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Making a Non-buyer into a Buyer... Have the Seller Pay Closing Costs !

Having a Buyer who is both Ready to buy the home you have found for them, and Willing to write up an offer to purchase that home... these are good things !

But in order to make the whole thing work... three things must be in place. 

First... you must have a buyer, or pair of buyers who have good credit.  These days... having good credit scores is more important than ever.

Second... you must have a buyer, or buyers, who have sufficient credit to support the mortgage payment.  This is also a good thing !

But... Third... your buyer must have sufficient up-front cash to close... enough cash to bring to the closing table to cover their down payment (if any), their closing costs, and their prepaid items.  This can often be a problem... especially for first-time buyers.

If numbers One and Two are there... decent credit, and sufficcient income... but the buyer cannot perform because of insufficient cash... then having the seller pay some, or perhaps all of the buyers closing costs and prepaids can turn a non buyer into an able buyer.

Many times when making an offer for my buyers... I have as part of the contract that the seller pay most of, or even all of (if the type mortgage allows that degree of "seller contributions") my buyer's prepaids and closing costs... I get read the riot act from the listing Realtor. 

It goes something like:  "I presented your offer to my seller, and they absolutely REFUSE to pay your buyer's closng costs.  They feel it is not their responsibility to pay any of the buyer's costs.  They said they had to pay their own costs when they bought, and that their buyers need to do the same."

Whew... nothing quite like a good "chewing out !" 

There is nothing wrong whatsoever for a buyer... instead of making an offer that asks the seller to drop their price... to ask the seller to pay all of their closing costs... to make the sale work.

Buttom line... paying buyer's costs takes a willing buyer and makes them able to buy.  Having a seller pay the buyer's closing costs and prepaids is something I always suggest to my sellers when I make my presentation to them on a listing.  It usually works.

What do you think ?  Would you recommend that your seller pay most of all of the buyer's closing costs to make the sale work ?

Comment balloon 20 commentsKaren Anne Stone • February 14 2008 01:05AM

Comments

Hi, Karen - I guess the first thing that bothers me about this is the fact that agents take 'non-traditional' offers so personally.  Over the years I've written and received what could easily be called 'oddball' offers.  It's not a personal affront to the other party... it's just an offer.  Period.  Having a seller pay the buyers closings costs is a pretty common occurrence; whether it will fly depends on the market and the property.  I just signed an offer this morning where the seller is contributing $8,000 toward the buyers closing costs in lieu of a full price offer.  Works for the seller, so it works for me.  It's all about negotiation, right?
Posted by Jesse & Kathy Clifton, Retired (Jesse Clifton & Associates, REALTORS®) almost 11 years ago
Hi Jesse:  I totally agree.  Perhaps years ago it might have been considered "non-traditional"... and I am sure it varies from market to market.  If an agent who is familiar with how I market my listings happens to show one of the homes I have on the market, they probably are aware that I have counselled my seller to be open to paying buyers closing costs in lieu of taking an offer on the home.  In no case, however, will I allow the price to be raised to reflect that closing costs are being paid.  The local appraisers frown on it, and so does FHA.  Take care... and thanks for your comment.
Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) almost 11 years ago
I don't see that there's much difference in having the seller pay X in closing costs vs taking X off the sales price.  Both are concessions and most sellers understand that although if they aren't prepared for it, the emotional response of "I had to pay mine, let them pay theirs" comes out.  As for raising the price to cover the closing costs, I have done that quite a bit over the years but with the understanding that it might not appraise for the higher amount... sometimes it does and sometimes it doesn't... either way I've never pressured an appraiser to hit a specific number. 
Posted by Jesse & Kathy Clifton, Retired (Jesse Clifton & Associates, REALTORS®) almost 11 years ago
Sometimes when someone is RIGHT ON THE BORDER of passing a coop board or getting a loan secured, I will ask the seller to help us out by paying a point down on the loan.  This is often just the "edge" the buyer needs to satisfy the board and is far less expensive to the seller than a price reduction!  Some agents don't like it - some see it as a very practical solution particularly if the home has been on the market a long time. 
Posted by Ruthmarie Hicks (Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605) almost 11 years ago

Karen Anne, good topic!  In my area a seller paying closing costs and such is pretty much the norm.  In fact, I believe only about 10% of my buyers last year did not ask for help in this regards.  Because of this most sellers agents AND sellers are expecting to see this on any offer.   

At listing time I go over this with my sellers and remind them that the bottom line to them is what we'll be looking at.  All have been comfy with this as getting to the closing table is what they truly want.  

Posted by Kris Wales, Real Estate Blog & Homes for Sale search site, Macomb County MI (Keller Williams Realty - Lakeside Market Center) almost 11 years ago

Karen Anne, I agree with Kris in our market and even though we are both Michigan; I would refer to her...she is that far away but in this regard it is the same.  I discuss it as well and I agree with you.  I have yet for people to get upset they counter the percentage but they know in this market, it is common.

The ones that don't get the closing costs paid for are the bank owned properties that my clients have bid on and we were the offers they chose to work with in all those cases.  Great topic!

I do think this might be another topic that depends on the market you work.

