Paying for the Buyer's Closing Costs

By
Real Estate Agent with RE/MAX 1st Class 0542725

It is the listing agent’s job to be sure their client is acting in their own best interests.  A failure to clearly explain why an offer achieves their goals can end up costing that seller tons of money.  When representing the buyer in a transaction, I have on numerous occasions had to explain this concept to the listing agent:

“I will not pay the buyer’s closing costs.”  Many agents have heard that line.  The next statement from this seller would typically be, “I will not sell below X dollars.”

Well, what if the buyer is willing to pay more than $5,000 more than X, but needs $5,000 in closing costs in order to secure the loan.  In this case, the seller is getting what they want in terms of sales price, but possibly unwilling to let the buyer get what they NEED.

If the seller would focus instead on their net offer and also show an interest in meeting the needs of the buyer, everyone wins.  Let’s turn this into a simple math equation:

S – C = N

Sales Price = S
Seller’s Contribution to the Buyer’s Closing Cost = C
Net Sales Price = N

 

What I don’t understand is the seller that is unwilling to get what they want simply because they don’t want someone else to get something.  Many sellers would walk away from a deal that meets their needs only to make sure the buyer isn’t getting something they need.  And many times I have seen houses sit on the market for months and months costing that very same seller way more than C (the requested Seller Contribution).

I try and get all of my sellers focused on the "net" offer... meaning that if the offer is for $200,000 and the buyer is asking for $5,000 in closing costs, we really have a net offer of $195,000.  Sometimes that $5,000 is in there as a negotiation strategy, sometimes to help the buyer's immediate cash flow, and sometimes that buyer needs the money or they will not be able to close.  BUT, it doesn't matter... focus instead on the net offer and counter or accept the offer accordingly.

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Brian Worrell - GRI, CNE
Bayou Properties Realty  |   The Worrell Team, Realtors
Cell  281-948-7042  |  Fax  832-514-7029  |  www.BrianWorrell.com

 

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    (Awarded for excellence in Sales, Leadership, and Community Service)
 
Consistent Multi-Million Dollar Top Producer
2011-2016 FIVE STAR Real Estate Professional as listed in Texas Monthly Magazine 
 

 


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Comments (5)

Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Brian - While I do agree with you in theory, "sellers really need to focus more on net sale than the offer price", the problem that I have way too many times with this concept and practice is that the property doesn't appraise for the offer price and then the seller is then asked to reduce their net because, once again, the buyers can't make up the difference. 

This exact issue has been a deal breaker for so many of my buyers and everyone loses time and money that was spent trying to justify a price that isn't valid.  JMHO

Aug 11, 2011 06:48 AM
League City, TX - Worrell Team, REALTORS, GRI, CNE
RE/MAX 1st Class - League City, TX

Donne,

Very good point about appraisals.  The listing agent has many job.  It is the listing agent's job to focus on what the house will appraise for.  And that listing agent should point out any weaknesses/flaws in each offer.  I maintain that the seller should focus on the net sales price, and the listing agent should absolutely not lose sight of the likely appraised value.   I think the appraisal issue is highly localized.  I'm not seeing too many appraisal issues in my area at the moment -- knock on wood!

If it's the case, it might be a good practice to explain to the buyer's agent that the seller is not going to be willing to reduce the sales price without reducing the closing costs in the event of an appraisal valuation issue...  This really needs to be stated at the beginning of the contract -- We want to help the buyer with their closing costs, but if these costs rolled into the sales price hinder the ability to meet required appraised values, will the buyer work with us if we have an appraisal issue?

 

Those are my thoughts... Thanks, Donne!

Aug 11, 2011 07:43 AM
Charita Cadenhead
eXp Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Brian it's pretty bad when either the buyer or the seller has tunnel vision.  ActiveRain is inundated with nightmare that really could have been sweet dreams instead.

Aug 14, 2011 10:13 AM
Brenda Mullen
RE/MAX Access - Schertz, TX
Your San Antonio TX Real Estate Agent!!

Hi Brian,

Many of us wrote posts that echos your sentiments.  I would say that it is our job as listing agents to present the facts of the contract to the seller and what their overall benefit (net) will be....but it's not the listing agent's job to make the seller accept the offer.  All we can do is explain the facts and reason with the seller as best we can and explain where seller contributions come from.  If the seller refuses to budge, then they refuse to budge.  

The appraisal issue is a very real one, and not just localized.  Closing costs can only be rolled into the loan in some types of loans in all other cases the home must appraise for the offer/accepted priced.  The listing agent can do their best with coming up with a pricing strategy based on comparables, but the appraiser will make the final determination.  

Good post and Donne's the one who sent me over here :)!

Aug 14, 2011 11:37 AM
Fernando Herboso - Associate Broker MD, & VA
Maxus Realty Group of Samson Properties - Clarksburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

Being a listing agent, I deal with these issues everyday. What buyers need to understand that the offer amount has to be substantiated with the appraisal. ..and any monies contributed from this amount essentially means that the seller is selling the property for. . .LESS than $5000 if we tale your sample deal on your post.

Aug 15, 2011 01:01 AM