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Buyers say "NO" to Closing Costs. What will the Sellers say?

I was recently confronted with a good question regarding closing costs. Basically the question was...

"How can I avoid paying them?"

Pretty straight forward. Just the way I like it. If you do not have a lot of money to spend on closing costs or you do not want to put all of your money into your closing costs then there are options for you.

No one can completely avoid closing costs but many sellers are saying YES when buyers ask if they will pay for some of the buyer's closing costs. That is, if your offer price is attractive enough. It is called Sellers Assist.

(Please read this: Not everyone will qualify for the same amount of seller's assist. The example below is totally fictitious and may need to be altered to meet your loan's conditions. Ask your mortgage professional for advice.)

Here is an example of a Seller's Assist

Let's say you put a bid in on a home listed for $95,000. Let's say you offer $100,000, just to use round numbers. And let's say your total closing cost amount is 5% of the sales price ($5,000). We will use that % just to make the math easy.

Purchase Price: $100,000
Total Closing Cost: $5,000

Since you have offered $5,000 over the seller's asking price (which by the way over 30 years is a small amount of money for you), you can ask the seller to pay for your side of the closing costs. So, in theory, you will need $0 at closing rather than $5,000. The seller in this scenario agrees to accept an offer of $100,000 knowing full well that the real net offer to seller is $95,000. The buyer will finance the closing costs and pay it off over the course of the loan.

Why would a seller not agree to this?

The most common reasons why sellers would not agree to this glorious invention we call sellers assist is:

1) They do not want to pay commission or transfer taxes on the top number.

(In my scenario above, if it were to occur in Philadelphia, the transfer taxes are 2% for each person (4% total) and the average sales commission is 6%. I will use those numbers for our example. Here is what would be the total difference that the seller would pay: $400 more on the $100,000 sale price.)

As my husband Chris would say... "Let's not step over dollars to pick up dimes." Any good Realtor will be able to negotiate this small difference.

2) The buyer's offer price is too low to begin with.

If you are looking to negotiate a super low price and you are asking for seller's assist there is a strong possibility that the seller will not accept your offer. You may be asking for too much.

3) Other terms in the offer are weak.

Sellers look at more than just price or at least they should. Make sure your offer is not all about what they can do for you. It is a give and take, not all take, take, take.

Buyers. It is important that you, your mortgage person, and your Realtor work together in the buying process. The loan rep. will help you get closing cost assistance within the parameters of the loan. Your Realtor can help you formulate and negotiate seller's assist through a creative positioning and the terms of your offer to purchase.

Sellers. With the help of your Realtor, you will weigh the impact of seller's assist on your net proceeds and together you can determine if the offer terms are acceptable. Keep in mind, that many buyers cannot purchase a property without seller's assist. But keep your expectations grounded. If you expect too high of a sales price, the appraisal may come in low and your buyer may choose to purchase someone else's home.

Ultimately, we are all looking for a win-win transaction. You cannot take without giving even in a "buyer's market". Those with Good Will and Generosity are always winners in the end. (Click on Winners - FUNNY ! )

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Posted by Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate on 02/08/2009 09:00 PM

Comments (89)

Closing Costs in the Home Buying Channel

buyers, sellers, seller assist, closing costs, philadelphia real estate, transfer tax, financing

Originally posted at: The Philadelphia Real Estate Blog: Buyers say "NO" to Closing Costs. What will the Sellers say?

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89 Comments on Buyers say "NO" to Closing Costs. What will the Sellers say?

FEB

2009

Christopher and Stephanie:

I think creative is the way to go. Many people like to hold on to their liquidity. Seller concessions are the way to go.

Richard

Christopher and Stephanie - I always have a conversation with my buyers at our initial consultation and explain the benefits of seller assistance for closing costs if the buyers are going to need them. It's not too often we'll see a seller balk at paying a commission on the full purchase price but if it does become an issue (and we do see a few of these) the listing agent and I will put it writing that the commsission will be paid on the net price to the seller instead.

Thanks for simplifying Sellers Assist, or as it is more commonly called here, Sellers Concession.

Good post!

Chris and Stephi

I recently had a seller who insisted he would not pay that seller assist thing.Even after explaining the benefits to him especially in the market place where his home was located ..i decided not to argue..

We received a full price offer in 10 days with $4000 seller assist..It was a great offer and the buyer was very well qualified.the home next door had been on the market for a year.

