Who Pays Closing Costs In California?
In California, the average home sells between $600,000 and $700,000. If you find property within that price range, expect to pay $4,860 to $5,670—before taxes — in closing costs. These charges shall cover your inspection, assessment and origination costs, as well as title insurance and courier charges.
Depending on the type of property and how you pay for it, you may also need to pay for mortgage insurance, flood certification, HOA or condo fees. Some of them are negotiable, but the taxes are set in stone. California is subject to property and transfer taxes, although property taxes have been capped at 1% of the purchase price since 1978.
The averages are based on the data of the sample. Closing costs may vary depending on your lender, the size and type of your loan, and even your credit score.
Who Pays Closing Costs in California?
Closing costs are a combination of service charges and taxes collected at the final stage of the real estate transaction. When you buy a home in California, a number of businesses and local government entities will be involved in the transaction. Vendors provide real estate products and services that ensure that the deal is on a sound footing (financially, legally, etc.) In addition, a portion of taxes and insurance is 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 purchase process called escrow. There are two stages in the escrow period: the beginning of the escrow and the closing of the escrow.
Here are some of the characteristics of the closing costs paid during the escrow period:
- Fees and deposits are costs that are separate (over and above) from the amount of the down payment.
- Fees and taxes vary by location (state, county, city)
- Who pays what is negotiable, thought that local norms are usually followed without much variance.
Beginning of Escrow
There are a few costs that buyers will incur before closing at the beginning of the escrow period. After the purchaser makes an offer that is accepted by the seller, the purchaser will need to make a serious deposit of money at home (a.k.a. a good-faith deposit) that tells the seller you are serious about buying the property. The seller, on the other hand, will pull the home out of the market and make it unavailable for other buyers to place offers on it. Earnest money is usually refundable; you can put yourself in the best position to get your deposit back by following the terms and conditions set out in your letter of offer. The typical earnest deposit is 1% of the purchase price.
At this stage, buyers also have few non-refundable expenses, home inspection and assessment. Inspections identify any problems with the home (plumbing, electrical, roofing, etc.) and the assessment is an estimate of the current market value of the home.
Closing of Escrow
If the home assesses as expected (read what happens when the assessments are low) and all the contingencies are met (such as repairs to the surface issues during the inspection, agreed to move out of the seller's date, etc.), then the deal moves into the closing of the escrow period. The following are the expected closing costs for home buyers and sellers in California (and, practically speaking, the rest of the United States) during the closing of the escrow period.
Closing Costs for Sellers in California
- 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
- Attorney – paid to the attorney that represents the seller, if applicable
Closing Costs for Buyers in California
Home buyers can expect average closing costs in California of between 2% and 3%. There are two types of expenditure: one-time (non-recurring) and recurring (pro-rated or ongoing). For example , if you buy a $800,000 home in Los Angeles, your one-time and recurring closing costs would range from $16,000 to $24,000. Let's break the fees for each type.
Non - Recurring Fees
Escrow – the fee paid for escrow services
Title Insurance – a search of the title's history ensures that the title is free of defects like liens or other encumbrances. The ensuing insurance policy is paid by the buyer/borrower and protects the lender in case unforeseen issues with the title arise.
Notary – the cost to verify signatures
Recording – fee for recording the change of ownership with the county government
Mortgage origination – fees paid for originating the loan
Underwriting - the administrative cost of evaluating the borrower and the property
Processing – covers the paperwork and deal management
Flood certification – a risk assessment of the property
Discount points – fees to “buy down” the current market interest rate on a mortgage
Mortgage insurance – typically required by lenders when down payments are less than 20% of the purchase price of the home
Recurring or Prorated Fees
Recurring fees are items that you can expect in the course of home ownership, such as property taxes. At the end of the day, some funds are set aside to pay the first few installments of these ongoing expenses. This ensures a smoother transition for the new home owner while adjusting to the new payment schedule. You may hear that professionals working on your deal use words such as "impounds" or "reserves" to refer to the collection of these upfront, prorated fees.