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I ain't paying their closing costs!!!

By Bryant Tutas

Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

February 21, 2007 03:41 PM

I'm writing this post today to try and help sellers understand that they aren't really paying the buyer's closing costs. In my market, Poinciana, Fl. It is very common for the buyer to request that the seller contribute towards their closing costs. In fact, the last 15 or so deals that I have closed, were all 100% financing with the seller contributing 3% or 6% towards buyer's closing costs. It's just the nature of my market. Now that it's a strong buyers market we have to take these offers seriously or we may not be able to sell the property.

Now since this is so common and expected, I always bring this up at time of listing, to try to forewarn and educate my sellers. By educating my sellers, at time of listing, it makes it easier when these offers come in. When they do receive an offer, I want them to be prepared to counter offer accordingly, without getting caught up with who pays what. But you know, no matter how well informed they are it's inevitable that they say "I ain't paying their closing costs".

Mr. and Mrs. Seller, I'm here to tell you, that you are 100% correct, you are NOT paying their closing costs. In reality the buyer is financing his costs into the loan. They will end up on your side of the closing statement but the buyer is paying. It's important when looking at an offer to concentrate on the NET figure. This is really the only figure that makes any difference. How much money is going in your pocket at closing. Everything above that line is just a manipulation of numbers. Don't dwell on who's paying what. Concentrate on what matters: how qualified is the buyer and how much will I NET. By looking at offers this way you will have a much better chance of negotiating a deal. And that is money in the bank!

In my market, when a buyer is getting 100% financing and asking for a seller contribution, more than likely, they have no money. By pulling the closing costs, out of the offer, chances are they will not be able to purchase your home. So leave them in and raise the price accordingly. By conceding on the seller contribution we can more easily negotiate other items that may be important to you i.e. an "as is" sale and post possession.

So, my fellow REALTORS®, next time you have to present an offer asking for a seller contribution, help the seller to focus on their NET. This will increase your chances of having a successful negotiation and will increase the chance of your seller getting their property SOLD. But you knew that, right?

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Veronica Folayan

Tutas Towne Realty - Poinciana, FL

Well as a new comer and a buyer's agent, I must say I agree with all of you to a point. Educate the seller, and also let them know that sometimes they may have to pay closing cost without increasing the listing price. This depends on how fast they want to sell and move on. Most buyers that ask for closing cost do not have it. Most times increasing the price to make the numbers work for the seller kicks the buyer out of the game. The price of the house is now too high for their pre-qualification. They can no longer afford the house. We all know that buyers are always interested in that house that is just a little above their means and want the sellers to come down.

In this buyer's market the seller has to be willing to give just a little. The more we sell the better for all.

Feb 22, 2007 02:49 AM

Tim Maitski

Atlanta Communities Real Estate Brokerage - Atlanta, GA

Truth, Excellence and a Good Deal

Bryant, the thing to consider when listing the home at a low price and then adding the closing costs back on to the price later is the buyers usually think that they are being ripped off. Even when there is a full price offer with the seller contributing $5000 in cloing costs, the buyer perceives it as them paying full price and usually resents the fact that I couldn't get the seller to come down from his price. Sometimes buyers seem to take it as a given that the seller will pay closing costs and considers that the starting point. Both agents really need to educate their respective clients in order for everyone to appreciate what's going on.

Feb 22, 2007 02:54 AM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Ok so some of you are missing the point. I list homes at market value and I also use "range pricing". My point on the listing side is why price a home at $200,000 and market that the seller will contribute $10,000 towards BCs when it would make more sense, exposure wise, to list at $189,900 and offer no closing costs. Once we have showings and offers we can then negotiate accordingly. The key to getting a listing sold in this market is to have it priced well enough that people will look at the property. Negotiations will take care of themselves. Gotta get them through the door.

I ONLY work with sellers, frankly how the buyer feels about it, is not my concern. As long as the property is priced properly, the buyer will have no issue paying the price even if it has to be higher than list, to get his cost paid.

