What are seller closing costs?
Seller closing costs are everything deducted from the price on your settlement statement before the escrow or title company wires your net proceeds. Some are true expenses of the sale, like the commission and transfer tax. Others are not costs at all but settlements of money you already hold, like tenant security deposits, or debts you already owe, like your mortgage.
That distinction matters twice. It changes how big the check looks, and it changes your taxes, because only selling expenses reduce your gain. On a rental house the list is short. On an apartment building it runs longer, because you’re handing over a business with leases, deposits, service contracts and often a commercial loan with a prepayment premium.
Itemized list of seller closing costs on an apartment building
Most apartment sellers see some or all of these lines on the settlement statement. The amounts depend on your state, your contract and your loan.
- Broker commission: the listing broker’s fee, set in your listing agreement and paid from proceeds at closing.
- Transfer tax: a state, county or city tax on the deed or the price. Rates and the customary payer vary by state; see our real estate transfer tax guide and your state’s transfer tax page.
- Owner’s title insurance: in many areas the seller buys the buyer’s owner’s policy; in others the buyer does.
- Escrow or settlement fee: often split between buyer and seller, by contract or local custom.
- Seller’s attorney: contract review, deed preparation and closing documents.
- Rent, deposit and tax prorations: credits to the buyer for rent you collected past the closing date, tenant security deposits, and property taxes owed for your period of ownership.
- Loan payoff: the principal balance plus interest to the payoff date.
- Prepayment premium: yield maintenance, defeasance or a step-down fee if your loan isn’t in its open period.
- Recording fees: the cost to record the lien release on your mortgage and any curative documents.
- Survey: an updated ALTA survey, when the contract makes it the seller’s job.
- Repair credits: money you agree to credit the buyer after inspections instead of fixing items.
- Withholding: state withholding in some states and FIRPTA withholding if the seller is a foreign person.
Who pays closing costs, the buyer or the seller?
Who pays closing costs is set by your purchase contract, and the contract usually follows local custom. Custom differs by state and even by county, especially for transfer tax and owner’s title insurance, so treat the table below as a starting point and read the closing cost section of your purchase and sale agreement.
Everything on this list is negotiable. A buyer may agree to pay costs the seller would normally cover in exchange for a better price or terms, and the reverse is common when a buyer asks for a quick close.
| Cost | Usually paid by | Notes |
|---|---|---|
| Listing broker commission | Seller | Per the listing agreement |
| Transfer tax | Varies by state | Some statutes name the payer; others leave it to custom |
| Owner’s title policy | Varies by state | Seller in many areas, buyer in others |
| Lender’s title policy | Buyer | Required by the buyer’s lender |
| Escrow or settlement fee | Often split | Set by contract |
| Recording the deed | Buyer | Recording the lien release is the seller’s |
| Loan payoff and prepayment premium | Seller | Unless the buyer assumes the loan |
| Buyer’s loan fees, appraisal, Phase I, inspections | Buyer | Part of buyer due diligence |
| Survey | Negotiable | Often the buyer; sometimes the seller |
| Rent, deposits, property taxes | Prorated | Each side pays for its days of ownership |
Prorations: rent, security deposits and property taxes
Prorations split the building’s income and expenses between you and the buyer by the day of closing. You keep the rent for the days you own the building; the buyer gets credit for the rest of the month you already collected. If you close on June 21 and the buyer owns the closing day, the buyer is credited 10 of June’s 30 days of collected rent.
Security deposits move to the buyer in full, because the buyer takes over the obligation to return them. That credit is usually the biggest proration, and it comes out of your proceeds even though you never treated deposits as income. A tenant estoppel certificate and your rent roll are how the buyer confirms the deposit total.
How your county bills property taxes decides which way the credit runs. Where taxes are paid in arrears, you credit the buyer for your share of the year to date. Where they’re paid in advance, the buyer reimburses you. Delinquent rent usually isn’t credited to you at closing; the contract says whether the buyer collects it for you afterward.
Loan payoff and prepayment penalties
Your loan payoff is usually the biggest deduction from your proceeds. The servicer’s payoff letter shows the principal, interest to the payoff date, any fees and the prepayment premium if one applies. Ask for it early, because many commercial servicers need written notice before you can prepay.
On Fannie Mae, Freddie Mac and CMBS loans, prepaying before the open period can cost a large yield maintenance premium or a defeasance. Our defeasance and yield maintenance guide shows how those are figured. A step-down loan might charge 1% to 5% of the balance, depending on the year. A loan assumption can avoid the premium entirely if the buyer qualifies.
