Legal-Ease: Who pays what closing costs


First Posted: 5/31/2014

Spring is usually the busiest season for home sales. Many of those home sales are “closing” this month. Whether someone is buying or selling a house, farmland or commercial property, it is important to know what is customary concerning allocating the closing costs between the buyer and the seller.

Closing costs are usually defined as the transaction costs to transfer the property from seller to buyer, to administer payment of the existing liens against the property and to protect the buyer’s lender’s lien/mortgage interest in the property. Allocation of closing costs should be identified in the purchase contract and can always be negotiated. However, the purchase contract does not always include such allocation for many understandable reasons.

Federal law requires that the closing costs for the buyer be estimated and provided to the buyer (if the buyer is borrowing money for the purchase of a house) at least several days in advance of the closing.

The closing costs include any commission for real estate agents involved in the sale. Frequently, if the seller and buyer each have a real estate agent, the real estate agents will share their commission, which is paid by the seller. If only the seller or the buyer have employed a real estate agent for the transaction, the party who hired the real estate agent will be responsible for the agent’s commission.

If a new metes and bounds survey is required to transfer the property, the seller pays the survey cost. If a survey is needed for the buyer to get a loan, the survey cost is paid by the buyer.

The seller pays to prepare a deed to transfer the property to the buyer. However, the cost to record that deed in the courthouse is paid by the buyer. The buyer also pays for the cost to record the buyer’s lender’s mortgage, if any.

There is a “conveyance fee/tax” that is either $3 or $4 per thousand dollars of the purchase price, depending upon the county. That conveyance fee/tax is paid by the seller. Separately, there is a 50-cent fee for each tax parcel that is transferred, which fee is paid by the buyer.

In rural counties, including our entire region, title examination fees and title insurance are paid by the buyer. In Ohio’s urban counties and in most of the rest of the country, title examination fees and title insurance to protect the buyer are usually paid by the seller.

If the buyer’s lender asks for the buyer to “escrow” the real estate taxes and insurance, the lender will require the buyer to pay an initial amount to “fund” the escrow account at closing. That amount is usually referred to as “prepaids” because that amount constitutes the prepayment of taxes and insurance. That amount is always paid by the buyer at closing unless the seller and the buyer agreed otherwise in the purchase contract.

This customary allocation of closing costs “fills the gaps” for the allocation of closing costs that are not negotiated in advance.

Lee R. Schroeder is an Ohio licensed attorney with Schroeder, Blankemeyer and Schroeder LLP in Ottawa. He limits his practice to business, real estate,estate planning and agriculture issues in northwest Ohio. He can be reached at lee.schroeder@sbslawoffice.com or at 419-523-5658. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.