Best Tips on Selling an Anoka County Home-Why Pay Buyer Closing Costs
A seller's estimate of proceeds or net sheet is an essential part of the listing contract. It lists the estimated closing costs associated with the sale of the home. One of the items on the list sheet is a blank for the “Seller's contribution to a Buyer’s Closing Costs.” In this current market, I always include several thousand dollars as an estimate to prepare my clients that this could come up at negotiations. So many FHA buyers, and even some conventional ones, will require assistance with their closing costs.
But every now and again, I hear will hear a seller loudly scoff at paying a buyer's closing costs. The conversation usually goes something to the effect of, “I don’t want to pay my own closing costs. Why would I want to contribute to the BUYERS?”
This is an excellent question and the answer is very simple: You contribute to a buyer's closing costs so they can BUY your house!
Today most buyers are required to put down a minimum of 3.5% of the purchase price of the home as a down payment. In the case of a conventional loan, this can be 20%. The closing costs for a buyer include title insurance, home owner’s insurance, appraisals, loan origination fees, name search fees, filing fees and more. As a REALTOR® working throughout communities in Anoka County and the north metro Minneapolis/St Paul area, I see these closing costs will run anywhere from $4000-$8000 for a first time buyer. Add this amount with a required down payment and few buyers will have sufficient funds to purchase a home.
Understanding Closing Cost Assistance Buyers have the option of waiting and saving additional money to cover the down payment and closing costs or asking for seller assistance. In many cases a financial institution will allow a seller to assist a buyer by paying either points to reduce the interest rates and/or closing costs.
How does this work? Let’s say that a home is on the market for $200,000. The buyer writes their offer for $195,000 and their financial institution allows up to 3% seller’s assistance with fees and closing costs. They decide to ask the seller in their purchase agreement document for $5000, thus the net offer to the seller for the home is $190,000.
If a seller does not want to pay the closing costs, the buyer in many cases will not be able to purchase the home.
If the offer is accepted, the seller’s proceeds at closing would then be reduced by the $5000. Sellers do not have to come up with the funds in cash if there is sufficient equity in the home to cover both the buyer's and the seller's costs.
When an offer comes in on a home, it is sometimes confusing to sellers what the sale price versus net number is. In the case above, the $195,000 would be the sale’s price on the purchase agreement but by paying the $5000 in closing costs, the seller’s net number is really $190,000 less the seller's own closing costs including all fees and commission. And the home must appraise for the sales price of the home, in this example it would have to appraise for $195,000.
If as a seller you decide to counter on the original offer, you can counter on the sales price of the home or the amount of closing costs paid. When counter offers are involved, a seller needs to make certain that they understand what the net proceeds will be in each offer and counter offer.
This is where the assistance of a professional REALTOR® comes into play. As a real estate agent, I provide my clients with a seller's net sheet that outlines all costs and fees that has been updated after receiving each offer and counter offer. When counter offers start going back and forth, I reiterate at each step what my seller's net number will be to help eliminate the confusion.
Assisting a buyer with closing costs can be the ticket to getting your home SOLD in this challenging real estate market. With so many short sales and foreclosures, often it is the more traditional seller who has the ability to negotiate with a buyer and assist in their financing a deal. As long as a seller is happy with the NET number received, it doesn't matter whether some of the proceeds went to pay closing costs or not. Understanding the process is simple with the assistance of a knowledgeable real estate agent!
