SHOULD A SELLER PAY THE BUYERS CLOSING COSTS? What you need to know...

Todays question is "As a seller, do i "have to" pay the buyers closing costs?"

As a seller you never "HAVE TO" do anything. However as a seller you need to know that you should do whatever you can control to bring the most amount of potentilal buyers to your house. there are so many variabls you can control, you do not want to alienate buyers from teh start.
 
As a listing agent and as a seller the goal is to bring about the quickest sale at the most obtainable price. The first thing you need to do is get a brokers price opinion. you need to know what teh value of your property is in todays market. You need to price your house at or near market value. Make sure though you leave room to negotiate though. Virtually all offers will be lower than your asking price and yes some buyers may ask you to pay 3% of the closing costs. It is common no matter where you live.
 
Most buyers who are asking for their closing costs to be included need to have them included. They have great credit but do not have a large savinges. If you decline offers asking for credit for closing costs, you may be hindering the sale of your own house. You can negotaite the price and teh amount of closing costs you are willing to credit. You usually can get a higher price which offsets the credit to the buyer and allows you to sell your house.

Updated August 15, 2010

Blog written by:

Scott Godzyk
Godzyk Realty Group
  • August 15 2010 - Manchester
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Answers (19)

Well said.  I personally think a seller paying buyers closing cost is dead wrong.  However, the door has been open a long time ago.  Once open there is no going back.  Part of the reason for the housing mortgage melt down was started by this allowance and no down payment.  We seemed to have learned nothing from the experience of the last two years.
  • August 15 2010
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Profile picture for Brian French
I try, as a real estate instructor, to show new agents, sellers, and buyers that economically, sellers really do not pay any cost when selling their home.  Like any commodity, the cost of selling a home are added into the price.  Just like a pack of cigarettes, all those government taxes are passed on to the consumer not just absorbed by wholesaler and retailers
  • August 15 2010
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Profile picture for nancerltrs
Good point!
A lot of the buyers that I have been dealing with recently do not have the funds for the downpayment plus closing costs.
I usually prepare my sellers for concessions in one form or another.
  • August 15 2010
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Profile picture for Principal Realty
I agree as most of my buyers have the sellers pay closing costs.

As in most cases the buyers dont have both down payment and closing money.
  • August 15 2010
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If I was selling my house I'd offer to pay closing costs and send the buyers family to disney world if needed.  All a seller needs to be concerned with is his bottom line.  In this market the seller should be doing everything he can to incourage a buyer to come take a look at his house including offering higher commisions to the selling broker.  Bottom line what ever works.

People who think down payments had anything to do with the housing market meltdown are out of touch with the market.  VA has offered no down payment no closing costs to veterans since WWII.  Which lead to an economic boom in the 1950's.

Lack of documented income is what caused the recent meltdown.

  • August 16 2010
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Profile picture for the_country_hick
Brian, you should not lump in V.A. loans with others.

The big difference is the kind of person getting the loan. The military instills certain things in people that actually make them highly likely to live up to their contracts. Many other people look at just the $$$ of the situation while many who are or were in the military also look at personal honor.

The meltdown was caused by many different things all working together to create a big problem. One of the biggest things was people buying to sell later for a huge profit not really wanting a house.
  • August 16 2010
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I prep all my sellers to expect for a buyer to ask for closing cost assistance. The discussion that we have is that the bottom line is what is important - not how we got there. If we take a higher offer with some closing costs or a lower offer with no closing costs that net to the same figure  - it all ends the same for the seller. Once they understand this concept negotiations tend to go much more smoothly as they go not feel like they are paying the buyer to purchase their home - or giving away profit just to help the buyer.

I also discuss with my buyers that the fact that no seller is "giving" them closing costs  - they are financing it in to the purchase. If the seller wants a net price of $300k we can get there by offering $300k with no closing costs or $305k with $5k in closing costs.

If both sides understand this concept the negotiations tend to go much more smoothly!

  • August 16 2010
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Dan the country_hick,
 
The point I was trying to make on VA loans is people have bought homes with no down payment for years.  Consumers buy everything without a down payment.  You can buy a $100,000 auto and drive it to Canada.

There was only one main change in mortgage underwriting 5 years ago.
Consumers were not required to prove they had enough income to handle the payments.  
  • August 16 2010
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Profile picture for WhimseyWoman
Perhaps someone can help me understand, though... I don't understand how the seller benefits. Yes, they sell the home, but if, say the house is 300K and the buyers want a subsidy of 15K, then the sellers are already down on profit by 15K. I don't get it.
  • July 03
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Seller paid buyer closing costs - a few thoughts... While it is true many buyers ask for the seller to assist with their closing costs because they have limited funds, that is not always the only reason. Is the property in need of some cosmetic repairs, but a repair credit on the HUD would send the mortgage underwriter into a spasm? Giving the buyer a closing cost credit instead of a carpet replacement credit solves this heartburn. Sellers can also consult their tax advisor to determine if the 'closing cost credit' is a tax deductible item. Those cost line items on the HUD are much easier to document on a tax return.
  • July 03
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Assume the following -
over 30K in upgrades to the home, including paint, carpet, and renovated bathrooms. Everything is clean and pristine. There is not fixing up needed.

The price has been determined to be completely appropriate for the house, location, etc.

I understand first time home buyers may have great credit and good jobs, but I do not understand why the seller is typically stuck with ponying up money for the buyers. I don't understand the point. What does the seller get out of the investment they made in the upgrades if they end up putting thousands of dollars over on the buyers' side of the equation.

  • July 03
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Well, then the sales price is essentially $285,000. Do you have a better offer than that?
  • July 03
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Whimsy, just say no!

You are not obligated to subsidize the buyers. If you have been on the market for a year and this was the only offer you received, it might make sense to accept it, but if you are secure in your price placement on the market hold firm.

If your upgraded home is really worth $300k net to you, someone will pay it.

What you are failing to see is that most buyers are trying to preserve their cash on hand by asking sellers to pay their costs. I agree with you that this should not be a customary trend.
  • July 03
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I understand wanting to keep one's cash, however one is buying a home and shouldn't that mean having to pony up some cash to buy it?
  • July 03
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Yes, the buyer still has to come up with the necessary down payment. We have been talking about seller concessions here Whimsy not down payments!
  • July 03
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Shame on people who try to take advantage of anybody - buyer or seller.
This is a disgusting business.

  • July 03
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They really should change the name of these forums to "watch while most agents dance around real answers."
  • July 04
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I would tend to say it's first important to know what's customary in your area. Some areas it's very common (certainly not defamatory) for the Seller to contribute towards the Closing Costs. Other areas, not at all. Still, in my mind it's still a point of negotiation. If you are in an area that it's common, it should be calculated ahead of time in a net sheet if it is likely that the buyer would be asking. 
Thank you
  • July 07
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Profile picture for PeteSchneider
Question.  Doesn't it make more sense to counter with a price 5K lower than to accept a higher price with a 5K allowance?  It seems to me that the higher price leads to higher taxes and fees for both the buyer and the seller and that the only people actually benefiting from this imaginary 5K are the government and the realtors.
  • July 10
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