How Much Are Closing Costs for Sellers?

Selling a home involves more than just handing over the keys – sellers also have their own set of expenses to consider. On average, sellers can anticipate paying anywhere from 6% to 10% of the sale price in closing costs, which includes agent commissions, transfer taxes, and title fees. These costs can add up quickly and vary depending on the location. For example, selling a home in San Francisco, CA, comes with higher transfer taxes compared to selling in Phoenix, AZ, where no such tax exists. Understanding these closing costs can help sellers budget effectively, plan ahead, and avoid any surprises during the closing process.

What do closing costs entail for sellers?

Closing costs encompass all the fees and expenses required to complete the sale of a property. They cover everything from agent commissions to title insurance, escrow fees, and transfer taxes. Most of these costs are typically deducted from the final proceeds at closing, meaning sellers don’t have to pay them upfront. However, there are additional costs like repairs, staging, and pre-listing inspections that may need to be settled before closing.

How much do closing costs run for sellers?

On average, sellers usually end up paying between 6% and 10% of the sale price in total closing costs. This percentage covers agent commissions, title insurance, escrow fees, and potential seller concessions. The exact amount can vary based on factors such as location, property type, and negotiated terms.

Here’s a rough estimate of different closing costs for sellers:

Breakdown of closing costs for sellers

1. Real estate agent commission

One of the major closing costs for sellers is the real estate agent commission, typically ranging from 3% to 6% of the sale price. Traditionally, sellers were responsible for paying both their listing agent and the buyer’s agent.

However, recent changes in commission structures have given sellers more flexibility in handling these fees. Sellers now have the option to negotiate the commission directly with their listing agent, usually falling between 2.5% and 3%. Sellers are no longer obligated to cover the buyer’s agent’s commission, but buyers may request them to contribute to this fee as part of their offer. This decision should be carefully considered during offer evaluations and negotiation.

In competitive markets, offering to cover some or all of the buyer’s agent’s fee can attract more buyers. Sellers should weigh this choice carefully to optimize their sale.

2. Transfer taxes and local fees

Certain states, counties, and municipalities require sellers to pay transfer taxes, calculated as a percentage of the sale price or property value. These taxes vary widely based on location. For example, some regions may impose a transfer tax of 0.5% to 2% of the sale price, while others have a flat fee or no tax at all.

In addition to transfer taxes, there may be other local fees like certification or inspection fees mandated by local governments before the property can be sold. These costs typically range from $100 to $500, depending on the area. Sellers should consult with their real estate agent or local government office to determine the specific transfer taxes or local fees applicable during the closing process, as this will impact the overall closing costs.

3. Closing fees and other administrative costs

Closing fees cover administrative costs related to the home sale and title transfer. These fees may include:

• Escrow fees: Fees charged by the escrow company managing the transaction, typically split between the buyer and seller.
• Title search fees: A fee to research the property’s title and verify no liens or ownership disputes.
• Recording fees: Fees for registering the new owner in public records.

These administrative closing fees generally range from $250 to $1,500, but the exact amount depends on the local jurisdiction and transaction complexity.

4. Owner’s title insurance

In many states, sellers provide the buyer’s title insurance to safeguard against future ownership disputes. This one-time premium costs between $500 and $2,000, based on the sale price and location. While not mandatory, covering title insurance can enhance the property’s appeal to buyers, particularly in competitive markets.

5. Prorated property taxes and utilities

At closing, sellers are responsible for settling property taxes up to the sale date. If the home is sold mid-year, property taxes are prorated, meaning sellers only pay for the portion of the year they owned the property.

The same proration applies to utility bills like water and electricity, typically based on the closing date. These costs can vary from a few hundred to several thousand dollars, depending on local tax rates and the sale date.

6. Mortgage payoff balance

If the property has an outstanding mortgage, the remaining balance must be settled at closing. The lender provides a mortgage payoff statement, including the principal balance, accrued interest, and potential prepayment penalties (less common but can range from 1% to 3% of the loan balance). Sellers should request a payoff statement early to avoid any surprises.

7. Seller concessions

Seller concessions are additional costs that sellers may cover to reduce the buyer’s upfront expenses. These concessions can include offering a seller-paid rate buydown, covering part of the buyer’s closing costs, prepaid taxes, insurance, or home repair credits. Negotiable, concessions can range from 1% to 3% of the sale price. Some loan types limit seller contributions to 3% to 6% of the purchase price. While concessions can attract buyers, they diminish the seller’s net proceeds and should be used strategically.

8. Other potential closing costs for sellers

Apart from the common closing costs, sellers may encounter other expenses based on the sale, such as:

• Attorney fees: Some states mandate an attorney’s presence at closing for sellers.
• Home warranty: Sellers might opt to purchase a home warranty for the buyer, covering major appliance and system repairs post-sale.
• HOA fees: Sellers handle prorated HOA dues until the closing date. Additional fees like transfer fees (typically $100 to $500) and HOA document costs (usually $100 to $400) may apply. Special assessments for significant projects may also be due at closing, depending on the circumstance.

Common mistakes sellers make when estimating closing costs

Focusing only on commission fees

While agent commissions make up a significant portion of closing costs, they aren’t the only expenses to consider. Sellers who solely focus on negotiating agent commissions may overlook other crucial costs like repairs, buyer credits, or closing-related paperwork. Ignoring these costs can lead to unexpected expenses or confusion during profit calculation.

Misjudging seller concessions

In competitive markets, sellers may be tempted to cover a large part of the buyer’s closing costs to expedite the sale. However, sellers sometimes underestimate the concessions offered. Agreeing to excessive concessions can significantly reduce profits. Sellers should evaluate the market and buyer’s requirements before committing to concessions, as excessive offerings can lower the sale price and net proceeds.

Not factoring in prorated expenses

Sellers occasionally forget to include prorated expenses like property taxes, utilities, and HOA fees. Sellers are responsible for paying their share of these costs until the closing date, and the amounts can vary based on the closing date. Selling late in the year can result in significant prorated property tax expenses alone.

Tips to reduce closing costs for sellers

While some costs are inevitable, there are strategies to lower closing costs. Here are ways to reduce closing costs for sellers:

• Negotiate agent commissions: Sellers can discuss a lower rate with their listing agent and determine who covers the buyer’s agent commission to potentially reduce overall costs.
• Compare title and escrow services: Title companies and escrow providers set their fees, so comparing options can help find the most cost-effective choice.
• List your home at the right time: Selling in a strong seller’s market can lead to higher offers or better negotiation leverage, reducing the need for price cuts or concessions.
• Negotiate closing costs with the buyer: Sellers can discuss covering specific closing costs like HOA fees or title insurance costs with the buyer to potentially minimize out-of-pocket expenses. If buyers are rolling closing costs into their mortgage, they may be willing to contribute more to finalize the deal.