Why Are These Buyers Asking Me to Pay Their Closing Costs?

“Why are these buyers asking me to pay their closing costs?” is a question that I have been asked several times in the last couple of months.

 

With the much-anticipated buying season for homes, it’s great to be a home seller in today’s tight market. With the lack of inventory, pricing our home according to market value and presenting it in its best light, we expect to get an offer quickly and, even better, multiple offers.

Once an offer is procured on your property, your Realtor® is going to present it to you.  The presentation will consist of a discussion of offer terms, price, closing time, inclusions, etc., and the buyer’s financial pre-qualifications, with maybe even a “love letter.”   (See article in the February issue of the Bellingham Bulletin.)

What comes as a surprise to many sellers is that quite a few buyers will ask a seller to pay for their closing costs. Some sellers have an adverse reaction to this, but they don’t need to. Asking for closing costs, depending upon price point, is quite common these days. It frees up front cash and could allow a buyer to purchase a higher-priced home. It could enable a buyer to purchase without having to pay for private mortgage insurance (generally required for people borrowing more than 80%), or it could free up cash to help a buyer pay for some improvements that they might want to make. A buyer might also just want to keep their cash and mortgage as much as they can, taking advantage of low rates.

 

If your buyer asks for closing costs, they are simply trying to finance those costs. What does it mean to you the seller?  If you agree to participate in paying for buyer closing costs, there is little downside, but there are a few things to be aware of. You’ll want to feel confident that the property will appraise at the agreed-upon price. You might wonder if you are going to pay a higher commission. Generally speaking, your Realtor® will be paid commission only on the net to seller, so there is no increased cost for the seller there. In Massachusetts part of a seller’s costs is to pay a sales tax called a stamp tax. It is paid at $4.56 per thousand. For example, a $5000 seller concession would mean an additional $22.80 to the state. When negotiating your offer in a situation like this, think in terms of net: purchase price less concession. You should also be aware that there is a limit on what you can pay toward their closing costs and what those costs can be used for.

  

So, when you have a buyer who asks for closing costs, don’t be alarmed or surprised. It’s not a bad thing. It’s just a bit different. Not to worry; your Realtor® will walk you through it. I look at it as a positive thing for sellers. It opens their buyer pool, and more demand means higher prices.