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No matter what state you’re in, real estate transactions are financially complex. Homebuyers and sellers have to think about more than just the home’s sale price: Closing costs are the fees and taxes that must be paid in order to finalize a real estate deal. While the seller typically picks up the tab for the majority of these costs, buyers also need to be prepared to cover some closing costs.
In California, one of the most expensive places in the country to live, closing costs are no bargain. Golden State residents pay the fourth highest closing costs in the nation, according to data from CoreLogic’s ClosingCorp. If you’re considering getting into the real estate market in California, read on for more details about the closing costs you can expect to pay.
How much are closing costs in California?
Closing costs vary widely from one state to the next. In California, excluding Realtor’s fees, these costs amount to about 1 percent of a home’s sale price, per ClosingCorp. The state’s median home sale price was a steep $735,480 in February 2023, according to the California Association of Realtors, which puts median closing costs at about $7,355.
Some of the items that are typically part of that total include title insurance fees, recording fees, transfer taxes and mortgage origination fees. The final tab for closing costs, however, can vary significantly depending on which part of California a property is located in. For instance, in the pricey San Francisco Bay Area, the median sale price is $1.05 million, which means closing costs would be $10,500. But in the Central Valley region, which includes the state capital of Sacramento, the median is a much more affordable $449,000, putting closing costs at $4,490.
Who pays closing costs in California, buyers or sellers?
Both buyers and sellers pay closing costs. But they don’t pay the same amount — sellers typically pay a larger share of the tab. Here’s a breakdown of what each party in the transaction is most often responsible for paying (don’t forget that if you’re using a real estate attorney, you’ll have to cover those fees as well).
Closing costs for buyers
- Origination fee: Most lenders charge an origination fee for establishing your loan. As you shop around for a California mortgage, pay attention to this cost — it may vary significantly from one lender to the next.
- Application fee: Some mortgage lenders also charge several hundred dollars to process your application.
- Credit fee: As part of the application process, your lender will check your credit. The fee for this step is only about $25, or sometimes slightly higher.
- Mortgage points: Paying to lower the interest rate on your mortgage can be tempting in a high-interest rate environment. This optional step will drive up your closing costs, but can save you money over the life of your mortgage.
- Appraisal fee: Mortgage lenders require home appraisals to ensure a home is worth what they’re loaning you. The cost of an appraisal is typically around $300 or $400.
- Home inspection fee: Most buyers will want a professional home inspection to determine whether the home has any major damage or problems. The cost of an inspection will likely be another $300 or $400.
- Title fees: A title search involves reviewing property records to confirm that there aren’t any liens or encumbrances on the home’s title. Title insurance is designed to protect you should someone else have any claims on the home.
- Property taxes: Buyers might be required to prepay property taxes when purchasing a home. The amount of taxes that must be prepaid can range from six months to a year.
Closing costs for sellers
- Commission fees: Realtor commissions will likely be the biggest expense for sellers. These typically run about 5 percent to 6 percent of a home’s sale price. Based on the California median price of $735,480, that could add up to more than $44,000.
- Transfer tax: Transfer taxes cover transferring ownership of the property. In the Golden State they run about 0.11 percent of the home’s sale price.
- Title insurance: Title insurance provides protection in the event that issues arise with the title on your property, and typically covers legal costs if mistakes are discovered. It can cost anywhere from a few hundred dollars to as much as $1,000.
- Property taxes: The exact tab for property taxes at closing varies based on where the home is located. Depending on when the closing takes place, sellers may have to pay for any outstanding amount due.
- Homeowners association fees: If you’re selling a home that’s located within an HOA, you may also be required to pay prorated fees.
- Wire transfer fees: If you’re transferring funds to pay the balance on your mortgage, your bank will likely charge a nominal wire transfer fee.
- Recording fees: The city or country where the home is located usually charges a fee to record the transaction. In California, this cost is typically a couple hundred dollars.
Lowering your closing costs in California
Like just about everything else in a real estate deal, you can try to negotiate closing costs to help lower what you owe. If you’re buying a home in California and there’s a great deal of interest from other buyers, you may have less power to negotiate closing costs with the seller. If a home has been sitting on the market for a while, you’ll have more bargaining power.
Another way for buyers to lower closing costs is to see if you’re eligible for government-sponsored assistance. There are often federal, state and even county-level programs available to help cover some or all of your closing costs, especially if you’re a first-time homebuyer.
Mortgage lenders may also have rebate programs available that can lower your loan closing costs by a few hundred dollars. In California, Realtors can also provide closing cost credits from the commission they typically earn on the sale, so be sure to ask your agent about this.
And sellers, keep in mind that agents’ commission fees are often negotiable. On high-priced homes, a small commission discount can save you thousands of dollars.
Find a local real estate agent
Regardless of whether you’re buying or selling, navigating the complexities of a real estate transaction can be far easier with a professional at your side. When looking for an agent, a good place to start is asking friends and relatives who have had a positive experience with their own Realtor. It’s also a good idea to examine an agent’s online presence, including reading any reviews you can find from previous clients. And don’t discount good old fashioned legwork — drive or walk around the neighborhoods you’re interested in and note the names on “for sale” or “sold” signs, especially on homes you like or homes similar to yours.
In California and any state, both the buyer and the seller are responsible for a portion of the closing costs in a real estate transaction. Typically the seller pays a bit more in closing costs than the buyer.
Average closing costs in California are about 1 percent of a home’s sale price, according to data from ClosingCorp. For a $500,000 home, that would amount to around $5,000. These costs are split between the buyer and the seller, though, so one party would not be responsible for the full amount.