When the topic of paying their buyer’s closing costs comes up, most sellers say “No way!” Following that, they usually say something along the lines of ‘If they can’t afford to pay their closing costs then they shouldn’t be buying the house.’ That may be true, but it may not be relevant to the sale of your home. Sometimes, buyers need the seller to pay closing costs and if you only have one offer, paying toward a buyer’s closing costs may be the only option available.
How Common is a Seller’s Assist?
In certain areas and price points, it may be very common that sellers pay toward the buyers closing costs. This happens a lot in neighborhoods with a lot of first time home buyers. It’s also common in slower real estate markets where buyers may be few and far between. If you’re selling a hot property in a strong seller’s market where multiple offers are the norm, buyers need to make their offers as attractive as possible so they tend to limit requests for you to pay their closing costs as much as they possibly can.
A Tool for Negotiating Inspections
Another reason that you may decide that it’s the right move to pay toward a buyer’s closing costs is to deal with inspection issues monetarily rather than going through the hassle of arranging for work to be completed and having it done while the home is still yours. From a seller’s perspective, it’s far better to have the buyers fix issues with their contractors and on their timeline. Most home sales have a reasonably short timeline between the buyer’s inspections and settlement. Arranging for work to be done in that short window before closing can be very difficult.
How Much will it Cost?
The amount that a seller may pay toward a buyer’s closing costs will vary by transaction, but it’s good to have a sense of how common it is in your neighborhood. Your agent can show you recent sales of nearby homes like yours and how much sellers paid toward buyer’s closing costs.
If most of the recent home sales included seller’s assist then it’s a good bet that yours could, too. If not, then that will be a good thing to keep in mind as your negotiating with a buyer who includes money toward closing costs in their offer.
There will be limits on how much a seller can pay toward a buyer’s closing costs. Most conventional loans allow up to 3% of the sales price. The PHFA loan is conventional loan offered here in PA that allows up to 6% of the purchase price to be paid toward closing costs. FHA and VA loans will allow up to 6% of the sales price. All will top out at the maximum percentage or the amount of the closing costs, whichever is less.
For every $100,000 offered, that could mean as much as $6,000 can be paid toward the buyer’s closing costs, essentially making a $100,000 offer a $94,000 offer. If you pursue this offer, you may be able to negotiate the amount down to something that will work.
Closing Costs and Appraisals
It may be an option to add the seller assist on top of the asking price. If the asking price is $100,000 and a buyer needs $6,000 to buy the house, you may agree to sell it for $106,000. Sometimes, this is an option. But, be very cautious when going down this road. The lender will require that the home will have to appraise for $106,000 in order to get the loan.
The appraiser may wonder why the home is sold for more than the asking price. It’s one thing if there were multiple offers on the home and there are comparable sales to justify the price. It’s very different if the house has been sitting on the market unsold for 4 months.
The best thing to do is to agree in advance on how to proceed if the home doesn’t appraise at the agreed upon price. The buyer will want to reduce the selling price and keep the agreed upon seller assist. As a seller, you’ll want to reduce the seller’s assist so that you’ll net as much as possible.
My Advice: Budget, Just in Case
It’s not easy to decide whether or not you’ll agree to a seller’s assist before you put your home on the market. You don’t know how long it’s going to take to get it sold and you don’t how many offers you’ll receive and whether or not there will be requests for money toward closing costs. The two best pieces of advice that I can provide are 1) keep an open mind and work with the offers that come in and 2) budget for paying toward the buyer’s closing costs. It will be far better to have planned for this expense and go into the sale of your home expecting that it may be a possibility.
More Information about Seller’s Assists
For more information, check out the resources below . . .