Closing costs on a house strike fear into even the most gung-ho of buyers. But if you’re expecting closing fees in California to be handled the way they are on reality TV, you may be in for a reality check. And that goes double for house closing costs in Los Angeles. While you may think that the buyer neatly pays the entirety of the lump sum, regional customs have their influence. And those customs are likely to catch the uninitiated buyer off-guard.
California Law Does Not Stipulate Who Pays the Closing Costs on a House
While you might be tempted to turn to the law for clarification, you won’t get much help there in California. We don’t have a state law that clarifies who is on the hook for house closing costs. Rather, most parties look to the purchase agreement. But even our purchase agreements are informed by old-school regional tradition. And this means that, in the Golden State, a purchase agreement often opens, not closes, the door to negotiation. For a skilled real estate agent, that isn’t a bad thing.
Title Insurance is One of the Clearest Closing Fees – and the State is Split On It
When it comes to closing costs on a house in California, one of the most clear-cut closing fees is the owner’s title insurance. This insurance protects against future title issues, like recording mistakes or old liens. In Southern California communities, including LA, Orange, San Diego, Riverside, and Ventura counties, the seller typically covers the premium for the owner’s policy. If that sounds a bit backward to you, Northern California communities around the Bay Area and Sacramento tend to put this responsibility on the buyer instead. However, both north and south tend to agree that, in situations involving mortgages, the lender’s title policy should be paid by the buyer.
Transfer Taxes: House Closing Costs That Can Seriously Surge in Southern California
Los Angeles is not for the faint of… wallet. And this becomes strikingly clear with our next class of closing fees: transfer taxes. Buying a home in LA County? Budget for a documentary transfer tax that slaps an additional $1.10 per every $1,000 of the sales price. Not only that, but the City of Los Angeles tacks on an additional $4.50 per $1,000 tax. Who do you think is traditionally responsible for these twin closing costs on a house? Believe it or not, the seller customarily foots these bills. Sellers may find a little more wiggle room in other cities that enforce their own transfer taxes, including Culver City, Santa Monica, Redondo Beach, and Pomona, but even there, tradition still falls on the seller.
Measure ULA throws some extra gas on that fire. Colloquially (and not affectionately) referred to as the “mansion tax”, Measure ULA tosses an additional 4% tax on properties sold over the $5.4 million mark. But that’s just the introduction. When sales breach around $10.9 million (it’s difficult to be precise because the thresholds change with inflation each year), that percentage jumps to 5.5%. And that’s applied to the full sales price. Unfortunately for the sellers, Measure ULA’s massive closing costs also fall on them in most cases.
The Escrow Fee Split
Just when you thought things couldn’t get more confusing, the escrow fee is one of the few closing costs on a house that is split between the buyer and the seller, at least in Southern California. The fee is frequently split on the closing statement, delineated as “Buyer’s Escrow Fee” and “Seller’s Escrow Fee.”
Why Thinking Local Can Pay (or Save)
All of this being said, the most important takeaway from these traditions is that they aren’t laws. They’re the introduction to potential negotiation and often influenced by market conditions. Most of Los Angeles has spent years firmly immersed in a seller’s market, but on a national level, we’re drifting over into a buyer’s market. But this isn’t a landslide buyer’s market by any stretch of the imagination, so the potential for negotiation remains high. It’s why it’s important to work with a local agent who understands the balance between custom and a market ripe for negotiation.
This post is for general informational purposes and isn’t legal or financial advice. Closing cost allocations should always be confirmed in your specific purchase agreement.
With a brand that says as much as JohnHart’s, Senior Copywriter Seth Styles never finds himself at a loss for words. Responsible for maintaining the voice of the company, he spends each day drafting marketing materials, blogs, bios, and agent resources that speak from the company’s collective mind and Hart… errr, heart.
Having spent over a decade in creative roles across a variety of industries, Seth brings with him vast experience in SEO practices, digital marketing, and all manner of professional writing with particular strength in blogging, content creation, and brand building. Gratitude, passion, and sincerity remain core tenets of his unwavering work ethic. The landscape of the industry changes daily, paralleling JohnHart’s efforts to {re}define real estate, but Seth works to maintain the company’s consistent message while offering both agents and clients a new echelon of service.
When not preserving the JohnHart essence in stirring copy, Seth puts his efforts into writing and illustrating an ongoing series entitled The Death of Romance. In addition, he adores spending quality time with his girlfriend and Romeo (his long-haired chihuahua mix), watching ‘70s and ‘80s horror movies, and reading (with a particular penchant for Victorian horror novels and authors Yukio Mishima and Bret Easton Ellis). He also occasionally records music as the vocalist and songwriter for his glam rock band, Peppermint Pumpkin.
