What Are Closing Costs and Why Do They Matter?

Closing costs are the fees and expenses — beyond the property purchase price — that buyers and sellers pay to complete a real estate transaction. In California, these costs typically range from 2 to 5 percent of the purchase price, and they can add up to a significant sum that catches unprepared buyers and sellers off guard.

In my experience closing transactions across Kern County and the Central Valley, the number-one surprise for first-time participants is the length of the closing cost estimate. But once you understand what each line item is and who pays it, the process becomes far less intimidating.

Buyer Closing Costs in California

As a buyer, you can expect to pay between 2 and 3 percent of the purchase price in closing costs. On a $400,000 home in Bakersfield, that translates to roughly $8,000 to $12,000 on top of your down payment.

Escrow Fees

The escrow company serves as the neutral third party that holds funds and documents until all conditions of the sale are met. In California, escrow fees are typically split between buyer and seller, though this is negotiable. Expect your share to be approximately $1,000 to $2,000 on an average Kern County transaction. Escrow fees are usually calculated as a base fee plus a per-thousand rate on the purchase price.

Title Insurance — Lender's Policy

Your mortgage lender will require a lender's title insurance policy, which protects the lender's interest in the property. In California, the buyer customarily pays for this policy. For a $400,000 purchase, the lender's policy typically costs $600 to $1,200. This is a one-time premium paid at closing.

Loan Origination and Processing Fees

Your lender charges fees for processing, underwriting, and funding your loan. These typically include:

• Origination fee: 0.5 to 1.0 percent of the loan amount ($1,500 to $3,200 on a $320,000 loan).
• Appraisal fee: $450 to $750 in Kern County.
• Credit report fee: $30 to $75.
• Flood certification: $15 to $30.
• Tax service fee: $50 to $80.

Prepaid Items and Reserves

Lenders require you to prepay certain items at closing and establish reserve accounts:

• Homeowner's insurance: First year's premium paid in full, typically $1,200 to $2,400 in Kern County.
• Property tax prorations: You reimburse the seller for any property taxes they have prepaid beyond the closing date, or the lender collects reserves for upcoming tax bills.
• Prepaid interest: Daily interest charges from the closing date to the end of the month. Closing earlier in the month increases this cost.
• Mortgage insurance: If putting less than 20 percent down, the first month's PMI or MIP may be collected at closing.

Recording Fees

Kern County charges recording fees for filing the deed and mortgage documents with the County Recorder. These typically total $75 to $150.

Home Inspection (Paid Before Closing)

While technically paid during the escrow period rather than at the closing table, a general home inspection ($350 to $500), termite inspection ($75 to $150), and any specialized inspections (roof, sewer, pool) are buyer costs that should be budgeted as part of your total transaction expenses.

Seller Closing Costs in California

Sellers typically pay 6 to 8 percent of the sale price in total costs, with the largest portion being real estate commissions.

Real Estate Commissions

The total commission is negotiated between the seller and listing agent and is the single largest closing cost. This is split between the listing agent's brokerage and the buyer's agent's brokerage according to the listing agreement terms.

Title Insurance — Owner's Policy

In California, the seller customarily pays for the owner's title insurance policy, which protects the buyer's ownership interest. For a $400,000 sale, this costs approximately $1,500 to $2,500. This is a one-time premium that protects the buyer for as long as they own the property.

Transfer Tax

California imposes a documentary transfer tax of $1.10 per $1,000 of the sale price. On a $400,000 sale, that equals $440. In Kern County, this is customarily paid by the seller, though it is negotiable. Unlike some coastal California cities, Kern County does not impose an additional local transfer tax.

Escrow Fees (Seller's Share)

The seller's share of escrow fees mirrors the buyer's — typically $1,000 to $2,000 depending on the purchase price.

Prorations and Credits

• Property tax prorations: If the seller has not yet paid taxes for the current period, the seller credits the buyer at closing for the seller's share of property taxes owed.
• HOA prorations: If the property is in an HOA, dues are prorated to the closing date. HOA document preparation fees of $200 to $500 may also apply.
• Home warranty: Sellers sometimes provide a one-year home warranty to the buyer as a negotiation tool. Cost is $400 to $650.

Payoff Costs

If the seller has an existing mortgage, the lender will charge a demand fee ($100 to $300) and any accrued interest through the payoff date. Prepayment penalties are rare on modern mortgages but should be verified.

Ways to Reduce Closing Costs

• Negotiate seller credits: Buyers can ask the seller to contribute toward closing costs, typically 2 to 3 percent of the purchase price. This is especially effective in a buyer's market.
• Shop lender fees: Loan origination fees and rates vary significantly between lenders. I always recommend getting at least three Loan Estimates to compare.
• Ask about lender credits: Some lenders offer a slightly higher interest rate in exchange for credits that offset closing costs — useful if you plan to refinance within a few years.
• Close at the end of the month: This minimizes prepaid interest charges.
• Use a local escrow company: Local Kern County escrow companies often charge less than national title companies while providing more responsive service.

What to Expect at the Closing Table

In California, most closings are handled through the escrow company without a formal "closing table" meeting. You will sign documents at the escrow office or via a mobile notary, funds will be wired, and the deed will be recorded with the county. You will receive a final closing statement (Settlement Statement) itemizing every cost.

Whether you are buying or selling, I walk every client through the estimated closing costs before we write or accept an offer, so there are no surprises. Understanding these costs upfront allows you to budget accurately and negotiate effectively.