The market is hot and sellers are in the driver’s seat once again in the housing market. So why in the world would any one of them be expected to kick in for a buyer’s closing costs?
One of the items on the seller’s estimate of proceeds included in every market analysis I do has a place for a “Seller's contribution to a Buyer’s Closing Costs.” I always include several thousand dollars as an estimate to prepare my clients that this could come up at negotiations. A significant portion of buyers, whether using FHA , VA or conventional financing, will require assistance with their closing costs.
Just the other day, a potential seller said that he didn’t think he should have to pay a first time buyer’s closing costs. I had to explain to him that buyers in ALL price points, whether purchasing a first home or moving up to a second property, might ask for seller concessions. You might be asked in negotiations to contribute to a buyer's closing costs so they can BUY your house!
After our conversation, I decided to see what how often homebuyers are asking for closing costs in the Minneapolis/St Paul north metro. I looked at the sales of single family residential homes in Anoka County during June 2016. Even I was surprised by the results, well over 50% of homebuyers received closing cost assistance during the month. But when I broke it down by price, I was even more surprised. I found that in the price ranges from $100,000-$400,000 more than 60% of buyers negotiated for the seller to pay some closing costs. And from $400K to $500K, over 50% still requested and received assistance. Even with homes sold at over $500,000, 1 in 4 buyers received seller paid assistance.
I decided to look at all four north metro counties to see if this was just an Anoka County phenomena. Nope….nearly the same results when I reviewed the aggregate of sales for Anoka, Chisago, Ramsey and Washington Counties together.
Why Do So Many Buyers Need Help? Today most buyers are required to put down a minimum of 3% of the purchase price of the home as a down payment. If a buyer wants to avoid private mortgage insurance using conventional financing, this will require 20% down. The closing costs for a buyer include title insurance, home owner’s insurance, appraisals, loan origination fees, name search fees, filing fees and more. As a REALTOR® working throughout communities in Anoka County and the north metro Minneapolis/St Paul area, I see these closing costs will run anywhere from $4000-$8000 and even more for more expensive homes. Add this amount with a required down payment and few buyers will have sufficient funds to purchase a home.
Understanding Closing Cost Assistance Buyers have the option of waiting and saving additional money to cover the down payment and closing costs or asking for seller assistance. In many cases a financial institution will allow a seller to assist a buyer by paying either points to reduce the interest rates and/or closing costs.
How does this work? Let’s say that a home is on the market for $200,000. The buyer writes their offer for $200,000 and their financial institution allows up to 3% seller’s assistance with fees and closing costs. They decide to ask the seller in their purchase agreement for $5000 in seller paid concessions, thus the net offer to purchase the home is $195,000. If the offer is accepted, the seller’s proceeds at closing would then be reduced by the $5000. Sellers do not have to come up with the funds in cash if there is sufficient equity in the home to cover both the buyer's and the seller's costs.
If a seller does not want to pay the closing costs, the buyer in many cases, will not be able to purchase the home.
Sellers Can Still Receive a Full Priced Offer! Take that example with the home listed at $200,000, if a buyer wants to offer full price but needs $5000 in closing costs, he would just write the offer price at $205,000 . The seller's net offer is full priced.
When a seller looks at their home sale as a business deal where the bottom line is key, being open to assisting a buyer with closing costs is a very smart decision. As long as a seller is happy with the NET number received, it doesn't matter whether some of the proceeds went to pay closing costs or not.
Copyright 2016 www.terieckholm.com
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