Profile picture for tsmaryj

Is seller expected to pay 3%(of home value) to buyer for closing costs? My realtor said yes???

I'm selling my home in MN. My realtor said that it is standard practice for buyers to request and recieve 3% of home value towards closing costs.  this is over $12,000 for us. Is this standard practice?
  • March 19 2010 - Woodbury
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Answers (18)

Although this is an old question, what has not been pointed out is, this is a way for buyers to purchase a home with less money down, and the offer is structured with the cooperation of the buyer's agent and mortgage broker.

Some mortgages, including those FHA insured, allow up to 3% Seller Contributions to closing costs.  Rural Development currently allows up to 6%. Seller Contributions.

Your Realtor can help you figure out the net amount to you, and that is the important number.  Provide a counteroffer if you don't like that number.  Declining to provide seller's contributions may limit the availability of buyers, which is a bad thing in this market.
  • December 05 2010
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I am sure your question and situation has been resolved by now, but in addition to all of the information below, and for future reference your realtor will present to you, with an offer, a net sheet, which will detail all closing costs including buyer's closing costs paid by the seller, commissions, seller's closing costs, and so on.  If the bottom line net amount to you is acceptable then you can accept the offer.  If not you can negotiate the terms of the purchase agreement including price, buyer's closing costs, closing date, etc.  You can also agree to pay a portion of the buyer's closing costs.  You don't need to pay them all.  To make the offer work for the buyer it may be necessary to structure an agreement including the buyer's closing costs.  But for the seller, as long as the bottom line net price is acceptable and the property appraises for the sale price so the transaction can close, you hopefully have a win-win situation and your house is sold.
  • November 24 2010
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Remember that all terms of a purchase agreement are negotiable between buyer and seller.  It is not an obligation of a seller to pay closing costs for a buyer, however, in a buyers market (which we are currently in) it is often times asked for.  Good luck!
  • November 23 2010
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I wouldn't call it "standard practice" in Minnesota, every transaction is different.  I have seen a big increase over the last 3 years of buyers asking for seller paid closing costs.  Most buyers that ask for this need it to be able to make the sale work.  The buyer may only have enough money for the down payment at x% of the purchase price, but do not have enough to cover the closing costs on top of that.  This is why the buyers will ask for this concession.  Everything is negotiable in a contract.  If you have concerns about this discuss them with your agent.  They will help you figure this out and I would bet want to hear your concerns.  Please allow your agent to do their job and help you.  I am sure you will work this out.  Don't forget a buyer in this market is a wonderful thing.  The most important thing to remember in a transaction is what is your bottom line.  If it works for you then the deal is good.  Good luck
  • November 16 2010
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It is not "standard practice" but it is seen on many transactions that are put together in today's market.  When negotiating an offer it is important to be prepared to address this issue if an offer comes in.  In some cases the buyer's do not have the funds for down payment and their closing cost but this is not always the case.  To get a feeling of what is happening with other properties selling in your neighborhood your agent can usually pull this information from the MLS.  Bear in mind however that in some cases the seller paid cost are not reported but you should get a feeling for what is happening.  Seller paid costs on higher down payment transactions are less prevalent. 

  • November 15 2010
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It isn't standard practice where I work.
  • November 10 2010
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The answer is "It depends."    Every market is different. In my area, which has a lot of first time buyers, it is very common to include 3-6% closing costs in the sale. There are 2 ways to accomplish this. One is a TRUE seller's concession (which is, what I think your broker is saying). This is where you accept an offer on your home and then give back at closing the money to the buyer towards his closing costs, reducing your actual money received from the sale. Example  Your $200,000 sale nets you $188,000. What is much more common HERE is the buyer makes an offer on your house that you accept and they ADD to that the 3-6% to incorporate their closing costs into their mortgage. As a broker, we choose not to increase the commission on this portion of the raised sale price. Example, your $200,000 sale is contracted for a $212,000 sale price for the buyer's convenience, but you still collect $200,000 at the table.    Which way you go depends on what your competition is doing, so you can get from being Listed to being SOLD!  GOOD LUCK>
  • November 06 2010
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Profile picture for JimSeabold

Everything is negotiable. Have you sold your house?
If the answer is no, I would probably include them.