I presented the offer as if he had received $4000 less then full price and he was very happy with his proceeds/bottom line.He asked me what I thought he should do ?I said "the first offer is usually the best,take it and run"...YES he was thrilled...and no seller assist!!! then i explained ...

The seller and i had a very good rep-or as i had sold him the house 24 years prior;and he laughed!

Signed the papers 45 days later we went to settlement everyone was happy!

FEB

2009

Seller's assists have saved more than one deal for me. That's for the post.

It all really depends upon the reason the buyer needs someone to pay closing costs. If it's lack of funds, then the senerio you wrote about is definately the way to go. And we have also from time to time allowed a seller to pay commission on $95,000. and pay $5,000. in closing costs when the sales price was $100,000.

But if a buyer WANTS, not needs, a seller to pay closing costs on "principle", it is a mistake. 30 years worth of interest by including closing costs in the price and therefore the mortgage is not the way to go unless it's need based. After all the buyer is usually the only one bringing a check to the closing. So when a seller pays closing costs they are usually doing it with the buyers money!

I work with a lot of first time buyers who actually need the assistance to help them pull the deal together. Thanks for the info.

Sellers aren't driving the real estate cadillac anymore so they have to entertain more flexible offers from buyers. Red flag to appraisers for adding on those points to the list price, yikes. That's an old scenario that won't work in my market.

Richard - Creativity and thinking outside the box helps us close more deals !

Donna - Communication is very important so the strategy can be planned in the beginning. Some buyers need to be educated about closing costs as they dont know what they are.

JoAnna - Thanks ! Great to see you here !

Hey Guys,

Really good examples...

I really like your last sentence

Those with Good Will and Generosity are always winners in the end.

Thanks for sharing!

FEB

2009

Hannah - A good story ! Shows that communication is important. There are several different ways to explain the process. I also focus on the "net" number when presenting offers with sellers assist to our sellers. ~ Chris

Janice - Without sellers assist, there would be a LOT OF HOUSES THAT WOULD NEVER HAVE SOLD - or will sell with future deals.

Tammy - Exactly ! Great point. We will tell the buyes that as well. Once they realize that they are financing that amount, if they have the funds, than they will take off the sellers assist. The better scenario with those buyers is to just offer a lower sales price !

FEB

2009

I have not experience any deal that a buyer is asking seller to pick up the closing cost. Sometimes I think in New York has one of highes closing costs...!

Most good agents out there educate their clients about seller's concessions, but not all. I still find buyers confused about this very common process, and at times realtors go about it, both structuring and negotiating, it the wrong way. Good stuff.

FEB

2009

Shea - Exactly ! Without sellers assist, many houses would not sell !

Lyn - Good point. Sometimes the inflated sales price with the assist can raise the risk of the appraisal not coming in. In our market that has been a rarity but it has happened a few times here and there. The times that it did we were still able to work it out and make it to settlement for our clients.

Sheila - Thanks ! Good will and generousity are definitely keys to our success !

Christopher... I think this is one of your better blogs that you have written. And not saying that others weren't. But very well explained, semi short, and very easy to understand... while showing creativitiy in a harsh and confusing market. Excellent job here.. worth a flag to be featured.

PS... you might want to add that the lender can work with you. You can get a slightly higher rate and get what's called a lender credit. In many cases, the lenders out there, from what I have seen, charge anywhere from $900 to $1,400 in closing costs. With my company, we charge $500 or nothing, just depending on the whole deal. So working with a lender that is reasonable is also important. Again, great job here.

jeff belonger

Great post and explanation of seller paid closing costs. Keep up the good work!

Christopher/Stephanie -

Nearly ANYTHING can be negotiated - yes?

However, these days, it might be tough to get an appraisal over the ask price, unless the property is underpriced to begin with. In that case, you might get away with it.

Also, unsure about how banks would feel about this - best to check with lender beforehand, I would assume.

Thanks for sharing!

DEAN & DEAN'S TEAM CHICAGO

Since real estate is local, the local markets all over the country are vastly different. Some are terrible, some are pretty good, and some are in the middle.

Sellers in my area are happy to chip in on closing costs right now in order to get their house sold. I'm doing a VA deal right now on a $219,000 sale with the seller kicking in $7,000 towards buyer's costs and happy to do it.

I always give several scenarios on the net sheet when doing a list appointment. On the CMA I also show sellers what the market will bear in their area. It makes you the true expert when you can prep the sellers for those potential scenarios and showing that those prices are artificially inflated by sometimes 3-5% when many are giving closing costs.

