You have probably heard the term closing costs if you deal with real estate in any way. Managing the closing costs is essential to the creation of an acceptable real estate deal. So, what are closing costs, and what can one do about them? The selling and buying of real estate is one of the most common transactions in the world. It literally takes place each and every day, with the vast majority of it happening without any fanfare. The truth is that individuals and businesses enter into real estate transactions for a number of different reasons. Examples include the acquisition of shelter, the development wealth through investing, setting up a business headquarters and more.

For the individual or business planning to get into a real estate deal, it is immensely important to understand the process and the costs involved. Even a business has a representative, such as a real estate agent or real estate attorney overseeing the transaction, it is still a good idea to have a clear idea of how things operate. A good place to start is the in the understanding of closing costs.

What Are Closing Costs?

When visiting the question, what are closing costs, it will be necessary to look across a number of verticals. In essence, closing costs encompass all of the fees possible to apply by the seller and the buyer in order to initiate and complete the transfer of title from one entity to another. The most common real estate transaction is the transference of title of a residential property. However, businesses and investors enter real estate contracts that may be worth millions of dollars, and each in case the closing costs can be substantial. Because closing costs vary depending on the type of transaction it is, the size of the deal, the type of loan, if any, etc.

Why Businesses Might Incur Closing Costs

Closing costs are an integral part of real estate transactions. Thus, the best way to approach the need to understand why businesses might incur closing costs is to gain an understanding of how they might get into a real estate transaction.

Property of business acquisition — If a business is in the process of purchasing property or another business that is resting on real estate, it will be necessary to enter into an agreement that will facilitate the transference of the title of the property.

Selling property or business — The absolute reverse can also be true. If a company is being becoming a part of another company or changes management, it will be necessary to enter into a legal transaction that will facilitate the need to transfer the title of any related property to the subsequent owner.

Investing in real estate holdings — real estate remains one of the most stable, long-term investment opportunities in the financial world. Some property can be bought and then put as a viable hard asset that contributes to the net worth of the company. While other properties can also create passive monthly income through leasing or renting it, which would be in addition to the contribution the property would make to the net worth of the business.

What Are the Fees that Can Contribute to Closing Costs?

Based on geographical location, the type of property in the transaction, the type of loan, and other variables, closing can vary significantly. In order to prepare better to manage closing costs, one has to be aware of the multitudinous fees that they have to pay at the time of closing. What are closing costs one can encounter on a regular basis?

Application Fee

The application fee is a highly common charge by the lender in order to cover the cost of processing the application. It is important that any buyer that will require funding support through a lender be aware of the afferent fees, including the application fees. Some of the costs that the application fee may include a credit check, an appraisal, and human labor, to name a few.


It is likely that at least one appraisal will be in need to facilitate the close of the deal. Depending on the contract, either the buyer or the seller can be responsible for paying for the appraisal, but both should be aware of the average cost of an appraisal.

Attorney Fees

This fee covers the cost of having a real estate attorney review the closing documents on behalf of either party at the time of closing. While it is not obligatory in all states, it is probably a good idea to use the expertise of an attorney.

Closing Fee or Escrow Fee

This is a fee that will be paid directly to the title company that handles the closing. It can also be paid to an attorney’s office when the closing is handled by an attorney. In this case either the attorney or the title company oversees and certifies the closing as an independent third-party to the real estate transaction.

Home Inspection

It is common to have an inspector come out to evaluate the condition of the property, whether the building is new or old. This practice is to ensure that the purchasing is receiving exactly what they are paying for, and there will be no surprises.

Ways to Reduce Closing Costs

The first step in reducing closing costs is to ask what are closing costs that should become void at the time of closing. Subsequently,  there are a number of different ways to reduce closing costs. One of the most common ways to accomplish this is to negotiate that the other party either share the closing costs are cover them completely. This approach works best when the other party hold the higher interest in the deal. Sometimes the seller will hold high interest to close the deal, and there will be other times that the buyer will be the one who’s in to get the deal over with.

Another way to lower closing costs is to conduct due diligence prior to signing the contract. For instance, it is possible that the property in question by have cash liabilities in the way of liens that have been placed on the property as a means of recovering money owed. If this is the case, it will be necessary to require that the seller pay all liens before or at the time of closing. There are multitudinous ways that this be structured for the closing in order to make it easy for everyone involved.

Summing Up

So, what are closing costs? Basically, closing costs can be accrued over a number of different service and financial mediums, and it is the responsibility of both, the buyer and the seller, to know what the potential closing cost areas early in the deal as possible. Having a handle on the deal will reduce the possibility of unforeseen costs at the time of closing, and it will also provide ample time to find ways to reduce the costs be the deal closes.

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