why buyer incentives? (feedback, appraised, 3%, income tax)

[christeen]

We're planning to buy our first home this summer and really enjoy the education we're getting on these forums. I see discussion now and then where a seller is debating whether to lower an asking price, or throw in incentives instead (eg, pay closing costs).

At the risk of flaunting my ignorance, I'm wondering why a seller would do that? Flipside to the question is why would a buyer want closing costs paid instead of a lower asking price -- I think that answer is if the buyer doesn't have as much cash on hand for closing? But why would a seller pay closing costs instead of lower the asking price?

Thanks for your explanations.

[CarolinaCruzes]

Indeed, you are flaunting your powers of reasoning not ignorance. Many buyers may qualify for a loan but not have enough cash on hand to cover the upfront closing cost. In the past, when money flowed freely, you could roll them into the loan and 100% financing abounded. Alas, those days are gone.

[ji603]

Both! lower price and 3% seller contribution

[christeen]

You're right, I guess as buyers we'd want both!

Originally Posted by CarolinaCruzes

Indeed, you are flaunting your powers of reasoning not ignorance. Many buyers may qualify for a loan but not have enough cash on hand to cover the upfront closing cost. In the past, when money flowed freely, you could roll them into the loan and 100% financing abounded. Alas, those days are gone.

Ok, so the seller is helping with closing costs, rather than (or in addition) to lowering the asking price, not to change the seller's bottom line on the sale, but to help the buyer so she can actually buy the house with less up-front cash? ie, the buyer's benefit in helping w/ closing is just to get the sale, esp in this market?

I wonder if the buyer, assuming she has cash for closing costs, is better off seeking a lower price or help w/ closing? Help w/ closing only leaves money in the bank which can earn a little bit of interest, but would give you a higher sale price and presumably higher property taxes. And it would give you a higher total cost for the house since there's more interest to pay on the mortage over time, right? But the higher sale price also gives you bigger mortgage payment to deduct on income taxes. So, on balance is there no benefit to the buyer in getting the seller to cover closing costs instead of lowering sale price (assuming again the buyer already has cash for closing)? My gut sense is it's better to get the lower asking price.

Thank you both for explaining and letting me think out loud (and not feel embarrassed in the process ).

[CarolinaCruzes]

I would say if you have the funds for the closing cost and whatever down payment is required, a lower price is best for the buyer. Although obviously lower selling price and closing cost are most preferred. In our area taxes are based on the appraised value not the selling price, although it will affect the stamp on the deed but only marginally.

Good luck and great questions, I predict you will be very successful in your house hunting endeavor.

[christeen]

LOL, thanks, I appreciate your confidence. (I tend to overthink things when there's often a simpler answer ). Glad to hear we seem to be on the right track.

But of course you bring up more questions of mine . . . guesstimating property taxes and homeowner's insurance premiums. Hard to figure out a house-buying budget when you don't know all the potential numbers. We figured we'd use the sale price to estimate the property tax so that we'll have conservative #s for our budget. Otherwise, I have no clue which value it would be based on. Guess I should call the tax assessor's office . . .

As for insurance, my understanding was we should ask the sellers what they pay, and call the insurance companies for an estimate as well. Does that sound right?

Thanks again!

[surfingatwork]

Originally Posted by christeen

As for insurance, my understanding was we should ask the sellers what they pay, and call the insurance companies for an estimate as well. Does that sound right?

Thanks again!

This is exactly what we did when we bought in VA. We ended up going with a company different from the sellers but we were able to get almost the exact same rate.

[christeen]

Glad to hear you got the right estimate for your insurance. Thanks for the feedback.

[palmcoasting]

You're going to do just fine in the buying process.

[christeen]

Aw, thanks. Hopefully I'm learning enough here and in other research to get us through the process unscathed. This is such a great forum. Thanks for the encouragement!