Great explanation Stephanie!

There is also the issue of property taxes, which will be based on the sale price, and over the years will amount to a significant amount of money.

It depends on the market....in a strong sellers market, this is much harder to get through...

Hi Christopher and Stephanie,

Great post! I agree with you on how you promote seller paid closing costs. It's very common in my market, as I'm sure in many others too. I do think though that a buyer's agent should negotiate to get the price, depending on the comps, and not expect the buyer to, in your example, pay full price, just because they're asking the seller to pay their costs.

pay cash, that will eliminate almost all of the closing costs.

The most important part of our job IS NEGOTIATING for our clients. Sounds like Philly owners have a great advocate.

great post - in our area, murrells inlet , the buyer is in controll right now

Hi Christopher and Stephanie -- I have not seen this topic discussed before on here, so it's very solid info for buyers and sellers! My 2c is that the risk in today's market with conservative appraisals, sometimes this extra 5% might break the appraisal, but I haven't run across this personally.

Thank you so much for the information on seller's assist. Very helpful.

FEB

2009

Christopher & Stephanie - Congratulations on your Gold Star. Great post with a good example and very good explanation of how it works for the Seller's.

Christopher and Stephanie, sellers and buyers need to work together to make deals happen in today's market. Most of the time it will come out of the seller's pocket. Thanks for the post and happy blogging!

Dear Christopher and Stephanie,

The bottom line is that the buyer is paying them one way or another. If they didn't ask for costs they would probably get a lower price, although some sellers are so egocentric that they prefer to pay costs than to sell for "less than they wanted'.

If sellers balk at paying commission on the price with costs, reduce commission to the price less costs. Easy!

Barbara

This is a good, clear explanation of how sellers can pay buyers' closing costs if the rest of the deal makes sense.

Nice post very good explanation of how things work

Agreed that it's possible and common in today's market. If the lender is cool with it, particularly in these days of MUCH closer lender scrutiny, then not my place to advise against. The point is well taken, however, that buyers will be paying interest for 30 years on the money.

good post as this is hard for buyers and sellers to grasp sometimes - for sellers, only thing that matters is the check you walk away from the closing with

In my area we also call it closing cost assistance. In the pricing for a listing, I always tell the seller that in this market that assistance is part of doing bussines. It goes back to the question...

Do you want to list your house or sell it?

Nice post.

http://fsbo.fastrealestate.net

good post as this is hard for buyers and sellers to grasp sometimes - for sellers, only thing that matters is the check you walk away from the closing with

Great piece. I don't re blog much but this is one that I did. Useful information for my buyers. Well written and thanks!

Great post, and it's always interesting to read about the differences in negotiaions around the country. When a Buyer increases the list price or contract price to include closing costs, etc., or when the Seller adds value (fencing, flooring, a home warranty added through negotiating the contract, etc.), I attach an addendum to the contract that excludes these concessions from the paid commission.

A great view of how consumers look at closing costs. I did not think of writing it that way

"Let's say you put a bid in on a home listed for $95,000. Let's say you offer $100,000..."

A succinct explanation for first time homebuyers how the math works. That scenario may have been typical in 2004 and 2005, but one needs to be very careful about what might be considered fraudulent lending practice. If the market price had been determined to be $95,000 it is unlikely to appraise for $100,000 as mentioned by a few others. When representing the buyer we need to be very careful.

Congratulations on a well deserved feature! I talk seller concessions from the moment we list a property... I've had great success offering them in the listing right from the start.

Seller concessions is common in our market and especially for first time home buyers.

Seller concessions will be with us for a long time, not only as a creative way to create a sale, but because of the buyer attitudes like the one you described.

Not sure why a Realtor would ever hold up a sale over the small difference in fee. We should get paid on the what the seller is grossing anyway. As for a seller not agreeing after this was negotiated it would be pretty puzzling.

The more we break these sorts of things down in simple language for buyers & sellers, the easier transactions will be. Nice post!

Christopher & Stephanie, absolutely...works beautifully like that and is a win, win for everyone as long as the house is not overpriced and doesn't come in at appraised value when adding on additional monies.

What I am finding here in Sacramento is with the banks, many are not paying for COE costs, nor does it matter if you are offering more on the offer to cover. Some do and some don't.

Very good information for the Realtor who is just beginning and is wondering how to accomplish getting the COE costs paid for by the Seller.

Good informational piece for buyers! Sometimes they don't understand why they can't get money off the house PLUS closing cost help!!! They dont want to give and take!!!

