Do sellers pay the buyer's closing cost or is it really the buyer paying it? I constantly hear buyers say, "I've heard Sellers should be expected to pay my closing cost." or "My lender said, 'Have the seller pay your closing cost."
First, let's define buyer closing cost. These might include but are not limited to: prepaid 1 year homeowners insurance, lender tax/insurance escrows, title insurance, origination/discount points, processing fees, underwriter fees, tax service, flood certificates, credit report, appraisal, prepaid interest, mortgage insurance premiums, government recording fees/taxes, and inspections. Buyer's should remember, there is no free money, and they will pay to obtain a loan.
Buyers should consider their motivations for wanting the seller to pay their closing cost:
1. Does the buyer NEED the seller to pay their closing cost? Meaning, the buyer has the required lender down payment but not enough to pay their closing cost. Thus, if the seller doesn't pay the closing cost the buyer can't buy the home.
2. Does the buyer have the money to pay their own closing cost but doesn't want to liquidate their cash assets to do so.?
3. Out of principal because "Sellers ALWAYS pay the buyer's closing cost" and it should be expected.
4. Other financial motivating factor that buyer deems beneficial.
Typically, buyers have a 'top dollar' they will pay for a property with all considerations and sellers have a 'bottom line' they will take with all considerations. Whether a seller pays a buyers closing cost or not does not change the seller's 'bottom line.'
Example:
The seller's bottom line is $100,000. Meaning the seller will take no less than $100,000 with all considerations. The seller doesn't care if the offer is $105,000 with the seller paying $5000 in buyer's closing cost or if the offer is $100,000 and the seller paying none of the buyer's closing cost. Either way, the seller's net is the SAME in both scenarios.
Buyers should consider the following when asking the seller to pay their closing cost when it is not necessary to purchase:
1. Does the buyer want a higher loan amount, with higher monthly payments and more interest accruing?
2. Will rolling the closing cost into the purchase price artificially inflate the property's value?
3. By rolling closing cost into a loan amount more of the home's equity is eaten up.
4. Possible loss of negotiation 'power' because the seller perceives the buyer isn't really qualified. Thereby, the seller believes the buyer needs them more than they need the buyer. Thus, the seller does not negotiate as assertively as they would with a more qualified buyer.
Buyers should consider their motivations for wanting the seller to pay their closing cost:
1. Does the buyer NEED the seller to pay their closing cost? Meaning, the buyer has the required lender down payment but not enough to pay their closing cost. Thus, if the seller doesn't pay the closing cost the buyer can't buy the home.
2. Does the buyer have the money to pay their own closing cost but doesn't want to liquidate their cash assets to do so.?
3. Out of principal because "Sellers ALWAYS pay the buyer's closing cost" and it should be expected.
4. Other financial motivating factor that buyer deems beneficial.
Typically, buyers have a 'top dollar' they will pay for a property with all considerations and sellers have a 'bottom line' they will take with all considerations. Whether a seller pays a buyers closing cost or not does not change the seller's 'bottom line.'
Example:
The seller's bottom line is $100,000. Meaning the seller will take no less than $100,000 with all considerations. The seller doesn't care if the offer is $105,000 with the seller paying $5000 in buyer's closing cost or if the offer is $100,000 and the seller paying none of the buyer's closing cost. Either way, the seller's net is the SAME in both scenarios.
Buyers should consider the following when asking the seller to pay their closing cost when it is not necessary to purchase:
1. Does the buyer want a higher loan amount, with higher monthly payments and more interest accruing?
2. Will rolling the closing cost into the purchase price artificially inflate the property's value?
3. By rolling closing cost into a loan amount more of the home's equity is eaten up.
4. Possible loss of negotiation 'power' because the seller perceives the buyer isn't really qualified. Thereby, the seller believes the buyer needs them more than they need the buyer. Thus, the seller does not negotiate as assertively as they would with a more qualified buyer.
