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Short Summary
Main recommendation: Budget for the many hidden costs of buying real estate beyond the down payment, and negotiate them down or have the seller cover them. Graham Stephan estimates total closing costs on a typical $500,000 California home at around $14,000, plus inspections and appraisal, and says shopping your loan and negotiating with the seller can offset much of it.
Key Points
- Inspections typically cost $300 to about $3,000, and any money spent can often be recovered through repair credits or price reductions the seller agrees to after problems are found.
- Appraisals usually run about $400 to $1,000 and are required by the bank to confirm the home is worth the loan amount, though good bank clients sometimes have the fee waived.
- Loan origination fees range from roughly 0.5% to 1% of the loan, which is $2,500 to $5,000 on a $500,000 loan, and shopping your loan between banks can lower them.
- Lenders require you to prepay six to twelve months of homeowners insurance at closing, which is an expense buyers often overlook.
- California escrow fees are a base fee plus about $2 per $1,000 of purchase price, and they are negotiable.
Details Worth Noting
- Concrete instructions:
- Order inspections as needed (general, sewer line, foundation, mold, roof, electrical, plumbing, and possibly slope, geological, radon, termite, or electromagnetic radiation inspections depending on the property), then use the findings to negotiate repairs or credits.
- After your offer is accepted and inspections are done, but before removing the inspection contingency, ask the seller for repair credits or a price reduction.
- In California, ask the seller for a credit toward non-recurring closing costs (fixed one-time costs only, not prepaid property tax or insurance), and take any amount above that as a reduction in purchase price. Example: $20,000 in needed repairs with $10,000 in non-recurring closing costs can be split as a $10,000 closing-cost credit and a $10,000 price reduction.
- Shop your loan: get an offer from Bank One, take it to Bank Two to beat it, return to Bank One to beat that, and repeat with other banks over about a week to get the best rate and fees. Banks may cover closing costs or add perks if you bring in a significant deposit (the speaker cites $100,000 as an example).
- Ask the escrow company to lower its fee (for example, $1 to $1.80 per $1,000 instead of $2), and itemize and request refunds for any services you did not use, such as notary or messenger fees.
- Appraisal fees in the speaker's example: $950 for a multifamily property plus a $150 rush fee.
- Other fees in the speaker's example closing statement: $40 credit report, about $92 tax service fee, and $1,000 loan origination fee.
- Title and recording fees generally run about $500 to $1,200, and the speaker's example was $885.
- Miscellaneous fees in the speaker's example totaled roughly $500, though not every escrow company charges them.
- The speaker's own Culver City loan was lender-paid with no fees and a $2,000 credit, at a 3.375% thirty-year rate, after moving $250,000 to Chase and setting up automatic deposit withdrawals.
Bottom Line
Closing costs and inspections can add thousands of dollars to a home purchase, but they are often negotiable, so asking for credits, shopping loans, and questioning every fee can recover a meaningful share of the cost.
