Will The Seller Pay The Buyers Closing Costs

Dated: 08/30/2014

Views: 11016

It would be nice to think that home sellers are so warm and generous that they will just reach in their pockets and offer several thousand dollars to pay for their buyer's closing costs.   It’s a nice thought, but it’s not a reality.  What I am referring to is commonly known as a seller’s concession towards buyer's closing costs, otherwise known as seller paid closing costs.

It’s really a misnomer to say that you, the buyer, are asking the seller to pay your closing costs.  Let’s be clear….as the buyer, you are paying for EVERYTHING.   When you ask a seller to “pay your closing costs”, you are really asking to add the closing costs on top of the price you are offering the seller, and folding that sum of money into your financing arrangements.  Doing so will allow you to pay off your closing costs over the life or your mortgage instead of having to pay the lump sum in cash at the closing.  

How Much Are You Really Offering the Seller?

It’s important to realize that when you request a seller’s concession, you are really only offering the seller the remaining (net) amount after you deduct the concession amount.  Let’s take the example of a written offer of $310,000 with a $10,000 seller’s concession towards closing costs.  In this case, the actual offer to the seller is $300,000, since the $10,000 will be credited back to you, the buyer.  So while on paper it appears that you are offering the seller the full amount, in reality they are not receiving this amount of money.  Rather, they are only receiving the net amount after the concession.  
How Likely is the Seller to Grant the Concession?
In most cases, the seller is really only interested in their bottom line after your concession has been granted.  So it’s important to focus on their net proceeds as you determine what your offer price will be.  Furthermore, they are not obligated to grant the concession.  So this may make the difference between having your offer accepted or rejected, which is a critical question if you really need the concession in order to make the Deal work.

When asking for a concession, you are more likely to gain the seller’s acceptance if you are making a respectable offer from the outset (assuming that the list price is a realistic market price to begin with).  If you are already starting out with a “low ball” offer, it will be very difficult to then ask for a further reduction with a seller’s concession. 
Despite this fact, most sellers do expect to negotiate somewhat on price.  So if your offer is at or near the list price, the seller will most likely have the “wiggle room” to readily accept your request for a concession.  But the larger the gap between your offer and the list price, the less likely they will be to grant your request, or to accept your offer at all.  
What if There are Multiple Offers on the Property?
When there are multiple offers on a property, a request for a sellers concession may weaken your offer in comparison to others where there is no concession being requested.  This is especially true if your offer features a low down payment (3.5% - 5%).  In the midst of multiple offer situations, the seller is faced with making a decision on which buyer will not only pay the most money, but which buyer will be the most likely to close.  A buyer with a lower down payment, and a sellers concession request on top of that, may appear to be in a weaker financial position than a buyer with a stronger down payment and no concession request   

In Conclusion

Overall, a sellers concession towards closing costs can be a great tool in completing real estate transactions.  A sellers concession can make a home purchase a reality for buyers who don’t have the extra cash on hand for their closing costs.  Even if the buyer does have the funds, the concession allows them to save several thousand dollars in out of pocket expenditures, and pay it back over the life of the loan instead.  For sellers, the concession can provide a means to get the house sold in the absence of other options.  So overall, used properly and in the right circumstance the sellers concession can be an excellent means to getting the Deal done!  
Donna’s Real Estate Corner
Authored by:
Donna Clayton - Broker Associate
RE/MAX Properties Unlimited
Westfield, NJ  07090 908-787-2804    

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