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Can someone please explain what "seller is paying the closing costs" mean? I know I am jumping the gun, but I can't see how a seller would be willing to pay that. Closing costs are expensive!
Thanks in advance for your responses.
Can someone please explain what "seller is paying the closing costs" mean? I know I am jumping the gun, but I can't see how a seller would be willing to pay that. Closing costs are expensive!
Thanks in advance for your responses.
Because the seller wants to sell as quickly as possible. It basically means that the seller is willing to pay all or part of the buyer closing costs. The seller may also put a cap on how much closing costs they will cover. By the seller offering to pay buyer closing costs that increases the buyer pool. There are many buyers who can come up with a down payment but don't have enough cash to cover closing costs. Closing costs in my area for the buyer run about two and a half percent of the contract price. In many cases the seller may have factored this in to the purchase price. In other cases, it may be easier for the buyer to purchase a house if 5k of the closing costs are paid by the seller rather than negotiating a 5k reduction in the purchase price. Paying buyer closing costs may be seen as a point of negotiation for the buyer or as an incentive by the seller.
We were looked at like we had 3 heads when we asked for the seller to pay closing costs. I simply told the realtor that was what we wanted and I asked her why she was so surprised. She said "in this area, the seller and buyer each pays his and her own closing costs" - of course I told her that her information contradicted what everyone else advised us. So she explained that most of the closing costs are related to the buyer obtaining financing, and so they pay their own. But that "we can ask the seller to pay for the costs that pertain to both buyer and seller". In the end, she thought that asking the seller to pay $1500 towards closing was reasonable. I dont know if she was a good actress or what because that goes against everything we'd heard...
I think it probably depends on the area. In areas with expensive homes, people putting down 20% shouldnt really have a problem coming up with another 2-3% for the closing costs. In those towns, just negotiate for a lower purchase price. In areas with less expensive homes or starter homes, people can probably just afford the down payment so the seller can get a higher asking price but make it easier for the couple to get into the home by paying for the closing costs. Personally if you cant pay the closing costs, I think you have bigger problems.
We were looked at like we had 3 heads when we asked for the seller to pay closing costs. I simply told the realtor that was what we wanted and I asked her why she was so surprised. She said "in this area, the seller and buyer each pays his and her own closing costs" - of course I told her that her information contradicted what everyone else advised us. So she explained that most of the closing costs are related to the buyer obtaining financing, and so they pay their own. But that "we can ask the seller to pay for the costs that pertain to both buyer and seller". In the end, she thought that asking the seller to pay $1500 towards closing was reasonable. I dont know if she was a good actress or what because that goes against everything we'd heard...
I experienced the same thing. I moved from MD to the Dallas area and everyone in MD knew what seller paying the closing costs meant. However, in Dallas it was very customary for the seller and buyer to pay their own closing fees. I disagree with it too but in the end I let it go because the housing market was still in great shape in Dallas... especially where we were looking so it was impossible to get them to pay our closing costs.
It's better to focus on the cost of the house here and try to talk it down as low as possible. Also, its a huge plus that the cost of living is almost cut in half here compared to where we lived before.
I think it probably depends on the area. In areas with expensive homes, people putting down 20% shouldnt really have a problem coming up with another 2-3% for the closing costs. In those towns, just negotiate for a lower purchase price. In areas with less expensive homes or starter homes, people can probably just afford the down payment so the seller can get a higher asking price but make it easier for the couple to get into the home by paying for the closing costs. Personally if you cant pay the closing costs, I think you have bigger problems.
Actually, I think you have it backwards. When you say area you you referring to different states? If so, if you are in a higher cost state like I was (MD) and its a buyers market, then its customary for the seller to pay the buyers closing cost and anyone with brains expects it.
I looked at the seller paying closing costs as getting "cash back" from the loan. IE contract price was $176k with $3,900 in "closing cost assistance" from the seller. My loan was for $176k but $3900 of that went toward my part of the settlement. Essentially I financed the closing costs.
It was either that or pay $172,100 for the house and get nothing back from the sellers. At that point I wanted to extra $$ in my checking vs. on the loan because I would've had to come up with an additional $3900 for closing costs had I taken the house for $172,100.
