Who Pays For What?

If you’ve bought or sold a home before, you know the financial details are much more complex than just the listing price. From inspections to agent fees and everything in between, both buyers and sellers hold financial responsibility for transaction expenses and closing costs — and knowing who pays for what can help ensure a smooth sale.

While some aspects of closing costs can be negotiated into the contract between buyer and seller, certain things are typically paid by one party or the other. Read on to learn which big bills you, the seller, should be budgeting for and which will be the buyer’s responsibility.

 

Who pays real estate commission?

Sellers pay real estate commissions, which typically total between 5% to 6% of the sale price. This amount is paid to the listing agent, who then shares roughly half with the buyer’s agent.

Cost: On a $200,000 home, a full-service real estate commission would cost the seller $10,000-$12,000. Each agent would receive $5,000-$6,000.

In an attempt to cut down on commission costs, some sellers decide to sell for sale by owner (FSBO), which saves the 3% they would pay to their listing agent. While selling FSBO can be a lot of work, it can result in a cost savings. It’s recommended that you still offer a buyer’s agent commission when you’re selling FSBO, as you’ll want to attract as many potential buyers as possible, and some buyer’s agents may be less inclined to show their clients your home if they won’t receive a commission.

 

Who pays escrow fees?

Escrow fees are typically split 50-50 between buyer and seller. Escrow fees cover the services of an independent third party to conduct the closing and manage funds during the transaction.

Cost: Usually 1% of the purchase price. On a $200,000 house, that’s $1,000 for the seller and $1,000 for the buyer. Note that this does not include the actual money being held in your escrow account for closing. This is just the fee for the escrow company’s services.

 

Who pays for the home inspection?

The buyer pays for a home inspection if they choose to conduct one. Inspections are meant to protect the buyer from any hidden defects in the home that could impact the home’s value, cost a lot of money to repair or make the home unsafe to live in.

Cost: The average home inspection costs between $250 and $700.

Sellers sometimes decide to do a pre-inspection for a better sense of what the buyer’s inspector will find and the chance to make any important repairs before listing. A pre-inspection costs the same amount as a buyer’s inspection.

 

Who pays for the appraisal?

Buyers cover the cost of the home appraisal, which is usually required by their lender if they will be taking out a mortgage to buy the home. Even if it isn’t required, buyers sometimes complete appraisals for peace of mind that they’re making a smart investment and not overpaying.

Cost: The average cost of a home appraisal nationally is $350.

 

Who pays for title insurance?

Both the buyer and seller pay for title insurance, but each type is slightly different. The seller pays for the title insurance coverage for the buyer, and the buyer pays for the title insurance policy for their lender. In general, title insurance ensures the home is “free and clear” and that no third party has an unknown claim to the property.

 

Owner’s title insurance (paid by the seller for the buyer)

Owner’s title insurance provides protection so that no one else can claim ownership over the property from a prior dispute or lien from a contractor, attorney or other third party. It’s important for the buyer to have, because it protects them from legal or financial damages if another party were to try and claim ownership over the home in the future, after they purchase the home.

Cost: Buyer’s title insurance costs between $1,000 and $4,000, depending on the scope and coverage.

 

Lender’s title insurance (paid by buyer)

The lender’s title insurance is paid by the buyer, and it protects the lender’s financial investment in the home. It’s usually required for any buyer who is buying with a mortgage, and the coverage remains until the loan is refinanced with another lender or paid off.

Cost: Lender’s title insurance coverage costs between $500 and $1,000.

 

Who pays for a home warranty — buyer or seller?

The seller pays for a home warranty. It’s often offered as an incentive to attract buyers, but it’s not required. Offering a home warranty gives the buyer assurance that they won’t have to pay any huge repair bills soon after moving in — most policies are good for a year. They typically cover the home’s major systems, including plumbing, electrical and appliances.

Cost: A one-time cost of between $300 and $500 for one year of warranty coverage.

 

Who pays real estate transfer taxes?

The seller is responsible for paying any real estate transfer taxes, which are charged when the title for the home is transferred from the old owner to the new owner. Transfer taxes can be levied by a city, county, state or a combination.

Cost: Transfer tax costs vary dramatically in different parts of the country and can even vary from one city to its nearby suburbs. And rates can fluctuate over time based on levies and tax rate changes. In some areas, transfer taxes may only apply to homes sold over a particular price point. Ask your real estate agent or escrow company for the correct rate for your area.

In some parts of greater Phoenix, Houston, Portland and other areas, there is zero transfer tax on the sale of a home. But again, these taxes are designated by multiple municipalities making the tax breaks specific to each small region and difficult to summarize at scale.