If you’re planning on selling your home, we understand that the excitement must be palpable, what with new beginnings and the money you stand to make at the end of the sale. Most home sellers are prepared to pay the 6 percent of the home sale price normally charged as real estate agents commissions.  However, a lot of them are caught off guard when they encounter closing costs. Here is a detailed look at closing costs when selling a house to make sure you don’t get blindsided by them.

What are closing costs?

investment loan

Before we define what closing costs are, let’s understand what closing on a home is. In the process of selling a home, closing is when home sellers transfer all titles, deeds, and documents related to the sale of the property to the home buyers, who in turn transfer all pending payments to the seller.

Ideally, the seller is expected to clear all loans related to the property before closing. The home buyer or their lender transfers the money due to a third party called an escrow company, who’s responsible for overseeing that the monies and all documents related to the sale are properly exchanged between the two parties.

At the end of this real estate transaction, both the buyer and seller are liable to pay an assortment of fees. These fees are called closing costs. Closing costs should not be confused with the real estate agent commissions. The commissions for the buyer’s agent as well as the seller’s agent is usually borne by the seller. On the other hand, the buyer bears the larger chunk of the closing costs.

While closing costs may vary from 1% to 7% of the purchase price, depending on where you live, your share as a seller will be between 1% to 3% of those costs. The reason for the huge disparity in closing costs from the state to state, and in some cases, even municipalities, is due to different fee structures and legal requirements.

If you have good equity in your home, your share of closing costs will be taken from your profits from the sale of your home. If you don’t have enough equity, you may need to bring cash to the table to close the deal.

Read more: Sell house for cash

What do closing costs include?

Let’s quickly take you through the different expenses you will encounter as a part of closing costs are.

Title search

This is to prove that you are the rightful owner of the property being sold and that there are no pending judgments or claims against it. Expect to pay anywhere between $300 to $600.

Title insurance

This is something both you and the buyer ought to invest in separately. At a cost of around $1,000, a title insurance policy will protect both of you should any title issues arise after closing.

Home inspection

A home inspection is carried out prior to closing to ensure your home has no major structural and systemic defects. This usually costs between $300 to $500.

Appraisal report

An appraisal report helps lenders clarify whether a home is worth the amount of money the home buyer is looking to borrow. This will cost between $450 and $650 on average.

Property survey

Some states require a survey to be conducted defining the boundaries of the property accurately before a loan can be sanctioned. This will cost approximately $350 to $500.

Credit report

All lenders will compulsorily run a credit report with one of the country’s three major credit reporting agencies before approving a loan. This report costs between $20 to $50.

Loan payoff costs

When home sellers close a home loan early, they are liable to pay loan origination fees, prepaid interest, assumption fees, and application fees. All of these could come up to between 0.5% to 1.5% of the total sale price.

Prepayment penalty

If you have a mortgage on your home, you will be expected to pay it in full at the time of closing. Some lenders charge a prepayment penalty for closing the mortgage before the end of the mortgage term. Depending on your lender, this penalty could be a percentage of your bank balance or a sliding scale depending on the age of the loan.

Read more: Why you should not pay off your house early

Outstanding payments

seller closing cost

If there are any outstanding property taxes, utility bills, Homeowners Association fees, or homeowner’s insurance due, these will have to be paid at the time of closing. The cost of this varies based on your location.

Transfer taxes

This is a tax that is charged on the sale transaction for the property. How much the actual amount is will depend on local and state tax laws. A good place to find out how much your region charges would be your state’s and county’s official; taxing authority website.

Recording fee

This fee is paid when the escrow company files the deed transferring the property from your name to the buyers. How much this fee depends on your county.

Settlement fee

This fee is paid to the escrow company which handles your closing. If your closing was handled by an attorney, then this fee is paid to him. If you’re paying an escrow company, you’d pay around $2 for every $1000 in sale price. Attorney fees vary from around $150 to $500.


While these are the common charges, some states charge other fees as well, such as a septic system certificate or a flood certificate. 

Closing costs vary greatly from state to state. For example, a home sale in the state of Iowa would incur a closing cost of only around $2,116 on property worth $200,000. The same property value in the state of New York would incur closing costs upwards of $6,000.

Read more: Reasons closing could be delayed

Who pays what fees?

Like we mentioned earlier, both you and the buyer will pay closing costs, with the larger chunk being paid by the buyer. Here’s a list of who pays what.

Read more: Why are housing costs so high

Seller closing costs

  1. Mortgage Payoff
  2. Prepayment Penalty
  3. Outstanding Payments
  4. Transfer Taxes
  5. Recording Fees
  6. Attorney Fees
  7. Buyer’s Title Insurance

Read more: Make home sellers earn money

Buyer closing costs

  1. Credit Report
  2. Loan Related Charges
  3. Title Search
  4. Title Insurance
  5. Home Inspection
  6. Appraisal Report
  7. Survey Fee
  8. Settlement Fee
  9. Attorney Fees

Read more: Blind offer in real estate

A detailed look at closing costs when selling a house was last modified: October 14th, 2022 by Narayan Shrouthy
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Ok, now I’m concerned, I thought closure payments were easier to deal