💰 What Is a Closing Cost Allocation Clause in Real Estate?

A closing cost allocation clause is a section in a real estate contract that specifies how the buyer and seller will divide closing costs. It defines who pays for items such as title insurance, transfer taxes, escrow fees, recording fees, survey costs, and lender-related charges. This clause ensures clarity and prevents disputes at closing.

How a Closing Cost Allocation Clause Works

Real estate contracts do not assume a fixed split of closing costs. The closing cost allocation clause defines exactly which party pays which expenses.

Common cost allocations include:

  • Seller-paid costs: owner's title insurance, transfer taxes, HOA resale fees, deed preparation.
  • Buyer-paid costs: lender fees, appraisal, buyer’s title insurance policy, credit report.
  • Shared costs: escrow fees, prorated taxes, HOA dues, recording fees.

The clause ensures both parties understand their financial obligations long before the closing date, reducing surprises or last-minute negotiations.

Why Closing Cost Allocation Matters

For Buyers:

  • Helps estimate total funds needed at closing.
  • Clarifies lender, appraisal, and title-related expenses.
  • Prevents unexpected fees on the Closing Disclosure.

For Sellers:

  • Allows sellers to control how much they contribute toward buyer costs.
  • Important during negotiations, especially in competitive markets.
  • Can be used as a concession to attract buyers.

For FSBO Sellers:

  • Understanding cost allocations helps set realistic expectations for net proceeds.
  • Reduces contract disputes when selling without an agent.
  • Ensures transparency when listing via a Flat Fee MLS.

Examples of Closing Cost Allocation

Example 1: Standard Market Allocation

  • Seller pays owner’s title insurance, transfer tax, and deed prep.
  • Buyer pays lender fees, appraisal, and title insurance for the loan.
  • Escrow fees split 50/50.

Example 2: Buyer Concession

  • Seller agrees to pay up to $5,000 in buyer’s closing costs.
  • This can help the buyer qualify with less cash at closing.

Example 3: Investor / Cash Deal Allocation

  • Buyer pays most or all closing costs to secure a lower purchase price.
  • Common in wholesaling or off-market transactions.