Closing costs are a common hurdle when it comes to buying a home, but they don’t always have to be. In some cases, the seller may be willing to pay all or some of the buyer’s closing costs. This can be a great way to sweeten the deal for the buyer, but it’s not always necessary. Here’s what you need to know about seller-paid closing costs.
What Are Buyer-Paid Closing Costs?
Closing costs are fees associated with the purchase and sale of a home. These costs can vary significantly from one transaction to the next, but they typically range from 2% to 5% of the home’s purchase price.
Some of the more common closing costs include:
- Origination fees ( charged by the lender for processing the loan)
- Appraisal fee
- Home inspection fee
- Title insurance
- Attorney’s fees
- Transfer taxes
- Recording fees
Unlike the seller, a buyer is usually paying for these costs out-of-pocket. And, this is excluding the 20% down payment that’s typically required for a conventional mortgage loan.
What Are Seller-Paid Closing Costs?
Seller-paid closing costs are just what they sound like—costs that are paid by the seller in order to help the buyer close on the home. The exact seller closing costs will vary depending on the sale, but there are a few common costs that are typically paid by the seller.
One of the most common seller closing costs is the real estate commission. This is a fee that’s paid to the real estate agents involved in the sale. In most cases, the seller will pay both the listing agent and the buyer’s agent. The commission is typically a percentage of the final sale price, so it will increase as the price of the home goes up.
Another common seller closing cost is the loan origination fee. This is a fee that’s charged by the lender in order to process the loan. It’s typically a few hundred dollars, but it can vary depending on the type of loan and the lender.
Finally, the seller may also be responsible for paying for things like title insurance and escrow fees. These costs can vary depending on the sale, so it’s important to ask your real estate agent for an estimate before you start negotiating.
Knowing what common seller closing costs are will help you anticipate what you may have to pay when you’re buying a home. Asking the seller to cover some or all of these costs can help reduce your out-of-pocket expenses, but it’s important to be prepared to pay more for the home if you do.
Should You Ask the Seller to Pay Your Closing Costs?
Whether or not you should ask the seller to pay your closing costs depends on your individual situation. If you’re struggling to come up with the money for closing costs, it may be worth asking the seller if they’re willing to help out. However, keep in mind that this will likely increase the final sale price of the home.
If you’re not sure whether or not you should ask the seller to pay your closing costs, talk to your real estate agent. They’ll be able to give you more information about what’s typical in your market and what’s fair to ask for.
The Benefits of Seller-Paid Closing Costs
In some situations, seller-paid closing costs can actually result in a win-win situation for both the buyer and seller. Some of these benefits include:
- Qualifying for a better mortgage. If you’re having trouble qualifying for a mortgage, asking the seller to pay your closing costs may help. This is because it will reduce your overall loan amount, which may make it easier to qualify.
- A faster sale. If the seller is motivated to sell quickly, they may be more likely to agree to pay your closing costs. This can help speed up the sale and get you into your new home sooner.
- Less money out of pocket. Obviously, one of the biggest benefits of having the seller pay your closing costs is that it will save you money. This can be especially helpful if you’re tight on cash or if you’re using all of your savings for a down payment.
- Fewer contingencies. Asking the seller to pay your closing costs can also help to remove some of the contingencies from your offer. This may make it more attractive to the seller and increase your chances of having your offer accepted.
The Drawbacks of Seller-Paid Closing Costs
While there are some advantages to having the seller cover your closing costs, there are also a few potential drawbacks to keep in mind. These include:
- A higher purchase price. The most obvious drawback of asking the seller to pay your closing costs is that it will likely increase the final purchase price of the home. This means you’ll need to be prepared to pay more for the home overall.
- Less negotiating power. If you ask the seller to pay your closing costs, you may have less negotiating power when it comes to other aspects of the sale. For example, you may be less likely to get a lower purchase price or other concessions if you’re asking the seller to help with closing costs.
