Have you ever wondered who pays the closing costs in a land transaction?

Who covers what? What should you expect when buying or selling a piece of property?

In this blog post, we’ll break down the norms, common practices, and smart strategies for managing closing costs in a land deal.

When buying or selling land, the price you negotiate is just the start. To finalize the deal and transfer ownership, you'll face a handful of additional costs. These are called closing costs, and they come in various forms. They can include:

• Title company fees
• Title insurance policy costs
• Current or back-due property taxes
• Recording fees, transfer taxes, and notary services

Though these expenses aren’t enormous, someone has to pay them.

But who? The answer depends. It depends on your role (whether you’re the buyer or seller), the terms of your deal, and the norms in your area.

Let’s walk through the typical closing costs, who usually pays each one, and how you might adjust this setup to fit your situation.

Title Insurance

One of the most common costs is title insurance, which protects against any claims or issues with the property's title, ensuring the buyer has clear ownership without any hidden disputes or liens. Usually, there are two types of title insurance:

1. Owner's Title Insurance: This policy protects the buyer and is typically paid for by the seller.
2. Lender's Title Insurance: If the buyer takes out a loan, this policy protects the lender's interest in the property. The buyer usually pays for this cost.

So yes, there can be two title insurance policies for the same property—one for the owner and one for the lender. It may feel like overkill, but it’s a standard practice.

Title Company Closing Fees

The title company charges a closing fee for their work to finalize the transaction. The most common practice is for the buyer and seller to split this fee equally, but like everything else, it's negotiable. Sometimes, the buyer might pay the entire amount, especially if it's a buyer's market.

Property Taxes

Even if property taxes are all paid up, the title company will typically prorate the taxes at closing. This means splitting the property taxes between the buyer and seller based on how long each party owns the property during that year.

For instance, if the closing happens halfway through the year, the seller will pay half of that year's property taxes while the buyer covers the rest. The daily tax rate is usually calculated from the prior year's tax bill to determine each party's share.

Transfer Taxes

Transfer taxes are often paid by the seller, but it depends on local customs and negotiations. In some areas, the buyer could also be responsible for these. If you're unsure what the norm is where you're buying or selling, it's worth asking your title company for guidance.

Recording Fees

Recording fees are paid to the county to record the new deed in public records. Since the deed is being recorded in the buyer's name, this is typically the buyer's responsibility.

Negotiating Closing Costs When Buying Land at a Discount

When you're buying land at a huge discount, the standard “who pays for what” approach may not apply—and that can actually work to your advantage.

When buying a property at a significant discount, I want to make the deal as easy as possible for the seller.

For example, I once bought a property where the seller was overwhelmed by back taxes and closing costs. By covering these expenses, I simplified the process for them, and they agreed to sell quickly at a discounted price.

This approach helps build trust and ensures a smooth transaction. They’re already accepting a lower price, and the last thing I want to do is complicate things by quibbling over closing costs. Instead, I often cover all the closing costs, including any back taxes if they exist. This approach makes it more likely for the seller to agree to the deal because they know they’ll walk away with the full cash offer.

However, I have one condition: the total of my cash offer plus closing costs and any back taxes must leave enough room for me to make a profit. If it doesn't, the deal is off the table.

Selling a Property? Stick to the Norms (Mostly)

When I’m selling a property closer to market value, I tend to follow typical local practices. This means I may ask the buyer to pay for their share of closing costs, including prorated property taxes and recording fees.

But if I need to offload a property quickly, I might cover all or most of the closing costs just to sweeten the deal and speed things up. Investors, like me, are used to covering closing costs when it makes sense—it’s all part of the negotiation process.

Key Takeaways on Closing Costs

Closing costs might seem like a minor part of the transaction, but they can significantly impact your profit margins—whether buying or selling. The key is to understand the norms in your area while keeping in mind that everything is negotiable. By knowing who typically pays for what and how you can use closing costs strategically, you’ll be in a much stronger position to close deals and make the process as easy as possible for everyone involved.

Don't be afraid to think creatively about closing costs. Sometimes, covering them all is exactly what you must do to get a seller to say yes. Just make sure it fits within your profit margin, and you’ll be good to go.

Check out this blog post for more insights on how the closing process works when buying or selling land.