Closing Costs
Closing costs are fees due at the end of a real estate transaction. Learn what buyers and sellers pay, from title insurance to transfer taxes.
Definition
Closing costs are the assortment of fees and charges paid at the conclusion of a real estate transaction. For buyers, these may include loan origination fees, appraisal fees, credit reports, underwriting fees, title searches, title insurance, escrow services, recording fees, transfer taxes, and prepaid expenses such as property taxes and homeowner’s insurance. Sellers may pay for items like real estate commissions, prorated taxes, and title work. Typically, closing costs range from 2% to 5% of the purchase price. Some costs are negotiable or can be paid by either party, and lenders must provide a Loan Estimate and Closing Disclosure outlining expected charges.
Why It Matters
Closing costs get negotiated late and surprise people often, because the split between buyer and seller is local custom rather than law. In Washington the seller pays real estate excise tax on a graduated scale from 1.1% to 3%, which on a $900,000 sale runs past $15,000 before commission. Escrow fees are usually split down the middle, and who pays for the owner's title policy varies county by county.
Examples
A seller closing at $900,000 in King County pays roughly $15,700 in state and local excise tax, about $1,400 in escrow fees, and property taxes prorated to the closing date.
Buyer and seller agree on a 3% seller credit toward closing costs. The lender caps seller credits at 3% for a loan with under 10% down, so the credit fits, barely.
Two escrow companies quote the same transaction $1,150 and $1,650. Because fees are split evenly, the $500 difference costs each side $250.
Tips
Request a preliminary settlement statement from escrow a week before closing and read every line. Duplicate courier fees, a wrong proration date, and an unearned reconveyance fee are the usual errors.
Prorations run to the closing date, so a three-day delay shifts money between the parties. Re-check the tax and HOA lines whenever the date moves.
Sellers should get an excise tax estimate before accepting an offer. The graduated rate taxes the top slice of the price at a higher percentage, which changes net proceeds more than most people expect.
Related Terms
Buyer’s Closing Costs
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Origination Fee
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Buyer’s Agent
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