Who Pays Which Closing Costs in California, Between Buyer and Seller?

It’s one of the most common questions among home buyers and sellers in California: “Who pays for which closing costs?”

And it’s an important question, because these costs can add up to thousands of dollars in a typical real estate transaction.

Even so, there are certain closing costs that are usually paid by the buyer, and some that are typically paid by the seller. There are also some key differences between Southern and Northern California. So let’s explore!

Who Pays Which Closing Costs in California?

Let’s start with a basic definition of “closing costs,” just so we’re on the same page.

Here, we are talking about the various fees and charges that home buyers and sellers have to pay, when finalizing or “closing” a real estate deal. Most of these costs fall onto the buyer, especially when a mortgage loan is being used. But sellers have some out-of-pocket expenses of their own.

Here’s a simplified breakdown on who pays which closing costs in California:

• Buyers usually pay most or all of the mortgage-related fees, such as the origination fee, along with escrow charges that are paid to the escrow company.
• Sellers usually pay the real estate transfer taxes associated with the sale (and sometimes the agent commissions as well, but that’s for a separate article).

Once you get beyond these basic customs, however, it tends to vary quite a bit.

For example, the owner’s title insurance fee might be paid by the seller or the buyer, depending on local customs. In Northern California, it’s more common for the buyer to pay the title insurance fees. While in Southern California, the seller usually covers it.

And in some counties, it’s more common for the two parties to split this particular charge. There are no hard-and-fast rules that cover the entire state.

The state of California does have certain rules regarding mortgage and home-buying fees. But the government doesn’t dictate who pays for which closing costs. That’s generally left up to the buyer and seller, via negotiations.

The Seller Can Pay Some of the Buyer’s Costs

In California, as in other states across the country, sellers are permitted to pay some or even all of a home buyer’s closing costs. And that’s an important point, since these costs can add up to thousands of dollars on a typical home purchase.

When a seller contributes money toward a buyer’s closing costs, it’s known as a seller concession. The person selling the home is conceding something of value, hence the term “concession.”

Most of the mortgage loan programs available today allow for seller contributions or concessions. In such cases, the two parties involved can negotiate over who will be paying what. This is true for FHA, VA, and conventional or “regular” mortgage loans.

Just bear in mind that sellers do not have to pay any of the buyer’s closing costs in California. There’s a big difference between being able to contribute money, and being willing to do so. The likelihood of it happening partly depends on current real estate market conditions, as explained below.

Housing Market Conditions Play a Role Here

Sometimes, home sellers in California will offer to pay some of the buyer’s closing costs in order to generate more offers. This happens more often in a slower real estate market, where sellers have to do more to attract offers.

In such times, a homeowner might be more willing to offer a seller concession. Sometimes these offers are written directly into the real estate listing and/or featured on the yard sign. For instance, you might see a listing or sign that says: “seller will pay 3% toward buyer closing costs.”

But in a more competitive real estate market, where sellers are more likely to receive multiple offers from buyers, they tend to be less willing to pay for buyer closing costs. The simple reason is that they don’t have to.

Those are two important points to keep in mind when negotiating:

• In a slow real estate market, where homes take longer to sell, homeowners sometimes offer concessions as a way of enticing buyers and offers.
• In a competitive, fast-moving market, sellers are generally less likely to pay a portion of the buyer’s closing costs.

In a fairly balanced real estate market, or in a market that favors buyers over sellers, it never hurts to ask for a closing cost contribution. But in a competitive market, it could actually work against you. When sellers have more bargaining power, they might be inclined to reject offers that ask them to pay closing costs.

How to Ask for a Seller Concession

Asking the seller to pay some of your closing costs is fairly straightforward. This kind of clause can simply be added to the purchase offer.

Once both parties have signed it, the purchase offer becomes a real estate contract. So anything written into that contract becomes a requirement for the transaction, including any concessions.

Real estate contracts and purchase agreements are typically boilerplate and template driven. As a home buyer, you would simply fill in the appropriate blanks regarding the purchase price, closing date, and other details of the transaction. You could also include some verbiage asking for a seller concession.

For example, you might include a clause that says:

So there’s a negotiating side to this, as well. Local customs partly determine who pays for which closing costs in California, between the buyer and seller. But local market conditions also play a role.

Knowing What to Expect on Closing ‘Day’

In California, home buyers and sellers can close separately. They can also do it remotely, through a digital process that reduces or eliminates the need for face-to-face interaction.

As a home buyer, you shouldn’t encounter any surprises as to who is going to pay which closing costs. Borrowers typically receive a document a few days before closing that shows all of the costs they will have to pay. You’ll also get an estimate on the front end of the process, around the time you apply for a loan.

Even if you’re not using a mortgage loan, you should still have a clear understanding of who pays which closing costs. The escrow company managing the process should have all of this ironed out before you sign documents to close the deal.

Your real estate agent is another useful resource in all of this. By the very nature of their profession, real estate agents tend to know exactly which closing costs buyers and sellers pay, which ones might be split, and which ones are the most negotiable.

Remember, these trends and customs can vary geographically. So be sure to lean on your agent for their local insight and experience.

Key Takeaways From This Article

We’ve covered a lot of information in this guide. So let’s wrap up with a quick summary. Here are the seven most important points home buyers should take away from all of this:

• California has no law dictating who pays specific closing costs, leaving it to local customs and negotiation.
• Buyers generally cover mortgage-related fees and escrow charges, while sellers handle transfer taxes.
• Northern California buyers often pay title insurance, while Southern California sellers usually do.
• Almost all closing costs are negotiable, with terms outlined in the purchase agreement.
• Seller contributions are more common in buyer’s markets, less so in competitive ones.
• Real estate agents provide valuable local insights and negotiation expertise.
• Buyers receive detailed cost breakdowns before closing, ensuring no surprises.

Need mortgage financing? Located in the San Francisco Bay Area, Bridgepoint Funding serves home buyers all across California. We offer a broad range of mortgage products, including conventional, FHA and VA. Please contact us if you have mortgage questions or would like to apply for a loan.