Who Pays for What?

It’s exhilarating to buy – or sell – a home. But sometimes that excitement is mitigated by the slew of closing costs added to the transaction. By the time you’re at the closing table, they can really add up. This is true for both sellers and buyers. The good news is that neither party has to pay all of the closing costs. Both sides feel a little of the pain.

For the seller, closing costs mostly relate to real estate commissions and the transferring of the deed, while the buyer will mainly pay closing costs associated with a mortgage and bank fees.

Listed below are some of the typical expenses of a real estate transaction in Texas. We’ve sorted these into those usually paid by seller and those usually paid by buyer. It’s important to note, however, that many of these items can be negotiated. For example, if a buyer is really keen to buy your property, he or she may offer to pay for the title insurance premium to sweeten the offer.

Seller typically pays for:

  • Real estate commissions for both buyer agent and seller agent – Cameron and I charge three percent for our side of any transaction, whether selling or buying. The title company is responsible for dispersing the commission to the agents’ brokers after the sale has closed and funded.
  • Prorated share of property taxes owed at the time of transfer of title – Remember that, in Texas, property taxes are paid in arrears. So, for example, if your closing is on February 15, you will still owe property taxes for 36 days (31 days in January and 15 days in February). Consequently, the amount the seller owes in property tax is much larger for a December closing than in January. This amount is credited to the buyer, who will have to pay the taxes as they become due.
  • Escrow fee paid to the title company or escrow company for their services on closing day – This is typically $150 to $500. Seller and buyer each have to pay this.
  • HOA paperwork – River Oaks’ one-page document includes notice of the annual dues (a sliding scale, depending on size of your property), as well as any special assessments or other fees. A resale certificate in River Oaks is $375 typically for the seller.
  • Title insurance premium – The owner’s policy protects the buyer from issues that arise with the title such as outstanding liens that were not discovered in the title search. Note: Texas has a heavily regulated title insurance market, and the rates for title insurance are set by the State of Texas. Thus, the rates are the same all over the state, regardless of what title company you choose to use. Click here for more information on how the premium is calculated.
  • Payoff loans in the seller’s name (unless the existing mortgage balance is being assumed by the buyer, which we rarely see happen in River Oaks).
  • Home warranty, if one is part of the contract – The home warranty provides peace of mind to your buyers on things like AC, plumbing, roof and major appliances. Cost can vary widely, but it is typically $500 to $1,200.
  • Recording charges to clear all documents of record against the seller

Buyer typically pays for:

  • Escrow fee paid to the title company or escrow company for their services on closing day – As noted above, this is typically $150 to $500. Seller and buyer each have to pay this.
  • Document preparation (if applicable)
  • Loan charges and fees (these are only applicable for transactions that include a loan), such as:
    • Application fee
    • Appraisal ($300 and up, depending on the type and size of property)
    • Credit report – Usually $25 to $75
    • Tax service fee
    • Title insurance for the lender
    • Loan origination/discount fee (typically 0.5 to 1.5 percent)
    • Reserves for taxes and insurance (if you plan to have those payments in escrow)
    • Flood certification
    • Mortgage insurance premium
  • New survey – Even if the seller provides a survey, it’s smart policy to have a new survey made for your own protection. Plus, many lenders will require it for a loan. Costs vary, depending on lot size and type of property, but usually $450 to $600 in River Oaks.
  • Interest on the new loan from the date of funding to 30 days prior to the first payment date
  • Home inspection prior to the end of the option period – Inspection costs are paid out of pocket before closing during the option period, so the cost does not appear on your settlement statement. Again, the cost depends on the size of the property and what you want inspected. A basic package usually starts at about $600, but there are many add-ons available. Read more about The All-Important Inspection here.
  • Homeowner’s transfer fee – currently $400 in River Oaks, provided by ROPO
  • Insurance policies – These include homeowner’s insurance as well as flood insurance.
  • Recording fees – These vary by county and relate to the transfer of title to the buyer.