I do agree it is about educating the sellers and the buyers.

Feb 22, 2007 03:35 AM

Cynthia Sloop

Community Association Manager - Indianapolis, IN

Being the 30th something comment, there's not much I can add that wasn't said above. I do like how clear and easy to understand for everyone your post is and agree, can we put this on the front page of our local newspaper for everyone to see!!!

Feb 22, 2007 03:43 AM

delete delete

delete - Whale Cove, YN

That is so useful to keep in mind, and I find often seller's agents don't really grasp it and in turn their sellers don't grasp it. Sometimes when I feel doubtful, I even go so far as to do some of their math for them and have that handy to help them get it.

Feb 22, 2007 04:05 AM

Joe Sampson

Exit Realty Experts - Saint Augustine, FL

I presented an offer like this for one of my buyer's to the seller's agent. He had been in the business for about 20 years and tried to tell me that it wasn't ethical to inflate the sales price of the home to ask for closing costs back from the seller! That's right, we were offering full price on a fabulously priced listing yet we inflated the sales price by 3% to ask for 3% back. The listing agent also told me that there is no such thing as a 100% loan. He was arguging with my buyer's mortgage broker for about an hour on the phone. He was actually an associate broker too. It suprises me each and every day the people that we run into in this business!

Wow, times are a changin', get on board or get out of the way!

Feb 22, 2007 04:13 AM

Irene Potter

ZipRealty Residential Brokerage - Maple Valley, WA

Creating moving experiences in real estate

I have some concerns about buyer presumptions of closing costs based on something that happened to me a couple of weeks ago. A young couple that I know contacted me about a fixer upper property they had seen priced at $239,000k which would price about 20K higher in good condition. They called at 8 pm in the evening and by the time they were able to look at it the next day, it was sold with 2 offers so we looked at 2 other properties, both almost up to the maximum they qualified for. One was nearly double the size of the other and very attractively priced. They would have room for their baby and then some. We wrote it up and asked for seller contribution of closing costs.

Unbeknownst to us, the house was in preforeclosure. This was left out of the remarks at the suggestion of the listing broker. I advised my clients of this and let them know that the counter-offer would give them $2000, not the $7000 they were hoping for. They backed out of the deal because they were very close to their maximum and were very concerned about their finances. They have told me they want to clean up their finances and wait. We could have boosted the sales price (which made them uncomfortable) or found something smaller (but they were very set on the size of home they'd seen) or looked in another area (but they only wanted the town they were living in or the one immediately next door.) They also were upset that the seller would not contribute to closing costs even though I told them repeatedly that preforeclosure means there is no money to contribute. Thoughts?

Feb 22, 2007 04:57 AM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

Joe, that is unbelievable!! 20 years in the biz and doesn't know the bare basics of real estate. That's scary. I hope he's not training agents.

Irene, I think it is imperative that buyers and sellers are educated. If a property is priced in line with the market AND closing costs contribution are not normal for that area then it would be expected for the seller to want a higher price if they are going to pay buyer costs. Buyers need to understand that their closing costs are THEIR closing costs. If they don't want to or can't pay them then they become a part of the deal. The seller may or may not want to increase the price to cover them. It sounds like your buyers have unrealistic expectations.

Dave, you are correct that it's all about the presentation.

Again I really appreciate everyone participating in this discussion. It's how we learn

Feb 22, 2007 07:21 AM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

A clear, but simple, explanation that any selles SHOULD be able to understand. We are seeing many seller concessions here as well, adn often it is offered up front without the buyers having to ask.

Thanks for another good lesson, Bryant.

Jeff

Feb 22, 2007 08:14 AM

Maggie Dokic /Indialantic | 321-252-8696

Magdalena Dokic - Indialantic, FL

Selling the beach in Florida's space coast

I second Carole's comments..both of them! Would Ines be gracious enough to share that spreadsheet of Rick's?

Thanks for another good post Bryant.