- An appraisal contingency. In some cases, lenders may require that you include an appraisal contingency if the seller is paying your closing costs. This means that you can back out of the sale if the home doesn’t appraise for at least the purchase price plus closing costs.
What Are Some Negotiating Tactics for Asking the Seller to Pay Your Closing Costs?
If you’re thinking about asking the seller to pay your closing costs, there are a few negotiating tactics that can help you get what you want. Here are a few tips:
Start high. When you make your initial offer, start with a higher price than you’re actually willing to pay. This gives you room to negotiate down to a price that’s acceptable to both parties.
Be prepared to walk away. If the seller isn’t willing to meet your demands, be prepared to walk away from the deal. This may help to motivate them to come back with a better offer.
Get creative. If the seller is resistant to paying your closing costs outright, there are other options you can consider. For example, you could ask them to pay a higher interest rate on the loan or give you a credit at closing.
Talk to your real estate agent. They’ll be able to give you more specific advice about how to negotiate with the seller and what’s realistic in your market.
Examples of Common Win-Win Closing Cost Negotiation Tactics
Here are a few examples of why a seller may opt to pay for the buyer’s closing costs:
- The buyer offers a higher sales price in exchange for seller-paid closing costs. Win-Win: The seller cuts even or makes a small profit, and the buyer doesn’t have to come up with as much cash at closing.
- The buyer agrees to waive their right to certain repairs or inspection contingencies in exchange for seller-paid closing costs. Win-Win: The seller knows they won’t have to make any repairs, and the buyer gets help with their closing costs.
- The buyer agrees to a longer escrow period in exchange for seller-paid closing costs. Win-Win: The seller can take their time moving out, and the buyer gets assistance with their closing costs.
- The seller uses it as a tactic to attract attention. Win-Win: The property is more likely to sell quickly, and the buyer gets help with their closing costs.
Common Reasons Why a Seller May Refuse to Pay Closing Costs
When you stop and think about it, closing costs are quite a burden on both the buyer and the seller. The seller is likely already paying the commissions for both agents, as well as other fees associated with selling the home. So, it’s not surprising that some sellers may refuse to pay the buyer’s closing costs
There are a few common reasons why a seller might refuse to cover closing costs:
- The seller is already facing high costs to sell the home. In some cases, the seller may have paid for repairs or upgrades out of pocket. They may also be paying a mortgage balance that is higher than the sale price of the home.
- The market conditions are unfavorable. If the housing market is down, the seller may not have much equity in their home. As a result, they may not be able to afford to pay closing costs.
- The buyer is asking for too many concessions. If the buyer is asking for a lot of other things in addition to seller-paid closing costs, the seller may be unwilling to agree to the requests.
- The seller has better offers. In a seller’s market, the seller may have multiple offers on the table. In this case, they may be less likely to agree to pay the buyer’s closing costs.
Can You Negotiate After Signing a Purchase Agreement?
In nearly all cases, a purchase agreement is legally binding. This means that both the buyer and the seller are obligated to uphold their end of the deal. However, there may be some room for negotiation after a purchase agreement has been signed.
To negotiate closing costs after signing a purchase agreement, you’ll need to review the contract for contingencies such as a home inspection. This is the most common way to renegotiate after signing a purchase agreement. If the buyer finds significant problems with the home during their inspection, they can ask the seller to make repairs or cover closing costs.
It’s also possible to negotiate after signing a purchase agreement if the buyer is unable to secure financing. If the buyer is unable to get a loan with favorable terms, they may be able to negotiate for the seller to pay closing costs or face starting over with the sale process.
It’s important to keep in mind that the seller is not obligated to agree to any changes after a purchase agreement has been signed. If you’re unable to reach an agreement, you may have to walk away from the deal.
The Bottom Line
Paying closing costs can be a big expense when you’re buying a home, but there are ways to reduce or eliminate them. If you’re willing to negotiate, you may be able to get the seller to cover all or part of your closing costs.
However, it’s important to remember that the seller is under no obligation to agree to your request. If they’re unwilling to negotiate, you may need to come up with the money yourself or walk away from the deal.