit for some of the buyer’s closing costs — to cover the cost of a needed repair, for example. This practice, referred to as seller concessions, can help make a home more attractive to potential buyers.
Here’s a breakdown of some of the typical closing costs for buyers:
|Loan origination fee
|1% of loan amount
|Processing fee or underwriting fee
|Credit report fee
|Home inspection fee
|$300 to $500
|Escrow and signing
|Title search fee and title insurance
|$300 to $2,500
When are closing costs due?
This is an easy one: Closing costs are so named because they are literally due when you close on the sale of your home — the final step before you hand over the keys to the buyer. You will pay these fees when you and the buyer meet with the closing agent, title company and/or attorney to disburse the funds and sign the documents necessary to complete the sale.
Note that you should take “due when you close” literally: Be sure to have your checks or money orders prepared in advance, and physically bring them with you to the closing. You’ll turn them over on the spot, not at a later date.
The law requires that both the buyer and seller receive closing disclosure documents that provide the details of the transaction at least three business days before closing. These documents will include an itemized list of closing fees.
How to reduce closing costs
The good news for sellers is that closing costs usually come out of the proceeds they receive from the sale, so you probably won’t have to come up with the cash out-of-pocket. However, there are a few ways that you can try to lower your costs:
- Negotiate costs with the buyer: Many closing costs can be split between the buyer and the seller.
- Negotiate a lower commission with your real estate agent: This is one of the most negotiable closing costs, and the difference between, say, 5.5 percent and 6 percent can be significant, especially on a higher-priced home. You might also consider working with an agent who offers discounted services — though you may receive less marketing than you would otherwise with this option.
- Negotiate better terms from service providers: The fees for real estate attorneys, title companies, appraisers and other providers can sometimes be negotiated, too, and it doesn’t hurt to ask.
- Sell on your own: Acting as your own agent, known as listing for sale by owner or FSBO, means you avoid a listing agent’s commission fee and hang on to more of your home’s sale price. It’s a lot of work, though.
- Sell to a cash homebuyer: Selling your home for cash, whether to an iBuyer or any company that buys homes for cash, is another way to reduce your closing costs, because there will typically be no fees or Realtor commissions involved. However, be aware that these companies are likely to offer you less money for your home that you would get with a traditional sale.
While buyers typically pay the bulk of a real estate transaction’s closing costs, sellers must pay some costs as well. Keep in mind that your closing costs as the seller are in addition to the other costs of selling a house, including home repairs, staging costs and mortgage payments if you buy another house before your previous one sells. You may also be responsible for capital gains tax on the sale, which can impact your bottom line overall, and you’ll be on the hook for the commissions of the agents involved in the sale.
Yes. In a real estate transaction, both buyers and sellers have their share of closing costs — though what a seller pays will vary depending on what state you’re in and how your contract has been negotiated. Typical closing costs for sellers include things like transfer taxes and escrow fees.
The biggest expense involved in selling a home is usually the commissions owed to the real estate agents handling the transaction. This cost typically runs between 5 and 6 percent of the home’s sale price and gets split evenly between the buyer’s agent and the seller’s agent (but the full amount is covered by the seller). On a $400,000 home, for example, 5.5 percent comes to a hefty $22,000.