Why Should A Seller Pay a Home Buyer's Closing Costs? The short answer is....To SELL the HOUSE! But how does this work and why is it so important in the sale of a home? Let me explain...
When I list a home for sale, sellers are given a net sheet with estimates of closing costs associated with the sale home. One of the items on the list is “Seller contribution to the Buyer’s Closing Costs.” If the home is one that would be attractive to a first time buyer, I will put in an amount that is roughly 3% of the list price. Every now and again, I hear a seller scoff when they see this. "Why would I want to pay a BUYER'S Closing Costs?”
The answer is very simple: So they can BUY the house!
Today almost all buyers are required to put down a minimum of 3% of the purchase price of the home as a down payment. The closing costs for a buyer include title insurance, home owner’s insurance, appraisals, loan origination fees, name search fees, filing fees and more. As a REALTOR® for communities of Anoka, Chisago and Washington Counties and throughout the north metro Minneapolis/St. Paul area, I see closing costs that range from $3000-$7000 for a first time buyer. Couple this amount with a required down payment and only a handful of buyers have all the funds required to purchase a home.
How does this work? Let’s say that a home is on the market for $200,000. The buyer writes their offer for $195,000 and their financial institution allows up to 3% seller’s assistance with fees and closing costs. They decide to ask the seller in their purchase agreement document for $5000, thus the net offer to the seller for the home is $190,000. However the since the home was sold at $195,000, it must appraise at this higher amount.
When a purchase agreement is received on a home listed for sale, it can be confusing to a seller as to what the sale price versus net number is. In the case above, the $195,000 would be the sale’s price on the purchase agreement but by paying the $5000 in closing costs, the seller’s net number is really $190,000 (less the seller's own closing costs including all fees and commission).
This is where the assistance of a good, professional REALTOR® comes into play. As a real estate agent, I provide my clients with a seller's net sheet that outlines all costs and fees that has been updated after receiving the offer. When counter offers start going back and forth, I reiterate at each step what my seller's net number to help eliminate the confusion.