What You Need to Know About Closing Costs for Home Sellers

Understanding Closing Costs When Selling Your Home

Selling your home is an exciting milestone, but unexpected costs can take you by surprise. Picture this: you’re at the closing table, anticipating a strong profit, only to see unexpected deductions from your proceeds. Closing costs—an unavoidable part of the selling process that can significantly impact your bottom line if you’re not prepared.

In this post, we’ll break down the common expenses sellers face, and why they’re necessary.

What Are Closing Costs?

Closing costs are expenses involved in finalizing the sale of your home. These costs include seller representation fees, title fees, legal fees, and more. On average, sellers can expect to pay between 6% and 10% of the home’s sale price in closing costs.

Being aware of these expenses in advance allows you to budget effectively and avoid unexpected financial surprises.

The Most Common Closing Costs for Home Sellers

1. Real Estate Commissions

Real estate commissions remain a key expense for many sellers, but recent changes have made that allow a seller to determine if they would pay fees to a buyers representative and what they might contribute on behalf of the buyer toward those expenses.  All commission agreements must be clearly disclosed and agreed upon during the negotitations and the final agreement.

• How much do commissions cost?
  

  • Commission rates have always been based on the services you choose to engage with your representative and if you want to offer an incentive for a buyer's agent to bring and interested buyer.  However, with new rules, commission structures are set with your representative in a listing agreement and any concession paid to a buyers representative is negotiated in a purchase agreement.  

• Who pays the commission?
  

  • Listing agents charge a fee for marketing, negotiations, and transaction management.  Rates are more customizable with a minimum standard of care required by licensing authorities.
    

  • As part of negotiations, sellers may still be asked to pay all or a portion of the buyer’s agent commissions during the purchase negotiations.

  • Buyers are required to determine and pay a fee for their representation and must sign a representation agreement prior to viewing any properties listed in the Multiple Listing Service.  

Wondering if an agent is worth the cost? A skilled agent helps you secure top dollar for your home, screens potential buyers and lenders, negotiates the best terms, and manages the entire transaction—reducing stress and maximizing your return.

2. Transfer Taxes and Recording Fees

Transfer taxes are state and local fees for legally transferring ownership of your home.

• How much do transfer taxes cost?

  • They vary but can range from 0.5% to 2% of the sale price.

• Who pays these taxes?
  

  • In many states, the seller covers the cost, but buyers may take on part or all of it depending on the agreement.

3. Title Insurance (Owner’s Policy)

Title insurance protects buyers from ownership disputes or legal claims on the property.  Who pays this fee is negotiable in the purchase agreement and can vary depending on market conditions.  Low inventory, we see buyers pay this fee.  Balanced to high inventory, many sellers are asked to pay for an owner’s title policy as part of the deal.

• Is title insurance mandatory?

  • Yes, if the property is being financed and generally it is expected in cash transactions.

• Cost: Usually 0.5% to 1% of the home’s sale price.

4. Escrow and Closing Fees

Escrow services handle funds and documents to keep the transaction secure. These fees also cover the final paperwork involved in transferring ownership.

• What do escrow companies do?

  • Hold funds in a secure account.

  • Make sure all terms of the contract are met before money changes hands.

• How much do these fees cost?

  • Between $500 and $2,000, depending on your location and provider.

5. Prorated Property Taxes

Because property taxes are paid annually, you’ll need to pay your share up until the closing date.

• How is it calculated?

  • The total property tax bill is split based on the number of days you owned the home that year.

• Example: If property taxes are $6,000 per year and you sell halfway through the year, you owe $3,000 in prorated taxes.

6. Homeowners Association (HOA) Fees

If your home is in an HOA, expect extra fees at closing.

• Unpaid dues: Any outstanding HOA fees must be paid before closing.

• Transfer fees: Some HOAs charge $200 to $1,000 just to process the ownership change.

These fees vary widely depending on the HOA’s rules.

7. Attorney Fees (If Required)

In some states, you must hire a real estate attorney to review and finalize the sale.  This is not required in Texas however there will be attorney fees for documents.

• Cost: Typically $500 to $1,500.

• What do they do?

  • Review contracts and closing documents.

  • Make sure everything is legally sound.

  • Draw legal documents such as warranty deed, release of lien.

Even if not required, an attorney can help protect your interests in complex transactions.

Final Thoughts

Selling a home is more than just finding a buyer. Closing costs can add up, but by knowing what to expect and planning ahead, you can keep more of your profit.