Thanks for the post, and you make many good poins. If an offer is too agressive, it may be difficult to get the seller to participate with closing costs.

This reminds me of the importance of talking to sellers when listing the property about options that could present themselves for a closing. I usually do a sellers net equity sheet and purposefully will use different scenarios just so that it is not a suprise when something pops up that could be a win win deal for a successful closing.

We always insist that the buyers have met with a mortgage professional BEFORE our sit-down consultation and planning session because they need to have a handle on $$ before we start. That way we can lay the foundation of what to expect and what our options are. Agreed, buyers will always have some closing costs and the more you can talk about this early in the process, the less chance there will be any hiccups later on. We owe it to our buyers to help them understand their options and to make them educated buyers. Besides, when a situation materializes that you outlined 3 weeks earlier, you look like a pro without having to say "i told you so."

This is a great blog..Gives me something to think about when talking with buyers and sellers. Thanks guys!

This is a great strategy to get someone with limited funds into a new home. Just a slight word of caution, the property has to appraise at the offered (higher) price for the numbers to work for the lender. In this market, keep an eye on that detail for a smooth execution.

Ill have to use the dimes analogy. Very well written blog. Thanks for sharing.

Christopher & Stephanie,

Nice post! Well deserved feature! What you describe is very doable and advantageous...what frightens me are the many scams out there offering 'no closing costs' through illicit means...premium pricing of mortgage rates for one...!!! Thanks, Fran

Great post! Seller concessions helped a lot of my clients last year. Listing agents were a little concerned about appraising over list but it worked!

This is one of the many ways that sellers can entice buyers to take a closer look at their property - it definitely works if a potential buyer is in need of some assistance...

Wow - there are a lot of great comments here. Am glad our blog post opened up a nice discussion and dialogue on this topic. The bottom line is that creativity and understanding of both the goals of the buyer and the seller hopes getting deals negotiated and closed. Stephanie wrote a great post ! We will come back and address some of the individual comments. ~ Chris

FEB

2009

Your blog is always terrific and packed with great information. This one helped me as well. Who says we cannot learn something new ( even us ole' dogs...hehee ). Thanks for sharing the clear and concise post.

FEB

2009

I like your "Sellers Assist" verbiage. It is simple math and if a proper explanation is made to the seller he will be agreeable in a heart beat! Great post!

"Let's not step over dollars to pick up dimes." Great quote! In most situations I will ask the buyers agent to agree that commissions are based on the 'net offer price', in this case $95,000.

FEB

2009

Nicely written, in layman's terms that simplify this concept for the prospective buyer.

Patty Pugh, CRS

MAR

2009

Great advice. Presentation is key!

MAR

2009

This is a great way for buyers to get into a home. Another way is for a seller to buy down a buyer's rate, therefore enabling the buyer to borrow more money (hence a higher price for the home) but have the same payment. Look for a post with an example soon.

MAR

2009

Yes, great commets. If it was not for sellers assist, many homes in our area would not sell ! In a first time homebuyer market, sellers assist is critical to help those folks have enough funds to purchase. Sellers need to understand this from the beginning so it is not a suprise later as some people feel like they are paying it. In essence, they are, but more so, they are just allowing it to happen. In reality, the buyer is just financing the closing cost (assist) over the life of the loan instead of showing up at settlement with all the funds. Am glad this post has garnered some attention as it is important to be on top of this, especially in areas where there are a lot of first time homebuyers and FHA loans.

MAR

2009

This is such a good group. Glad to be a part of it.

Ginger Harper of Southport NC

MAR

2009

Fact be....All parties just want to get the deal done. Just play fair.

Fairness with a sprinkle of generosity from all sides always gets the job done.

APR

2009

Unfortunately, in our area the buyers have been making ridiculously low offers for quite a while now. So of course, they cannot have it all. But they've been lead to think they can. So they find it hard to believe that they can't have it all. So you hit the nail on the head with that one... and with all the other ones too. Well done!

APR

2009

Hi Christopher and Stephanie - Seller Assist is something we'll see a lot more in today's market and especially with FHA loans that appear to be the way many buyers are going. I do like a prior comment that mentioned the approach to presenting the offer to the seller; going right to the net proceeds and then discussing seller assist. There are scenarios in this topic that certainly are beneficial to buyers. On the flip side, I've seen seller assist included in low ball offers that certainly upset the seller from the onset. Negotiations tend to be tough when the buyer takes an unreasonable approach to making his/her initial offer.

