Why Should a Seller Pay a Homebuyer’s Closing Costs?

By
Real Estate Agent with REMAX Results Minnesota License#90858

Why Should A Seller Pay a Home Buyer's Closing Costs? The short answer is....To SELL the HOUSE! But how does this work and why is it so important in the sale of a home? Let me explain...

When I list a home for sale,  sellers are given a net sheet with estimates of closing costs associated with the sale home. One of the items on the list is “Seller contribution to the Buyer’s Closing Costs.” If the home is one that would be attractive to a first time buyer, I will put in an amount that is roughly 3% of the list price. Every now and again, I hear a seller scoff when they see this. "Why would I want to pay a BUYER'S Closing Costs?”
 
The answer is very simple:
So they can BUY the house!
 
Today almost all buyers are required to put down a minimum of 3% of the purchase price of the home as a down payment. 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
® for communities of Anoka, Chisago and Washington Counties and throughout the north metro Minneapolis/St. Paul area, I see closing costs that range from $3000-$7000 for a first time buyer. Couple this amount with a required down payment and only a handful of buyers have all the funds required to purchase a home.

So buyers have the option of waiting and saving the required 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 $195,000 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 document for $5000, thus the net offer to the seller for the home is $190,000. However the since the home was sold at $195,000, it must appraise at this higher amount.
 
If a seller does not want to pay the closing costs, the buyer in many cases will not be able to purchase the home. It 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.

When a purchase agreement is received on a home listed for sale, it can be confusing to a seller as to what the sale price versus net number is. In the case above, the $195,000 would be the sale’s price on the purchase agreement but by paying the $5000 in closing costs, the seller’s net number is really $190,000 (less the seller's own closing costs including all fees and commission).
 
If as a seller you decide to counter on the original offer, you can counter on the sales price of the home and/or the amount of closing costs paid. When counter offers are involved, a seller needs to make certain that they understand what the net proceeds will be in each offer and counter offer.

This is where the assistance of a good, professional REALTOR
® comes into play. As a real estate agent, I provide my clients with a seller's net sheet that outlines all costs and fees that has been updated after receiving the offer. When counter offers start going back and forth, I reiterate at each step what my seller's net number to help eliminate the confusion.
 
Assisting a buyer with closing costs can be the ticket to getting your home SOLD in any real estate market. Understanding the process is simple with the assistance of a knowledgable real estate agent!
Posted by

Teri Eckholm. REALTOR with RE/MAX Results, is a native Minnesotan who has lived and worked in the Minneapolis St Paul metro all of her life. She specializes in lakeshore homes, acreage properties and first time home buyers but assists anyone making a move in the north and east Twin Cities metro.

If you are buying, selling or relocating to Minnesota and need help from a professional REALTOR®, give Teri , a call or visit her website for a FREE Home Buyer Success Guide or FREE Home Value Report She specialize in acreage and lakeshore properties in the north and east Twin Cities metro area including Ham Lake, Lino Lakes and all communities in the Forest Lake School District! Serving Anoka, Chisago, Ramsey and Washington Counties in Minnesota.

Copyright 2014 www.terieckholm.com

 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Dorie Dillard 07/21/2012 06:50 AM
  2. Charles Stallions 10/09/2012 04:39 PM
Topic:
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Minnesota Anoka County Ham Lake
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Show All Comments
Rainmaker
148,720
Richard and Jean Murphy
Harborview Properties - Portland, ME
(207) 712-4796

Yes, good explaination of this feature of negotiations. The only down-side is that the buyer is financing the closing costs for 30 years. But, often it is the only way to make the deal happen.

Jul 21, 2012 04:25 AM #26
Rainmaker
893,958
Michael Setunsky
Michael's Commercial LLC - Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Teri, paying the purchasers closing costs is pretty much common in my area. A lot of buyers especially first time buyers don't have to funds to put down for a down payment and pay the closing costs. Very good post!

Jul 21, 2012 05:34 AM #27
Rainmaker
409,895
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Teri, 

Great post.  We ask our sellers to look at the net number.  Sales price sometimes will be a bit higher than if they don't get closing costs.  Ideally, it's all about reaching your goal, getting it SOLD!

All the best, Michelle

Jul 21, 2012 05:52 AM #28
Rainer
276,890
Kathryn Maguire
GreatNorfolkHomes.com (757) 560-0881 - Chesapeake, VA
Serving Chesapeake, Norfolk, VA Beach

So many sellers say "But no one helped me with my closing costs!" If you want to sell the house, this is sometimes what you have to do in order to move on.  Great post!

Jul 21, 2012 06:52 AM #29
Rainmaker
257,984
Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Marin Mortgage Broker

This is a great angle and yet another tool in the toolbox.  Credits for closing costs can make or break a deal --- many buyers do not have the cash to close even if they have the income to support the ongoing payments.  Flexible and cooperative sellers are a necessity for them.  Not to mention another valuable take on the credit --- "buying out" a buyer's mortgage insurance.  Depending on the loan-to-value, it can be less than you think and it can really make the deal attractive to all.

Great post!

