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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89 Comments on Buyers say "NO" to Closing Costs. What will the Sellers say?
Fairness with a sprinkle of generosity from all sides always gets the job done.
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!
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
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!
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.
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!
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.
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.
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...
In our area, I think 95% of the contracts written include seller concessions. Great post and explanation!
Thank you!
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.
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
I agree with CaryRealEstate. Wohderfully stated!
I agree as well.
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
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.
I like the comment, let's not step over dollars to pick up dimes, I will have to use that.
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
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.