Closing costs are a combination of service fees and taxes collected at the final stage of a real estate transaction.
When you buy a home in California, several businesses and local government entities get involved in the transaction. Vendors provide real estate products and services that make sure the deal is on a sound footing (financially, legally, etc.). These can include, title company, escrow company, lender, etc. Plus, a portion of taxes and insurance are collected before the change in ownership takes place.
Both buyers and sellers are responsible for certain closing costs during the final stage of the home buying process called escrow. There are two stages of the escrow period: the beginning of escrow and closing of escrow.
Here are a few characteristics of closing costs paid during the escrow period:
- Fees and deposits are costs that are separate (over and above) the down payment amount
- Fees and taxes vary by location (state, county, and city)
- Who pays what is negotiable, thought local norms are typically followed without much variance
Home sellers in California can expect closings costs that average from 5% to 9%.
Typical seller closing costs include the following items:
- Broker’s Commission – the fee charged by the listing broker for marketing the property that is typically split evenly with the seller’s broker
- Title Insurance – assures the buyer that they’ll take possession of real property that is unencumbered by title defects like prior liens. Seller pays for the buyer’s policy
- Documentary Transfer Tax – a governmental tax on the transfer of real property, over and above any lien, also called a real estate transfer tax in other states
- Seller Concessions – any fees the seller agrees to pay on behalf of the buyer such as prorated property taxes, mortgage discount points, or a home warranty
- Escrow – pays for escrow services and additional items like document preparation