As part of purchasing a home, there are various costs that must be covered at closing such as an attorney fee, appraisal cost and surveying fee as well as property taxes.
These fees vary by transaction, but are generally negotiable between buyer and seller. Below we will explore who pays these fees and why.
Buyer
Closing costs are an integral component of real estate transactions, yet can often be confusing and disorienting for both buyers and sellers alike. Knowing who will bear responsibility for paying these fees is essential to avoid confusion or disagreement during the closing process. In New York state, vendors typically shoulder most of the closing expenses based on legal considerations and contractual agreements between buyer and seller; this may vary based on local practices or contractual arrangements between both parties.
Buyers should expect to spend 2-5% of the purchase price in closing costs, including loan origination charges, property taxes and recording fees for deed, homeowners association fees, appraisal inspection fee and mortgage discount points to reduce interest rate. Most of these fees can be offset through seller concessions offered to buyers; most expenses are included in a loan estimate provided by lender; additional expenses that may arise during closing may include excise tax or land transfer tax charges.
Seller
Sellers may cover some or all of buyer closing costs to help close a sale in an increasingly buyer-centric market, where sellers may make concessions to close deals and move onto their next project.
Seller-paid closing fees typically consist of real estate commissions, attorney fees and transfer taxes; it’s essential to understand each of these charges in detail and negotiate them to avoid surprises during the closing process.
Sellers should pay up until closing day for property taxes that must be paid and homeowners association fees (if the home is located within an HOA community). It is wise to carefully analyze these fees with their real estate agent; similarly, buyers should carefully read through a loan estimate to understand all potential closing costs involved in any given transaction; alternatively Prevu’s interactive Closing Cost Calculator offers further insights.
Lender
Closing costs can be expensive for both homebuyers and sellers alike, though who pays what fees is often decided by various factors. In New York for instance, sellers typically cover most closing costs, though negotiations between buyer and seller often determines this in individual transactions.
Buyers should carefully examine the loan estimate provided by their lender prior to closing in order to understand all fees they are responsible for paying, such as loan origination fees, credit report fees, home inspection fees, homeowner’s insurance premium payments (typically due at closing), title insurance fees (sometimes mandatory by lenders to ensure clear title on property) as well as title search costs negotiated between buyer and lender.
Escrow
Escrow is a neutral third party responsible for overseeing funds and documents related to your closing (or settlement), according to the terms outlined on your sales contract with the seller. An escrow officer must follow all specified closing instructions, disperse funds according to individual needs of both parties involved, and comply with their specific instructions regarding funds disbursements.
Mortgage lenders commonly establish escrow accounts to pay annual property taxes and insurance on borrowers’ loans. The decision of whether borrowers choose to manage their own escrow account themselves or allow the servicer to manage it is personal, with each option having its own advantages and disadvantages.
As part of the homebuying process, buyers are responsible for covering certain attorney fees that precede closing – such as deed preparation. Buyers also bear their share of closing costs that typically get split among sellers and buyers such as real estate commission and transfer taxes. To gain more insight into this process and estimate your costs accurately, view our interactive closing cost calculator. For additional information and an estimate of these expenses please check our interactive closing cost calculator – Prevu is an industry-leading real estate technology company on a mission to save homebuyers money through our Smart Buyer(r) Rebate program!