Worked example: seller closing costs on a $3,000,000 24-unit sale
Say a 24-unit building sells for $3,000,000, closing June 21. The owner owes $1,450,000, including interest to the payoff date, on a step-down loan now at 1%, so the prepayment premium is $14,500. The listing agreement pays 3%, or $90,000. Assume a combined state and county transfer tax of $5 per $1,000, or $15,000.
Rent is $1,600 a unit, so June’s collected rent is $38,400 and the buyer is credited $12,800 for 10 days. Each tenant has a $1,500 deposit, so the deposit credit is $36,000. Property taxes of $33,000 a year are paid in arrears, and the seller’s share for January 1 through June 20, which is 171 days, is $15,460.27. After inspections the seller gives a $20,000 roof credit.
Total deductions come to $1,677,260.27, leaving net proceeds of $1,322,739.73. Strip out the loan payoff and the costs and credits are $227,260.27. Of that, $148,200 is commission, fees and the repair credit, $14,800 is the prepayment premium and recording fee, and $64,260.27 is prorations that simply settle money the seller was holding or owed. You can run your own numbers in our net proceeds calculator.
| Line item | Amount |
|---|---|
| Sale price | $3,000,000.00 |
| Broker commission (3%) | −$90,000.00 |
| Transfer tax ($5 per $1,000) | −$15,000.00 |
| Owner’s title policy | −$7,200.00 |
| Escrow fee, seller’s half | −$3,500.00 |
| Seller’s attorney | −$8,000.00 |
| Updated survey | −$4,500.00 |
| Roof repair credit | −$20,000.00 |
| Recording the lien release | −$300.00 |
| Loan payoff | −$1,450,000.00 |
| Prepayment premium (1%) | −$14,500.00 |
| Rent proration (10 days) | −$12,800.00 |
| Security deposits | −$36,000.00 |
| Property tax proration (171 days) | −$15,460.27 |
| Net proceeds to seller | $1,322,739.73 |
How closing costs reduce your taxable gain
Selling expenses lower your gain because they come off the amount realized. IRS Publication 544 figures the amount realized as everything you receive for the property, including liabilities the buyer takes on, minus selling expenses. Commission, transfer tax you pay, title, escrow, legal and survey costs are the usual selling expenses on an apartment sale.
In the example, the $20,000 credit works like a price cut, and $128,200 of selling expenses come off the price, so the amount realized is $2,851,800. Your gain is that figure minus your adjusted basis, and depreciation you’ve taken lowers your basis and comes back as depreciation recapture.
The loan payoff isn’t a selling expense; paying off debt doesn’t change your gain. Same with prorations. They’re operating items, and your CPA handles them on the building’s final-year return. The capital gains tax calculator and our guide to taxes when you sell a rental property take it from there, and a 1031 exchange can postpone the tax.
Form 1099-S and FIRPTA at closing
Form 1099-S reports the sale to the IRS, and it’s filed by the person responsible for closing, usually the settlement agent named on the closing statement. The IRS instructions say gross proceeds are not reduced by the seller’s expenses, so the form will show the full price, not your net. Sales of commercial buildings are reportable. A transfer by a corporation is generally not.
If the seller is a foreign person, FIRPTA generally requires the buyer to withhold 15% of the amount realized. Most U.S. sellers simply sign a non-foreign certification. Some states have their own withholding for out-of-state sellers, and the title company will tell you if yours does.
How seller closing costs work on a 5+ unit apartment building
On a 5+ unit building, the biggest swings in your check usually come from the loan, the deposits and the negotiated credits, not the title fees. Get the payoff letter and prepayment figure before you price the building, and reconcile the deposit ledger against your rent roll so there are no surprises at closing.
Repair requests can be handled with a credit, a price reduction or an as-is sale. A credit and a price cut have about the same tax effect, but a lower price can also lower transfer tax, which is figured on the price in many states. Picking the closing date matters too, because it sets the rent and tax prorations.
If you’re buying another property, a 1031 exchange changes the mechanics: the qualified intermediary receives the proceeds instead of you, and how costs and prorations are handled on the settlement statement can affect whether part of the exchange becomes taxable boot. Have your CPA review the statement before you sign.
Selling your apartment building to Skyline
Skyline Capital Investments buys 5+ unit apartment buildings nationwide as a direct buyer. We can buy as-is, which keeps repair credits off your statement, and we can work with your 1031 timeline or offer seller financing when it helps your numbers.
Send us the address and unit count through the form on this page, or call (469) 660-2977. We typically respond within 48 hours, and we’re happy to walk you through an estimated settlement statement before you decide.
