Closing Costs
Fees and expenses paid at settlement when a real estate transaction is finalized.
Definition
Closing costs are the fees and expenses — beyond the purchase price — paid at the settlement table to complete a real estate transaction. They typically range from 2–5% of the purchase price for buyers and 6–10% for sellers (due to agent commissions).
Buyer closing costs include: loan origination fees, discount points, title search and insurance, appraisal, attorney fees, transfer taxes, recording fees, and prepaid items (insurance, property tax escrow, prepaid interest). Cash buyers avoid loan-related fees but still pay title, transfer taxes, and attorney fees.
Investors factor closing costs into their total acquisition cost when calculating deals. Failing to account for these on both the buy and sell side is a common mistake that erodes projected profits. In a flip, closing costs hit you twice — at purchase and at disposition.
Related Terms
PITI
Principal, Interest, Taxes, and Insurance — the four components of a monthly mortgage payment.
Earnest Money
A deposit paid by the buyer to demonstrate serious intent — held in escrow until closing.
Due Diligence
The investigation and verification process buyers conduct before committing to a real estate purchase.
Exit Strategy
The plan for how and when an investor will eventually sell or dispose of an investment property.
Pro Forma
A financial projection document showing expected income, expenses, and returns for an investment property.
Also in "C"
Cap Rate
Capitalization rate — the ratio of a property's net operating income to its market value.
Cash Flow
The money left over each month after all property-related income and expenses are accounted for.
Cash-on-Cash Return
Annual pre-tax cash flow divided by total cash invested, expressed as a percentage.