Posted by asdf zcxv, Ann Arbor Area Real Estate (Keller Williams Realty) almost 11 years ago

Karen Anne,

Been doing purchases here for years and can't think of a deal I did that did not have the seller pay most if not all closing cost. They are usually structured with an agreement on price then "bumping" up the amount that would match lender allowable closing cost.

Remember that you can still (who knows what happens at the end of March) do 100% FHA +6% CC with FHA

Happy Selling!
Tony Grego - Indiana Mortgage Broker

Posted by Tony Grego, 317-663-4173 #1 Trade Association for Alternative Inv (REISA - 317-663-4173) almost 11 years ago

Karen Anne,

Been doing purchases here for years and can't think of a deal I did that did not have the seller pay most if not all closing cost. They are usually structured with an agreement on price then "bumping" up the amount that would match lender allowable closing cost.

Remember that you can still (who knows what happens at the end of March) do 100% FHA +6% CC with FHA

Happy Selling!
Tony Grego - Indiana Mortgage Broker

Posted by Tony Grego, 317-663-4173 #1 Trade Association for Alternative Inv (REISA - 317-663-4173) almost 11 years ago
Karen, I've had a few sellers say that to me. However, when I go through the net sheet and they see their proceeds are the same, it has worked. All but one time. Finally the kids in another state had to convince them, not me. They were older and just didn't get it, couldn't get over the fact they were helping them buy the home. duh
Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) almost 11 years ago

I think that if it will make the deal work, you need to at least mention it (and all options) to your seller, they can make the choice.

Your Friend in Charlottesville!

Posted by Charles McDonald, REALTOR®, Blogger, Principal Broker®, Owner (Charlottesville Real Estate Solutions) almost 11 years ago
In our area it is very common for a seller to pay part or all of the closing costs. This option is a great tool to close those 'on the fence' deals.
Posted by Carol Smith (Casmi Photography) almost 11 years ago
Hi Karen Anne, My sellers sometimes will pay closing costs but I always worry that the buyers are just too close to not being able to afford their homes.  When they have no money at all, they are a foreclosure waiting to happen, in my opinion.  Too dangerous.
Posted by Kay Perry (Kay Perry, Broker) almost 11 years ago
OK, Karen Anne...this is a good post as well, but how about coming back and giving me an opinion on my "Updates"...I like your thinking. :-)  I mean, I left your link on my blog...  :-)
Posted by Karen Monsour, REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert! (Coldwell Banker Fort Lauderdale Beach) almost 11 years ago

Jesse:  There is a major difference between having the seller pay all the closing costs, and just taking that same amount off the price of the house.  Depending on the buyer's situation, it can make all the difference in the world.

Just lowering the price... say $8,000... simply lowers a buyer's payment by perhaps $57 a month.  But... having the seller pay that $8,000 of the buyer's closing costs enables that buyer to buy the house.  One way... no sale... the second way... the sale "happens."

My friend... if you have not been taking advantage of this... you have been missing some great opportunities.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) almost 11 years ago

Ruthmarie:  That is a very creative way to attack the problem.  If there is an amount available that the seller would reduce the house by... doing what you did to solve your problem, or paying several points to do a two-one interest rate buydown... or pay closing costs for a cash-poor buyer... can make all the difference in the world.

Just think what a difference it might make if the seller paid $8,000 of the buyer's closing costs, and the buyer was able to keep that same amount... eight thousand dollars... in the bank as "reserves" just in case the buyer experienced a "crunch" sometime down the line.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) almost 11 years ago
Kris:  This is an excellent approach you are aking, and I think that spending time when you actually list the home makes it so much easier when the offer actually comes in with the buyer asking your seller for help with closing costs.  Good Move !  Thanks for sharing.
Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) almost 11 years ago

Karen:  Yes, sellers paying buyer's closing costs is something that is often done in many markets in the country.  It really turned someone who cannot buy... into a buyer who can buy now ! 

Trying to get the seller to pay buyer's closing costs when the property is bank-owned, or then the sale is a short-sale, and the mortgage company has to approve the offer... I have never seen that happen.  Banks want the price, and that is it.  No closing costs, no repairs, no warranty service agreement... they just want a squeaky-clean deal.  I think they shoot themselves in the foot demanding it that way... but... it is their home.

Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) almost 11 years ago

Karen Anne - I'm with you - If the seller will net as much or more accepting an offer that includes paying closing costs for the buyer as they would selling to another buyer at a lower sales price w/o paying any closing costs, I say go for it.  I believe our job is to help our clients net as much as possible while selling their property as quickly as possible.  Usually, the more creative we are, the better we serve our clients.

Best Wishes,

Kelsie

Posted by Kelsie Compton, Cary NC Real Estate (Triangle Choice Realty, Inc.) almost 11 years ago
When I purchased my home the seller did pay the closing cost. I was elated. Often times the buyer does not have that money. Now a days I know you have to have about 5% of the loan amount. Correct?
Posted by Angela Wilson-Rush (Madison Settlement Services) over 10 years ago
Angela:  I generally think about four percent, but you are pretty close.  Hope all is going well with you... take care...
Posted by Karen Anne Stone, Fort Worth Real Estate (New Home Hunters of Fort Worth and Tarrant County) over 10 years ago

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