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Yes because I'm a disciplined real estate investor. It's not just $420 from commissions. It's additional closing costs paid on that $7000 as well as the taxes paid on that additional $7000. Further, for the buyer it's $7000 more in appreciation that they need for resale, more lending and title fees based on that $7000 and a higher property tax assessment.
It all adds up.
The real issue is the manuever you are doing. My neighbor purchased a home for $500K. That was the price.
But the sneaky thing he did was "pay 27K" for the sellers commission to lower the effective selling price to $473K. But the sellers "rebated" him back 27K after closing. Hes a finance guy so knows the game and how taxes are assessed. This maneuver probably saved him an additional $500 overall. $500 is still $500.
The net money was still the same for both the buyer and seller. Like you said, title insurance and other state transfer taxes etc are based on selling price of the home.
But this really screwed up the "comps" for the neighborhood cause on the books it looks like he got the home for $473K when the effective selling price was $500k.
I wanted to add closing cost for buyers are really next to nothing. The "true" closing cost are no more than 0.5-1%.
What buyers complain about are the prepaid 1 year of real estate taxes they add to the closing cost and 6 months-1 year of home owners insurance and 2-3 months of HOA dues.
In reality, if one is having their property tax and insurance prepaid, if they move, and if they had these closings costs paid by the sellers, what in essence is the buyers are getting "free money".
LIke my friend in St. Augustine Florida who purchased a foreclosure. The bank gave him 14K in closing cost. If he were to move today. He has 10K in his escrow balance. He would get back that entire 10K. That's free money the bank gave him.
So for buyers, they are essentially asking you as the seller to pay for up to 1 year's of prepays for them if they ask for closing cost.
You rarely heard of buyers who are 100% cash buyers asking for prepays/closing costs. It's cause there is not mortgage and no prepays required.
The real issue is the manuever you are doing. My neighbor purchased a home for $500K. That was the price.
But the sneaky thing he did was "pay 27K" for the sellers commission to lower the effective selling price to $473K. But the sellers "rebated" him back 27K after closing. Hes a finance guy so knows the game and how taxes are assessed. This maneuver probably saved him an additional $500 overall. $500 is still $500.
The net money was still the same for both the buyer and seller. Like you said, title insurance and other state transfer taxes etc are based on selling price of the home.
But this really screwed up the "comps" for the neighborhood cause on the books it looks like he got the home for $473K when the effective selling price was $500k.
How was that rebate after closing worded in the contract? Not at settlement, right? After settlement.
The real issue is the manuever you are doing. My neighbor purchased a home for $500K. That was the price.
But the sneaky thing he did was "pay 27K" for the sellers commission to lower the effective selling price to $473K. But the sellers "rebated" him back 27K after closing. Hes a finance guy so knows the game and how taxes are assessed. This maneuver probably saved him an additional $500 overall. $500 is still $500.
The net money was still the same for both the buyer and seller. Like you said, title insurance and other state transfer taxes etc are based on selling price of the home.
But this really screwed up the "comps" for the neighborhood cause on the books it looks like he got the home for $473K when the effective selling price was $500k.
At least in some areas, money paid under the table/outside of settlement is illegal.
Which taxes are you talking about? Property? that would be based on the assessed value which, again at least in some areas, have no bearing on sales. (Unless the prices come catastrophically down and you approach and city/county for a tax reduction)
I wanted to add closing cost for buyers are really next to nothing. The "true" closing cost are no more than 0.5-1%.
What buyers complain about are the prepaid 1 year of real estate taxes they add to the closing cost and 6 months-1 year of home owners insurance and 2-3 months of HOA dues.
In reality, if one is having their property tax and insurance prepaid, if they move, and if they had these closings costs paid by the sellers, what in essence is the buyers are getting "free money".
LIke my friend in St. Augustine Florida who purchased a foreclosure. The bank gave him 14K in closing cost. If he were to move today. He has 10K in his escrow balance. He would get back that entire 10K. That's free money the bank gave him.
So for buyers, they are essentially asking you as the seller to pay for up to 1 year's of prepays for them if they ask for closing cost.
You rarely heard of buyers who are 100% cash buyers asking for prepays/closing costs. It's cause there is not mortgage and no prepays required.