Jon - Great point. There is an art I believe in presenting deals with sellers assist to sellers. As there is an art to writing a deal with sellers assist and representing the buyer. The fact is that FHA has become king in most markets (especially here in Philadelphia) so it certainly makes sense as a Realtor to understand the process, the loan, and sellers assist inside and out. The great news about these programs and sellers assist, is that without them, many many homes would not have been sold this past year and in the years to come ! ~ Chris

APR

2009

Seller concessions are fairly common here but we often agree to base the commission on the non-assist number. More sellers agree when we give up $ - and they rarely even realize that it is a tiny amount. Great post!

MAY

2009

Yes, we think this post simplifies the way to discuss sellers assist with buyers and sellers, especially sellers. And more deals than not in Philadelphia will have sellers assist since the first time home buyer market is quite prevalent here.

MAY

2009

Great post! No sellers want to pay buyers' closing cost but as you said "You can not take without giving even in a "buyer's market" . Those with Good Will and Generosity are always winners in the end." Thanks you for sharing this with us. I liked your 'math'. I will keep it in mind!

JUN

2009

Although it is illegal to write ANYTHING in a real estate contract regarding commissions in my state, often the Realtors will agree verbally that the Seller will only pay commission on the net amount (purchase price less seller-paid closing costs).

The only problem that we have with the scenario you stated is whether the home will appraise for the sales price amount. We do it all the time, particularly with 1st-time homebuyers. Great post.

JUL

2009

As always - "it depends" - on the buyers, the sellers, the appraiser, and the agents. Just another example of the value that realtors bring to the process.

AUG

2009

This is something I have to explain to my first-timers every month, so I'm going to re-blog this fabulous post!

Thanks so much...

AUG

2009

In our area, I think 95% of the contracts written include seller concessions. Great post and explanation!

Thank you!

SEP

2009

Great post. I am seeing more and more sellers in my market willing to pay closing costs for buyers in order to get their home sold. Some listings even include the comment the seller will pay closing costs. I did have one transaction where the buyer came back and asked for a higher sales price with seller concession to pay the difference between the higher price and original offer in order to assist with buyer costs. We did include a provision that commissions would be paid on the original offer. It worked out well for everyone.

OCT

2009

Nice Post - 3 quick comments -

1) If I'm representing a buyer and the buyer is asking for closing cost I notfiy the listing agent that I only want to receive sales commission on the net sale price - of course I'm the BIC of my own firm so I dont have to get permission :)

2) I try to get buyers to think of it as Buyer Financed Closing Cost instead of Seller Paid.

3) I've often seen buyers want to come up with a fair offer and then back out the amount they want in closing cost - to avoid this I try to get them to focus on the amount they want to offer for the house and then add the amount of closing cost to it

DEC

2009

I agree with CaryRealEstate. Wohderfully stated!

I agree as well.

JAN

2010

Christopher and Stephanie,

I've actually had sellers refuse to help the buyer with closing costs because they think the buyer should be able to afford them if they want to buy the house. As Realtors we work to put the deal together so that both sides are happy, and sometimes that means fees are shifted from one party to the other. However, in this "buyer's market" I've had more than one seller fed up with buyers having everything go their way, and they are digging their heels in the sand! What I've found is that if a buyer really wants a house, they will find a way to pay the fees, regardless of whether or not they thought they could. I don't recommend taking this route to any seller in this market, but some are choosing it and still getting the sale.

Stephanie

JAN

2010

Interesting article. . .in the State of Georgia it is "customary" that sellers pay all or a significant portion of closing costs. Our contracts are written so that we enter an amount (maximum) and if the costs come in under that, the seller gets the difference at the closing table. There are specific items that can be considered "closing costs" and they are enumerated in our contract.

Sometimes it's a tough pill for sellers to swallow, particularly if they didn't have much equity, or when they didn't have an agent advising them to ask for closing costs when they purchased the home - we run across that alot here when he seller bought new construction.

I've even had sellers put their foot down on the subject, only to see good offers come in and buyers that walk away. I'd have to say that in our market, most sellers see the wisdom of making the concession and moving on.

JAN

2010

I like the comment, let's not step over dollars to pick up dimes, I will have to use that.

FEB

2010

It is easier process if you deal with the bank owned property. I usually get all closing cost that I ask for from the bank.

www.atlantamyhome.com

FEB

2010

I hope you are right. I will be asking a bank to accept 8,000 of seller's assist on a home for an FHA buyer today.

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