Real Estate Closing Costs in Houston - Quick Guide

Buying or selling a home in Houston can often feel like a marathon. Each lap has its own set of challenges: negotiating, inspections, and counter-offers. But once the finish line comes into view, there’s one last hurdle to clear: closing costs.

As daunting as they may seem for buyers and sellers, closing costs are a sign that your hard work is about to pay off. They may seem complex initially, but adequate prep and solid knowledge of these costs can make handling this last stretch of your Houston real estate transaction much easier. 

Below, the team from Prevu Real Estate highlights the most common closing costs for buyers and sellers, who is responsible for what costs, and how both parties can potentially offset them.

Understanding closing costs in Houston, Texas

The Houston real estate market presents unique challenges, and one of the critical aspects for buyers and sellers to understand is closing costs. These expenses, which come into play at the end of a real estate transaction, can significantly influence the financial dynamics of buying or selling a property.

For buyers, closing costs encompass more than the property's purchase price. These costs include various fees, such as loan origination and property appraisal fees. Insurance and prorated property taxes also contribute to the overall financial burden at the closing table.

Sellers, on the other hand, face different expenses. The most notable among these is the commission for real estate agents. Additionally, sellers often have to bear the costs of transferring the property, including any attorney fees and any expenses related to improving the property's curb appeal.

What are typical buyer closing costs in Houston?

If you are an all-cash buyer, you can eliminate the costliest closing expense: the loan origination fee. 

Houston buyers who use a mortgage to help finance their home purchase will have to pay for the origination of the mortgage loan (often 1% of the home’s sale price), but this also varies depending on the home loan you use. You should always speak with your potential lender to get a comprehensive breakdown of the estimated closing costs for your loan amount before proceeding with the underwriting process.

Another critical cost for buyers is the fees for property inspection and appraisal. These services are crucial for confirming the structural integrity and value of the property and help ensure that buyers are making a sound investment.

Insurance expenses are also a significant part of closing costs for buyers. These include title insurance and homeowner’s insurance, protecting the buyer from future legal or property-related issues. Property taxes are another consideration, often prorated at closing based on the time of year the property is purchased.

Buyer closing costs in Houston

• Loan origination fees 
• Points or prepaid interest
• Home inspection fees
• Appraisal fees
• Title insurance
• Escrow fees
• Recording fees
• Prorated property taxes

What are typical seller closing costs in Houston?

On average, sellers can expect to pay around 6%-10% of their property’s final sale price in closing costs. This will depend mainly on each unique scenario, the property itself, and negotiations with the buyer. 

The largest is typically the commission paid to real estate agents, ranging from 5%-6% of the home’s sale price.

Other seller expenses include improving the property's marketability, such as home repairs or staging. Additionally, legal fees are involved in transferring the title and recording the sale.

Seller closing costs in Houston

• Real estate agent commission
• Title transfer fees
• Title insurance
• Home warranty
• Property taxes
• HOA transfer fees (if applicable)

How to estimate your closing costs

Estimating closing costs as accurately as possible is crucial for a smooth real estate transaction in Houston. 

Buyers should use mortgage calculators and seek detailed cost breakdowns from lenders. This helps in understanding what to expect in terms of expenses and in planning accordingly. Working closely with their buyer’s agent is another invaluable tool for buyers, as their expertise with multiple transactions will give you a clear idea of your particular scenario and potential closing costs.

Sellers, meanwhile, should consult with real estate agents to understand the typical costs involved in selling a property in their area. They should consider variable expenses, such as prorated taxes and utility bills, and fixed costs, like agent commissions and any legal fees.

How buyers can reduce closing costs in Houston

The first tool buyers should attempt to leverage to help reduce their closing costs in Texas is commission rebates. 

In simple terms, a commission rebate is a portion of the buyer’s agent commission provided to you after you close on a home. You’ll have to interview multiple brokerages specializing in commission rebates to get one.

For example, Prevu provides access to the largest commission rebate in Texas. Getting cash back in your pocket after closing is an effective way to offset pricey closing costs.

Another strategy is negotiations. Work closely with your agent to create a negotiation strategy and see if the seller may be willing to take on or share in some of your closing expenses. However, this method primarily depends on the current state of the real estate market, so always consult your agent for their expertise.

How sellers can offset closing costs in Houston

Sellers have two specific tools to help reduce their share of closing costs: 1)negotiating the commission rate, and 2) selling "For Sale By Owner" also referred to as FSBO.

Sellers must remember that real estate commission is always negotiable, regardless of what the brokerage tells you. Be sure to interview several real estate agencies to find the right fit for your goals. Even a slight reduction in the commission percentage can yield significant savings.

Going the FSBO route potentially eliminates the commission entirely but places the entire workload of selling the home on the seller. This means that the seller will be responsible for staging, marketing, negotiating, and finding qualified buyers. This can be an excellent approach for sellers with adequate experience in the Houston real estate market, however it will require a huge commitment of time as well.