Another regional type thing I suppose. In some areas those buyers' closing costs are 3% of the sales price. I do know it can be very different in every area. One of the problems with the online lenders from outside an area, too. They can really mess things up not knowing what's covered and what's not by each side.
It has to do with cash. Generally a buyer is bringing a check to closing. This would reduce that.
OK, thanks, but why wouldn't the buyers just reduce the amount of the check at closing by paying a commensurately lower price on the home itself and assuming the closing costs themselves? I have heard of buyers wrapping the closing costs into the mortgage, but they generally don't ask sellers around here to pay closing costs. It would seem advantageous to all for the final price of the home to be lower, even if it's only by $5k. It affects the real estate commission, the percentage of the buyers' equity, possibly the amount of the sellers' capital gain and even, perhaps, the property taxes in areas where assessors use sale prices as a guide.
OK, thanks, but why wouldn't the buyers just reduce the amount of the check at closing by paying a commensurately lower price on the home itself and assuming the closing costs themselves? I have heard of buyers wrapping the closing costs into the mortgage, but they generally don't ask sellers around here to pay closing costs. It would seem advantageous to all for the final price of the home to be lower, even if it's only by $5k. It affects the real estate commission, the percentage of the buyers' equity, possibly the amount of the sellers' capital gain and even, perhaps, the property taxes in areas where assessors use sale prices as a guide.
Because they aren't paying cash for the house. They are getting a mortgage. Let's say you are putting down 10%. So for every $1,000 dollars of price reduction, that only lowers your down payment by $100. So comparing the seller paying $5,000 in closing costs for the buyer would have to equate to a price reduction of $50,000 to have the same "cash outflow" impact at closing.
Just wanted to add that no, I don't think a seller should automatically take this request as objectionable.
There are a lot of situations out there where someone is already paying about the same price each month in rent as the mortgage payment will cost them.
These people may be trying to transition from renting to home ownership, with the only real obstacle being the up-front money they have to put together to close on a property. Writing them off as, "If you can't afford the closing costs, maybe you shouldn't be buying..." isn't really a reasonable conclusion. These people could have good credit and a good, steady income, and easily be able to prove they're capable of paying their rent obligations on time.
The above would be pretty much the case with our own family. Yes, we could come up with the closing cost money if we absolutely had to -- but it would be coming out of a retirement account. If you look at how much you stand to lose by retirement, by reducing an IRA or 401K by that amount, vs. a willingness to pay a bit closer to a seller's asking price on a property and getting them to cover those costs up-front, it's a sensible request.
Quote:
Originally Posted by jackmichigan
It seems that Buyers asking for help paying their closing costs is somewhat of a regional thing. It doesn't seem to be as common in this area as it seems to be in other areas around the country--at least by reading so many of these posts.
Personally, I would find it a bit objectionable if someone asked me to cover their closing costs. Hey--if you can't afford paying for your closing costs maybe you just shouldn't be buying the property. Of course, all things are negotiable so it's just another of the terms which need to be dealt with. But I think many buyers want to build in the "expectation" that the Sellers will pay part of the closing costs just so they can get a better deal.
Granted, a Seller could raise the price to cover any amount paid in closing costs (mindful that the need for an appraisal might complicate matters) but then it becomes just a game. There are enough games already in real estate; there should be no expectation that a Seller should pay for a Buyer's closing costs.
In my market, its rare except in cases of FHA or other government sponsored loans. When I asked my realtor about it during my recent home purchase, I was told that it weakens any offer and in a multiple bid situation, it basically kills your chances of getting the property. Sellers here have been groomed to look at financials of potential buyers-- less than 10% down or a VA/FHA loan is a no no to many. Closing cost assistance seems to indicate (rightly or not) that the buyer can't really afford the place.
The only issue i see with this is that it would mess up the comps in the area. If one list a house for 200k, unless that person insist on getting that 200k, then i can see the issue. But like many sales, that person will not get that full 200k and would probably get 193k..so to speak.... If the seller expects 193k after negotiation, what does it matter if the seller pays 7k in closing cost vs. a buyer negotiating 7k off the asking price. The seller will still only net 193k.
All the other stuff about if you cant pay your closing cost dont buy. Or im not paying their property tax or whatever. Sure people are different and have opinions and values......but once i get what I expect, everything else is out the window.
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Replying to an old post, but ....
