One of the most common questions I get from buyers and sellers—without fail—is, “How much are closing costs, and who pays them?” And I don’t blame them. Closing costs can be confusing, even for agents who have been in the business for years.
I learned this the hard way early in my career. I was working with a first-time homebuyer who was thrilled to be under contract—until she got her closing disclosure. “Wait,” she said, scanning the numbers. “Why am I paying thousands of dollars in extra fees? No one told me about this.”
She wasn’t wrong. I had explained closing costs, but I hadn’t really prepared her for what to expect. She felt blindsided, and I realized that as agents, it’s our job not just to mention closing costs—but to break them down in a way that makes sense.
Over the years, I’ve fine-tuned how I educate my clients about closing costs to avoid surprises, smooth out negotiations, and help deals close faster. In this guide, I’ll walk you through exactly how to explain what closing costs are, how much they typically cost, who pays them, and how you can help your clients navigate them.
What Are Closing Costs?
Closing costs are the final expenses buyers and sellers pay to complete a real estate transaction. They cover everything from loan origination fees and title insurance to taxes and escrow charges—basically, all the behind-the-scenes costs of transferring a property.
Typical Closing Costs for Buyers and Sellers
Over the years, I’ve found that most buyers and sellers don’t realize how many different fees are involved. Here’s a breakdown of what each side typically pays:
Closing Cost Item | Who Pays? (Buyer/Seller) | Typical Cost Range |
Loan Origination Fee | Buyer | 0.5% – 1% of loan amount |
Appraisal Fee | Buyer | $300 – $600 |
Title Insurance (Lender’s) | Buyer | $500 – $1,500 |
Title Insurance (Owner’s) | Seller (varies by state) | $500 – $2,000 |
Escrow/Closing Fees | Split or Seller (varies) | $500 – $1,500 |
Recording Fees | Buyer | $50 – $250 |
Transfer Taxes | Seller (varies by state) | 0.5% – 2% of sale price |
Home Warranty | Buyer or Seller (negotiable) | $400 – $700 |
I had a seller once who nearly walked away from a deal because he didn’t realize he was responsible for transfer taxes in our state. He saw it on his closing statement—several thousand dollars he hadn’t budgeted for—and panicked. Luckily, we were able to work a concession into the deal, but it was a lesson for me: set expectations early, or you’ll be putting out fires later.
Who Pays Closing Costs?
One of the most common misconceptions buyers and sellers have is who actually pays closing costs. Many assume the seller covers everything, while others believe costs are evenly split. In reality, who pays what depends on the contract, local market norms, and negotiations.
As an agent, your job is to help your clients understand what they are responsible for, what’s negotiable, and how to structure the deal in their favor.
Buyer Closing Costs
Buyers typically cover the costs associated with getting a loan and securing the property. These include:
- Loan Origination Fees – The lender’s charge for processing the mortgage, usually 0.5% – 1% of the loan amount.
- Appraisal Fee – Required by lenders to confirm the home’s value, typically $300 – $600.
- Title Insurance (Lender’s Policy) – Protects the lender against potential title disputes, usually $500 – $1,500.
- Prepaid Property Taxes & Homeowners Insurance – These must be paid upfront at closing.
- Recording Fees – The cost to record the deed with the county, ranging from $50 – $250.
- Escrow Fees – If a neutral third party is handling the transaction, buyers may split these costs with the seller.
Example: I once had a buyer who was excited to close on their dream home—until they saw their closing statement. They hadn’t realized they had to pay for a full year of property taxes upfront, and it nearly derailed the deal. Thankfully, we structured a seller concession to cover part of their costs, but it was a lesson in always preparing buyers for their financial obligations ahead of time.
Seller Closing Costs
Sellers typically pay higher closing costs than buyers, mainly due to agent commissions and local taxes. These include:
- Real Estate Agent Commissions – The biggest seller expense, typically 2.5-3% of the sale price.
- Title Insurance (Owner’s Policy) – Protects the buyer against future title claims, often $500 – $2,000 (varies by state).
- Transfer Taxes – Some states and counties require sellers to pay 0.5% – 2% of the sale price to transfer ownership.
- Escrow & Closing Fees – If applicable, sellers may split these costs with the buyer.
- Seller Concessions (if negotiated) – If the seller agrees to cover part of the buyer’s closing costs such as the buyer agent commission, this is added to their expenses.
