Real Estate Closing Costs: What are They and Who Pays?

New Home

If you’re in the process of buying or selling a home or property in New Jersey, you’ve undoubtedly discovered the inherent connection between real estate transactions and finances. Real estate transactions also typically include a considerable amount of paperwork that can easily become confusing and overwhelming. Because of this, it is important that you work closely with an attorney experienced in NJ real estate matters.

By choosing to work with an attorney throughout your real estate transaction, you’ll be secure in the knowledge that the outcome will be beneficial to you. You can also rest easy knowing that you have a legally qualified advocate by your side to answer all of your questions about the process.

One of the most frequently asked real estate questions involves closing costs. Most people have at least heard of closing costs, but many don’t have a working understanding of what they represent, why they’re necessary, and who is responsible for paying them (the buyer or the seller).

First, let’s discuss the definition of closing costs in a real estate transaction. Aside from any down payment you may make on the home, closing costs are a one-time payment for line-item fees that you’ll pay on the date the home officially becomes yours. This date is when the ‘closing’ will take place. The closing is a meeting the will include you, your real estate agent, your attorney, and sometimes the lender and the seller, along with their attorney.

Buyers will have numerous closing cost line items. Some common examples include:

  • Mortgage application fees
  • Appraisal fees – An appraisal is required by many lenders in order to verify the sale price of the home.
  • Transfer taxes – Fee paid to the government any time a property title changes hands.
  • Loan origination fees (“points”) – A form of pre-paid interest paid by the buyer to the lender in exchange for a lower interest rate.
  • Home inspection fees
  • Escrow fee – Paid by the buyer to the title company or escrow agent for the handling and processing of all documents and monies related to the purchase.
  • Title search fee – Paid to a title company or attorney for the necessary research to verify that the seller is indeed the legal owner of the property.
  • Home owner’s insurance (first year’s premium)
  • Property taxes (pro-rata) – A percentage of the property tax that is proportionate to the amount of time out of the current year that the buyer will own the property.
  • Home owner’s association dues (pro-rata) [if applicable] – Same concept as pro-rata property taxes
  • Mortgage interest (pro-rata)
  • Private mortgage insurance – Required by lenders for buyers whose down payment is less than 20%. You may have to pay up to one year’s PMI at closing.

Although buyers have a multitude of line items to pay for at closing, many of them are negotiable and may be partially or totally paid for by the seller in order to guarantee the sale of the home.

Sellers are required to pay a lot less closing cost line items. However, the one thing they are required to pay for is the commission of the real estate agent, which is a significant chunk of money. A real estate agent’s commission is a percentage of the final sale price of the property and is usually non-negotiable.

In addition to the closing costs listed above, there are some additional fees and costs that may be incurred at the time of closing. Avoid unpleasant surprises by working closely with your attorney during the process of buying or selling your home.


Image Credit: Mark Moz

2 Responses to Real Estate Closing Costs: What are They and Who Pays?

  1. Pingback: A Realistic Look at Purchasing a Home | Veitengruber Law

  2. Pingback: A Realistic Look at Purchasing a Home in New Jersey | Veitengruber Law

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