  • November 06 2010
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Profile picture for davuud
Its all part of  negotiations.  In the end, you need to look at your bottom line and paying the buyers closing costs is part of the equation. 
  • November 04 2010
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Profile picture for sunnyview
Don't kick yourself over it StJude. You can't know everything and in the end it may work out for the best. You sell your house and get to move on. So many people are having a hard time selling that you have to appreciate the good parts. Life is a learning process. I hope your inspections go well, but I definitely wouldn't allow my agent or the buyers to do any more arm twisting beyond the reasonable.
  • March 23 2010
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Profile picture for StJudeB
Oh, I wish I had read Mike Emery's response before accepting the offer on my home. The buyer's offered an additional 1% and asked for 4.5% for closing costs. I did not counter. My realtor did not point out the strategy of offering over the asking price. I now feel taken. The inspections were yesterday. I will now only pay for repairs that are required by law. 
  • March 23 2010
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Absolutely not. It may be standard practice for buyers to request you pay their  closing costs in MN but it is not mandatory. If that is too much you can negotiate & offer to pay less or wait for another buyer that can pay their own closing costs.You should discuss it with your agent.
  • March 20 2010
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It is very common in today's market but you need to look at your bottom line when deciding to accept the offer or not.  If they want 3% put towards closing costs than they may need to offer you more than the asking price depending on how the home is priced in this market.  Don't assume that because they want 3% in closing costs that it has to come out of your equity because that is not the case.
  • March 19 2010
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Is it expected that the seller will pay 3% closing costs? No, its not expected. Is it very common in today's market? Yes, having the seller contribute towards the closing costs can benefit both the seller and the buyer.  It can help the buyer get into the house and mortgage when they may not otherwise be able to and it benefits the seller by helping you sell the house when it may otherwise not sell.

Keep in mind that just because the buyer asks the seller to pay part of the closing costs doesn't mean that you have to. It also doesn't mean that you have to agree to the proposed amount.  For example, if the buyer asks for 3% toward closing costs, you could counter with agreeing to pay 2%.  You could also agree to pay 3% toward closing costs for the buyer but in turn get them to agree to pay 3% more for the house, assuming of course that it would appraise at the higher amount.

I hope this helps.

Patrick Howard- Edina Realty
  • March 19 2010
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Mike is correct in his explanation.  I work with a lot of buyers and I will tell you that most of them have an expectation that you'll cover their closing costs at the list price.  Of course this is always negotiable but if you think about it, 3% off the list price would still be a very strong offer.

At the end of the day, what you really want to keep focused on is your bottom line - what you net at the closing table.  Many buyers will want to wrap their closing costs into the price since it reduces their cash to close by that amount, but that doesn't mean it all has to come off the list price.
  • March 19 2010
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Profile picture for wetdawgs
It is often requested, but you do not have to accept it.

  • March 19 2010
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This does not sound like a "standard practice" that I have ever heard of. Check out Mike Emerys answer below. It explains it perfectly.
  • March 19 2010
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There is no 'standard practice' in real estate regarding sellers contribution towards closing costs. This is something that is requested by the buyers, negotiated in the purchase agreement and either agreed to or rejected by the sellers.

What is possible is say you are selling your home for $1,000. The buyers could write an offer of $1,030 (3 percent of $1,000) and the sellers would 'give back' the $30.00 to the buyers to cover closing costs. This allows the buyers to roll the closing costs into their mortgage. But this only works if the property can appraise for the contract price- in this case $1,030.

This might be what your Realtor is referring to in this situation.
  • March 19 2010
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