Example: I had a seller once who had completely forgotten about transfer taxes. When they saw an unexpected $7,500 fee on their closing disclosure, they were furious. They thought I had “missed something”, but in reality, it was a standard cost in their state. Since then, I always break down seller costs upfront—before they accept an offer—to avoid any surprises.
Negotiating Closing Costs: The Agent’s Role
One of the most valuable things an agent can do is help their clients negotiate closing costs effectively. Depending on market conditions, buyers and sellers can structure deals that reduce their out-of-pocket expenses.
- Buyer’s Market (More Inventory) – Buyers have the power to negotiate seller concessions, where the seller covers part of the closing costs.
- Seller’s Market (Low Inventory) – Sellers can limit or reject concession requests, but they can use closing cost credits as an incentive to attract stronger offers.
Example: I had a first-time homebuyer who barely had enough cash for their down payment. Instead of walking away, we negotiated a 3% seller concession, which covered most of their closing costs. This creative structuring allowed them to close the deal without draining their savings.
Final Takeaway: Always Set Expectations Early
Understanding who pays what is critical for ensuring a smooth transaction. I’ve seen deals fall apart at the last minute simply because closing costs weren’t properly explained upfront.
When you set expectations early and help clients navigate negotiations strategically, you’ll not only close more deals—you’ll build a reputation as a knowledgeable and trusted real estate professional.
Common Closing Cost Myths & Misconceptions
Many buyers and sellers walk into a transaction with misconceptions about closing costs, which can lead to frustration and unexpected financial stress. As an agent, part of your job is to educate your clients early so they aren’t caught off guard at the closing table.
Here are some of the most common myths I’ve had to debunk over the years.
Myth #1: “Sellers Always Pay the Closing Costs”
This is one of the biggest misunderstandings I hear from buyers. Many assume that closing costs work like commissions—where sellers cover everything. The truth? Both buyers and sellers have separate closing costs.
While sellers typically pay agent commissions, title fees, and transfer taxes, buyers cover their loan-related costs, appraisals, and escrow fees.
Example: I once had a buyer who was shocked when she saw a $7,000 closing cost estimate. She told me, “I thought the seller was paying all the closing costs!” If I hadn’t taken the time to walk her through the breakdown, she might have backed out of the deal completely.
Myth #2: “Closing Costs Are Set Fees That Can’t Be Negotiated”
Closing costs are not fixed, non-negotiable expenses—they can often be structured in a way that benefits both parties.
- Buyers can request seller concessions to cover part of their closing costs.
- Sellers can shop for title and escrow services to find better pricing.
- Lenders sometimes allow higher interest rates in exchange for lower upfront fees (called lender credits).
Example: I had a buyer who was short on cash for closing. Instead of losing the deal, we negotiated a seller credit of $5,000 to offset their closing costs. The seller was happy because they still got their asking price, and the buyer could afford to close.
Myth #3: “All States Handle Closing Costs the Same Way”
This is completely false—closing costs vary dramatically by state, county, and even city.
- Some states require attorneys at closing, adding extra legal fees.
- Transfer taxes differ—some states split them, while others make the seller pay 100%.
- In certain areas, title insurance customs vary, with buyers or sellers covering different portions.
Example: I worked with a seller who had recently moved from Texas to California. In Texas, buyers usually cover title insurance, but in California, sellers typically pay for the owner’s policy. When I explained that she was responsible for it, she said, “That’s not how it worked when I sold my last house!” It took some educating, but we got her on board.
Myth #4: “You Need to Pay Closing Costs Out of Pocket”
Many first-time buyers believe they need thousands of dollars in cash for closing costs. While closing costs are an upfront expense, there are ways to reduce or roll them into the deal:
- Seller Concessions – Buyers can negotiate for sellers to cover part of their costs.
- Lender Credits – Some lenders allow borrowers to accept a slightly higher interest rate in exchange for lower closing costs.
- Closing Cost Assistance Programs – Some states offer grants or loans to help buyers cover closing expenses.
Example: I once had a young couple who were hesitant about buying because they thought they needed $10,000 in cash for closing costs. By structuring the offer with seller concessions and lender credits, we cut their upfront expenses down to just $2,500—making homeownership possible for them.
The Takeaway: Educate Clients Early to Avoid Surprises
One of the fastest ways to lose a deal is for a client to feel blindsided by unexpected costs. When you take the time to educate them on what’s real and what’s a myth, they’ll feel more confident—and confident clients close deals faster.
