Closing Costs Confusion: Who Pays for What?

By Adam R. Seligman

Every buyer and seller understands what a purchase price and closing date are, but oftentimes, they are not sure which party pays the closing costs associated with the closing.

Who Pays for What?

In the most recent iteration of the commonly used residential form contract in Florida, also known as the “FR/Bar,” paragraph 9 lists out which default costs are the responsibility of the parties (unless negotiated otherwise).

For example, the party who pays for title insurance is often negotiable, and custom is often what dictates who pays for what. In Broward and Miami-Dade counties, the custom is that the buyer pays for the title insurance, while in most other counties throughout Florida, the seller does.

Take a Close Look at Paragraph 9

Before signing a contract, it is imperative that the parties review paragraph 9. Paragraph 9 describes closing costs, fees, and charges associated with the transaction. Specifically, paragraph 9(a) details the costs that will be paid by a seller while 9(b) lays out the costs to be paid by a buyer.

However, upon closer examination, you can see that “who pays for what” largely depends on which box is checked in paragraph 9(c) regarding the title insurance premium. In other words, it is negotiable and up for discussion.

9(c) provides three choices, one of which must be checked:

  • If the box by 9(c)(i) is checked, the seller chooses the closing agent and pays for the owner’s title policy and charges (those charges include the owner’s title policy and premium, title search, and closing services costs). The buyer pays for costs associated with the buyer’s lender, if applicable.
  • If 9(c)(ii) is checked, the buyer chooses the closing agent and pays for the owner’s title policy and charges, in addition to the costs associated with buyer’s lender, if any.
  • 9(c)(iii) effectively splits some of the costs differently between the parties. I do not recommend 9(c)(iii), as it often causes confusion as to which party pays the costs not related to the title premium, i.e. title search, municipal lien search, preparation of closing documents, etc.

Review Paragraph 9 to Avoid Confusion During Closings

In deciding which option to choose, the parties should review in detail paragraphs 9(a) and 9(b) to determine what, exactly, they would be responsible for paying at closing. For example, if box 9(c)(ii) is checked, the buyer can look to paragraph 9(b) to see that the buyer is responsible for the owner’s policy and charges and any municipal lien search fee, in addition to the other named costs that are always paid for by a buyer. However, if paragraph 9(c)(i) is checked, the seller pays for those named costs.

As you can see, the decision to check a box in paragraph 9(c) carries a lot of weight and should be reviewed to avoid closing cost confusion at the closing table. A real estate closer can review all of the documents in your real estate transaction, facilitate any changes, and ensure the contract is correct, including paragraph 9.  If you would like more information about closing costs, or need assistance with a real estate transaction, our team at Lighthouse Title Services works closely with the attorneys at Ward Damon to ensure every aspect of your closing is clear, smooth and convenient for you, all at a reasonable cost.  

Adam R. Seligman is an equity partner and real estate, lender, and business attorney who has honed his legal practice in commercial and residential real estate, including lender representation, purchase and sale agreements, title insurance, loan work outs, short sales, lease negotiations, foreclosures, landlord and tenant law, condominium law, entity formation and general business matters. He represents entrepreneurs, business owners, executives and investors who confront a myriad of legal issues, both personally and professionally. Adam can be reached by email or phone 561.842.3000.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s