Either you pay more for the house and get closing costs paid for or you pay less for the house and pay out of pocket for closing costs. It's all the same in the end.
Plus I think sellers feel better when the price of the house is more, even if they were losing some of that money.
Actually, I think you have it backwards. When you say area you you referring to different states? If so, if you are in a higher cost state like I was (MD) and its a buyers market, then its customary for the seller to pay the buyers closing cost and anyone with brains expects it.
Apparently you do not know how much closing costs in the State of Maryland cost. Maryland has some of the highest closing costs in America. No wonder why the governor says the State is in a budget crisis. Even with increasing the state's income tax to almost 9% in most of the urban counties, Maryland had relied on it's high housing taxes to raise revenue. Now, less homes are being sold and that means less taxes being generated. It's close to 3% of closing cost. So a 600K home will incur almost 20K in closing cost.
Asking the seller to pay this entire amount may break the deal. I've seen some deals in Maryland fall through. Like my friend bent over backwards selling his Potomac Maryland home for the potential buyer. He even offered to pay 50% of closing cost but he potential buyer insisted on 100%. This was on one million dollar home.
Deal broke apart. My friend relisted his home and resold it within 1 week without even paying closing cost.
Just becareful of how desirable the location and the home is. In highly desirable areas, people have a lot more money and can withstand this housing crash. When people start demanding too much, they will just cancel the agreement and move on to another buyer.
Now in some desperate areas (like the far off suburbs), people might be desperate and pay your closing costs. But there is a limit to how much home sellers will pay.
Thank you all for your input. Slowly the fog is lifting around my brain. I "think" I am beginning to understand what the "seller pays the closing costs" means. I will summarize what I kind of understood and please correct me if I misunderstood.
When a seller offers to pay the closing costs, they are offering to help the buyers with the purchase of the home, but there is no actual output of money from the seller. The help is seen in the writing of the loan. i.e. House is selling for $110K, appraisal is $125K, Offer accepted is for $105K with $10K going to closing costs to HELP the buyer. The loan is drawn up for $115K, but the seller actually gets $105K (the accepted offer). In essence, as long as the house appraisal is enough to cover the closing costs, this type of concession can be done.
Whew, I really hope I got this correct.
Here are my follow up questions.
1. How does this benefit or not benefit the seller?
2. Is this just a way to get the closing costs rolled into the mortgage?
Once again, thank you all for you input. I hope I don't sound dense, but this is something I have been questioning for a while now and can't seem to pin it down. I'm beginning to feel like Homer Simpson.
Thank you all for your input. Slowly the fog is lifting around my brain. I "think" I am beginning to understand what the "seller pays the closing costs" means. I will summarize what I kind of understood and please correct me if I misunderstood.
When a seller offers to pay the closing costs, they are offering to help the buyers with the purchase of the home, but there is no actual output of money from the seller. The help is seen in the writing of the loan. i.e. House is selling for $110K, appraisal is $125K, Offer accepted is for $105K with $10K going to closing costs to HELP the buyer. The loan is drawn up for $115K, but the seller actually gets $105K (the accepted offer). In essence, as long as the house appraisal is enough to cover the closing costs, this type of concession can be done.
Whew, I really hope I got this correct.
Here are my follow up questions.
1. How does this benefit or not benefit the seller?
2. Is this just a way to get the closing costs rolled into the mortgage?
Once again, thank you all for you input. I hope I don't sound dense, but this is something I have been questioning for a while now and can't seem to pin it down. I'm beginning to feel like Homer Simpson.
You need to start again Newbie. If the seller agrees to pay 5k in closing costs, that is actually 5k out of the seller's pocket as the 5k will be taken out of their proceeds from the sale. In your scenario, the amount of the loan would be 105k minus your down payment equals amount of mortgage. The closing costs are not rolled into the mortgage.
This benefits the seller by allowing a buyer to purchase their home when the buyer did not have enough to cover all of the closing costs. If the seller planned for this when pricing the house it does not hurt the seller. If it wasn't planned for then the seller is out the amount of closing costs they have agreed to pay, but they have sold the house.
Re-read my original post on this which explains why a seller would pay some of the closing costs.
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Closing costs are expensive!
The fog is slowly lifting...