Jul 21, 2012 06:57 AM #30
Rainer
140,167
Pat Mistretta
ERA Morris & Raper Real Estate Consultants - Atlanta, GA
Atlanta Lofts and City Living

It is quite common here in Atlanta for a buyer to ask the seller for contribution to closing costs, except in an all cash deal.  My last seller could not comprehend that and was adamant that he was not going to pay for closing costs.  He almost lost a deal.  I had to explain it pretty much comes out of the same pocket whether it is a reduction in price or contributions to closing.  Once he got over this stigma, the deal closed successfully.  And yes, he contributed to closing costs!

Jul 21, 2012 07:37 AM #31
Rainmaker
1,273,641
Richie Alan Naggar Author PEARLS SERIES of books
People first then business! Ran Right Realty Riverside, Ca - Riverside, CA
on LIFE and LOVE plus Real Estate too!

Its a deal doer...forward movement and transaction food....Whatever it takes to reach the mission objective.....RESULTS

Jul 21, 2012 08:07 AM #32
Rainmaker
313,710
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

Hi Teri, this is a great explanation of the process. Many sellers feel that if the buyers can't afford the closing costs, they will have problems affording the home in the long run.

Jul 21, 2012 09:11 AM #33
Rainmaker
652,646
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes

Exactly right --- to sell the house -- otherwise the house might not get sold.

Jul 21, 2012 10:14 AM #34
Rainmaker
507,702
Chris and Dick Dovorany
Homes for Sale in Naples, Bonita Springs and Estero, Florida - Naples, FL
Broker/Associate at Premiere Plus Realty

It's merely taking a dime out of one pocket and putting it in the other.  You can either offer $95,000 for the $100,000 home or you can offer $100,000 and pay the buyers closing costs.  Same difference.

Jul 21, 2012 10:15 AM #35
Rainmaker
233,579
David Grbich
Ventana Coastal Properties - www.FindCARealEstate.com - San Juan Capistrano, CA
Orange County Real Estate - 949-500-0484

Great post - it's all about getting the home sold for the largest net. Regards Dave

Jul 21, 2012 10:17 AM #36
Rainmaker
693,541
Gene Mundt
www.genemundt.com - 708.921.6331 - New Lenox, IL
Chicagoland Mortgage Lender - 37 yrs experience

Teri:  As you point out so well, it's to facilitate a sale that might not have happened otherwise.  Simply, it makes the impossible ... possible ...

Great food for thought ... for ALL involved in the transaction ...

Gene

Jul 21, 2012 02:42 PM #37
Rainmaker
337,313
John Juarez
Prudential California Realty - Fremont, CA
CDPE, ePRO, SRES, GRI, PMN

Savvy listing agents teach their sellers that it is the bottom line that is important. The net check to the seller after escrow closes is what is important to the seller. If helping the buyer by granting a credit for closing cost results in a sale and acceptable net to the seller it is a win-win for all involved.

I do not understand why certain short sale lenders refuse to accept purchase offers that include a request for closing cost help. It is like they do not understand how real estate works.

Jul 21, 2012 02:52 PM #38
Ambassador
1,303,684
Silvia Dukes PA, REALTOR
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living
Teri, the seller just needs to realize that accepting an offer tha tray be full price but comes with the request for a five percent contribution towards buyers closing cost is the practically the same as accepting an offer of 95 percent of asking price.
Jul 21, 2012 02:59 PM #39
Rainmaker
1,286,410
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

Good points, and as with all things in the deal, everything is negotiable.  I've had our closing costs countered by the seller, but we did get some closing costs and that did help seal the deal!

Jul 21, 2012 03:07 PM #40
Rainmaker
1,777,010
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Great information, and still after we go over this with buyers and sellers, many will still not understand.

Jul 21, 2012 04:52 PM #41
Rainmaker
602,873
Joy Daniels
Joy Daniels Real Estate Group, Ltd. - Harrisburg, PA

Definitely bookmarked this post - what I need to keep telling myself is that while it's easy for me to understand, it often takes several explanations for my client to understand and this is a great post!

Thanks,

Joy

Jul 21, 2012 05:51 PM #42
Rainmaker
139,567
Greg Miller
Ruoff Home Mortgage - Warsaw, IN
Warsaw Ind. Home Loans - Conventional,FHA,USDA,VA

Great post Teri, you explained this point very well. I would say that here in my area, we have seller paid closing costs about 60-70% of the time.

Jul 22, 2012 04:01 AM #43
Rainmaker
398,953
Kathryn Acciari
RE/MAX Professional Associates, with offices in Sturbridge, Charlton, Auburn, Spencer, and Shrewsbury - Sturbridge, MA
Realtor - CDPE, CIAS, Sturbridge MA Real Estate

For the seller, it depends on the net.  If the offer price is reasonable, the seller may be willing to help with closing costs. Playing the lowball offer and also asking for closing costs will annoy most sellers.

Jul 22, 2012 12:32 PM #44
Rainmaker
605,834
Teri Eckholm
REMAX Results - White Bear Lake, MN
Acreage & Lakeshore REALTOR Minneapolis St Paul

Hi All! Thank you so very much for all the wonderful comments. I really appreciate them. I often write posts to explain to my clients (and potential clients) information they might not be aware of. There are so many sellers that struggle with this when really it is just a way for the buyer to finance some of the cost in purchasing a home.

Jul 24, 2012 11:44 AM #45
Show All Comments
Rainmaker
605,834

Teri Eckholm

Acreage & Lakeshore REALTOR Minneapolis St Paul
Looking to buy or sell in the Twin Cities? Contact Me Today!
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