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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