Closing costs are fees paid through escrow for the transfer of real property. Closing costs can include lender fees, escrow fees, title fees, title insurance, property taxes, agent commissions, recording fees, and more. Many buyers and sellers are surprised at how expensive closing costs can be in some cases, and unfortunately, California has some of the highest closing costs in the country. Find out how to estimate your closing costs when buying or selling a home in California.
Who Pays For What?
Like most aspects of the California purchase agreement, delegation of closing costs is negotiable, however, there may be lender fees for the loan that will belong only to the buyer. What is customary varies by location; a local licensed California real estate agent will know the typical assignment of closing costs in your area.
Typical Closing Costs for a Buyer
When buying real estate in California, 3% of the purchase price is a good estimate for traditional closing costs, but you may need even more cash upfront if your lender requires any pre-payment. This estimate also does not include the cash needed for the down payment.
Much of the closing cost expense for the buyer is associated with the loan. Ask your lender if you qualify for any loan programs that will help you limit or eliminate some of the lender fees. You may also have title fees, escrow fees, and transfer taxes as negotiated in the purchase contract, but sometimes the seller will be willing to cover these expenses (usually for a higher sales price).
When working with a lender, you will receive estimated closing costs report in the form of a “Good Faith Estimate” (GFE) from the lending institution within 3 days after your submit your loan application, as required by the Real Estate Settlement Procedures Act (RESPA). Note that this is only an estimate, your actual closing costs will likely be higher than the GFE, though new legislation has limited the difference between the estimated cost and the actual cost by 10% in most areas.
Within 1 day of closing, you will receive a HUD-1 Settlement Statement which will detail all actual fees. Review the HUD-1 Settlement Statement carefully and compare it to your Good Faith Estimate. Consult with your lender if you have any questions or find any discrepancies.
Typical Closing Costs for a Seller
Generally speaking, many of the closing costs will fall to the seller, although it is entirely negotiable. When selling real estate in California, 9-10% of the purchase price is a good estimate for traditional closing costs. This is not cash you will need upfront, the charges will be taken out of the proceeds from the sale.
Much of the closing costs for the seller will be directed toward the licensed California real estate agent’s commission if you are working with an agent. Your agent will charge a negotiable fee – usually 6% of the purchase price – that will be divided between the listing agent (seller’s agent) and the selling agent (buyer’s agent). Add another 3-4% of the purchase price to cover escrow and title fees, title insurance, a home warranty policy, etc., as agreed upon in the purchase agreement.
In some situations, such as a short sale when the seller will not be receiving any money from the sale, you may not be able to pay any closing costs. Be honest about your situation with your licensed California real estate agent, and she will help you to structure the best deal to meet your needs.
Typical Items Included in Closing Costs (this is not an exhaustive list)