Feb 22, 2007 11:03 AM

Randy L. Prothero

eXp Realty - Hollister, MO

Missouri REALTOR, (808) 384-5645

Joe's story was amazing. I can not believe how someone could be around that many years and be clueless.

Feb 22, 2007 07:37 PM

Irene Potter

ZipRealty Residential Brokerage - Maple Valley, WA

Creating moving experiences in real estate

Hi Bryant:

Thanks for the prompt response on my comment yesterday. I agree that buyers and sellers need to be educated about market value and closing costs. Seller contribution of closing costs are common in this area but since they wanted fast movement on the property, the listing agent left that out in the price calculation when they put the house on the market. Even if we did a price bump on the house, it likely would have had no problem with appraisal. I think part of the problem stemmed from the loan officer telling the buyers that they should get seller contribution of closing costs. Improperly interpreted, it might sound like a requirement. Lessons learned!

Feb 23, 2007 03:58 AM

Joe Sampson

Exit Realty Experts - Saint Augustine, FL

I'm glad you all find my story amusing! :) It was so unbelievable at the time - it seemed so easy to understand to me. He actually laughed at me at one point and said that I wasn't going to be in the business much longer if I went around writing these type of offers for my buyers.

Feb 23, 2007 04:55 AM

"The Lovely Wife" The One And Only TLW.

President-Tutas Towne Realty, Inc. - Kissimmee, FL

Darlin' (Broker Bryant)...

Ooops. I forgot to come back here and leave a comment :)

Consider that your comment...But you knew that right? SVW.

TLW...ROAR aka Your "The Lovely Wife" wink. wink.

Feb 23, 2007 09:04 AM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

You might consider entering this in the CARNIVAL: The Economics of Real Estate Group

Feb 23, 2007 04:28 PM

SHAUN WREN

LICENSE IS NOT PLACED - Lakeland, FL

You are 100% RIGHT. a lot of times the Realtor is not aware of this because they are not doing the financing and they are not sure what the investors guidelines are.

Jun 12, 2007 01:04 AM

Lorinda Ward

Keffer Realty - Norfolk, VA

Serving, Hampton Roads Virginia. Norfolk, Chesapeake, Va Beach

Exellent idea, bringing this up at the listing table is the best way so when the offer starts coming in they will know how you are going to handle it and help them net what they are looking for.

Mar 19, 2008 08:34 AM

Anonymous

Christy Jansen recently graduated Real Estate student

I have been trying to find an answer to the Nehemiah question I have for a while but no seems to be able to help. I recently graduated from Real Estate School and will be taking the state exam probably this week so be kind as I know I do not know a lot about Real Estate. My question is in regards to sellers being notified or being made aware that the buyer is using Nehemiah. When we were selling our house 3 years ago, we made it very clear to our listing agent what the bottom line on our net was supposed to be and no less. When we arrived at closing, we were hit with another $500 charge to Nehemiah thus reducing our net proceeds. We did not agree to this before hand and in fact were not even told about this until we were sitting at the closing table. As we had already reduced the price by $14,000 and contributed $3000 dollars toward closing costs, we did not feel obliged to offer any more money to the deal. After threatening to walk on the deal, the buyers representitive offered to pay the fee. From what I have read about the Nehemiah program, we should have been told before hand and agreed to this concession. Am i correct and what if any options did we have after closing? Who was responsible for this lack of information to us as sellers?

Jun 23, 2008 01:26 AM

#46

Sharon Alters

Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL

Realtor - Homes for Sale Fleming Island FL

I wonder how many of these 2007 100% Buyers are now selling short or have been foreclosed?

Sharon

May 30, 2009 03:35 PM

Sandy and Jay Souilliard

Keller Williams Realty - Wexford, PA

From your lips to the seller's ears! Even young people have issue with the words"seller assist", the the older folks are having a lot more trouble with it. They may not have bought or sold a home in 50 years, so this is a totally baffling concept to them. Your quote of"i ain't paying no closing costs" cracked me up.

Oct 23, 2009 08:32 AM