When selling a home, there are several negotiation points between buyers and sellers on the table. These points can vary depending on whether it is a buyer’s market or seller’s market, but essentially, everything is up for negotiation. The most common terms in any negotiation are, of course, things like sales price and closing date, but what I want to talk about today is specifically the buyer’s closing costs and the request for the seller to pay for them. Many sellers are against this practice on principle alone, which is why I think it is an important topic to break down. Simply put, many otherwise “good deals” are left to die on the negotiating table because principle has gotten in the way of pragmatism. This month, we’ll discuss why buyers are asking to have their costs paid by the seller, what those costs actually consist of, and why sellers should be prepared to potentially pay for them in today’s market.
Before we dive too deep into why buyers are asking for their costs to be paid, I want first to address why some sellers are opposed to paying them. It is not that they are unwilling to budge in negotiations; rather, they think everyone should pay their part, which is perfectly understandable and fair. When selling a home, there is often a lot of strong emotion involved, along with a sense of what’s “right” and what’s “wrong”. The sellers who are against paying these costs just want to feel that they’re doing their fair part, and they believe the buyer should do the same. This is why understanding the buyer's reasoning can be so helpful in diffusing the feeling of carrying the full burden of the negotiation. The buyer is most often requesting closing cost assistance in order to make the deal possible, because for them, their costs are actual cash they have to put down that cannot be rolled into their loan. Many buyers, especially in the lower-to mid price ranges, are financially stretched thin. They have saved enough for their down payment but may not have enough to cover their additional closing costs, not to mention the other significant expenses associated with buying and moving into a new home.
The term “buyer’s closing costs” is deemed on the contract as “seller concessions”, and covers a wide range of costs which, combined, can add up to thousands of dollars. These costs might include loan fees (loan origination, appraisal, lender’s title insurance, etc.), title & escrow fees, prepaid interest, property taxes, homeowners insurance, and HOA fees. Additionally, the buyer may be paying to buy down their interest rate to make their payments more affordable or sometimes even to qualify for the loan. For rough numbers, let’s use a buyer purchasing a $500k home as an example. Assuming a 20% down payment of $100k, and an additional $10-15k in total closing costs, and this is all before they’ve paid utility deposits, purchased furniture, or hired movers. This all adds up quickly, and it is easy to see why a buyer might need assistance with their closing costs.
In a strong seller’s market, most sellers can find a buyer who can pay their own costs without too much trouble. In a buyer’s market like we’re in today, however, there are fewer buyers and even fewer offers. A seller can leverage their willingness to pay for the buyer’s closing costs to their strategic advantage and attract more buyers. At the end of the day, what a seller should care most about is the bottom-line dollar amount they are taking home when the deal closes. To a seller, $10k in concessions is nearly the same math as taking $10k off the top of the price. To a buyer, that $10k in concessions could be the difference between being able to purchase or not. When faced with an offer that includes a price reduction AND seller concessions, a seller’s best bet is to negotiate on the price, rather than the concessions, as concessions will likely be more impactful to the buyer. Remember, your bottom line as a seller is what matters most, but how you structure the deal to get there may be the deciding factor in getting to the closing table. If you are considering selling your home anytime in the near future and would like to discuss your specific situation, please give me a call. I’d love to talk nerdy with you :)