Should I pay the buyer’s closing costs when selling?

June 13, 2014 | By Brandon Cornett | © 2018, QualifiedMortgage.org | Our copyright policy

Reader question: “We are about to list our home for sale. The housing market appears to be sluggish in our area. There are buyers out there, but houses still appear to be taking a long time to sell. We are doing everything we can to get a quick sale, including a lot of home staging. We don’t want to be on the market for a long time. I’m just wondering about seller concessions and closing costs. Should we pay the buyer’s closing costs when selling our home, if they ask for it up front?”

You seem to be a very motivated seller. This will serve you well during the preparation, listing and negotiating stage. Homeowners who are highly motivated tend to sell their homes more quickly. Let’s hope it works out that way for you. But on to your question. Should you pay a buyer’s closing costs in order to get a purchase agreement?

This will largely depend on two factors: (1) the type of market you are in, and (2) the size and strength of the offer you receive.

Additionally, there are two ways to handle it:

  • You could include a seller concession as part of the listing, to entice more offers. With this strategy, you’re making the offer in advance, and to all potential buyers. Or…
  • You could wait and see what the buyer asks for, and simply be willing to pay closing costs, if and when they ask for it.

The first strategy is more common in slower markets, where there are many homes listed for sale but few buyers. In sluggish markets, it’s common to see for-sale signs that say things like “seller will pay closing costs” or “seller concessions available.” The homeowners are essentially trying to sweeten the deal, in order to entice offers.

In a more active real estate market, it is less common for the seller to pay the buyer’s closing costs — and for obvious reasons. You don’t have to go above and beyond to attract a buyer when they are lining up with offers in hand.

The bottom line is that sellers need to be more flexible with pricing and negotiating in a slower market where they have less leverage. On the contrary, they won’t have to bend as far in an active market. You’ve already said things seem to be sluggish in your area. So maybe you’ll need to be more flexible when considering offers. Maybe you’ll need to pay the buyer’s closing costs in order to sell the home as quickly as possible.

Sellers Often Pay the Buyer’s Closing Costs in Slow Markets

If homes are taking a long time to sell in your area, and you want to expedite the process as much as possible, then you could offer to pay some of the buyer’s closing costs. This is a common strategy for eliciting more offers in a slow market, where there are few buyers relative to the number of properties currently for sale.

After the housing market crashed, many sellers were offering these kinds of concessions. You had to in those days. Few people were buying homes back then, so homeowners had to go above and beyond to attract offers. Usually, that meant paying buyer closing costs as well.

You can even write this sort of thing into the listing description, so that it appears on Realtor.com, the MLS, and wherever else the home is being listed and marketed. That way, all potential buyers (and their real estate agents) will know you are offering a seller concession.

You also need to consider the strength of the offer you receive. If you get a full-price offer from a seemingly strong buyer who asks for a concession toward their closing costs, you might want to consider paying some of their costs. If you get a lower offer with the same request, you might consider accepting the offer but not paying the buyer’s closing costs. It can be used as a negotiating tool to “balance” things out.

Raising the Sale Price to Compensate for Seller Concessions

In some cases, the seller will agree to pay the buyer’s closing costs in exchange for a higher sale price. For instance, the two parties might agree on an amount that is 6% higher than the original list price, in exchange for the seller paying 6% of the buyer’s closing costs. It all comes out the same for the seller in the end. And the buyer gets help with their upfront costs that might otherwise have been a deal breaker.

Of course, the purchase price will still have to reflect the current market value of the home. The buyer’s mortgage lender (assuming they are using a mortgage loan) will have the property appraised to make sure it’s worth the amount they are paying. If the appraiser says it’s worth less than the purchase price, the loan probably won’t go through. So as a seller, you have to be careful with this strategy. Otherwise you could run into a low-appraisal situation.

You also have to consider the likelihood of getting another offer…

  • If your home has been listed for a while without any nibbles, you should carefully consider any offer that comes along — even if it asks for closing cost assistance.
  • On the other hand, if you can reasonably expect to receive more offers (based on the activity level in your market), you might not need to pay buyer closing costs. You might have the luxury of choosing among several offers when selling your home.

As a general rule, whenever a home is on the market for weeks without a single showing, the seller needs to take action. This might mean lowering the asking price, improving the home’s appearance, of offering to make a concession toward closing costs.

As you can see, there are many different scenarios, and a lot of things to consider along the way. It really comes down to how badly, and how quickly, you want to sell the house. If the speed of the sale is your primary goal, you might need to bend a little to accomplish that goal. If you’re more concerned with getting top dollar for your home, and you have the patience to stay on the market for a longer period of time, you might not need to pay the buyer’s closing costs when selling the home.

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