I'm a buyer and a seller right now so I can answer some of the questions...

1. Not sure if it's routinely done. I imagine that it depends on the local market in which you're buying.
2. What's in it for a seller? Well, sometimes this might open up the pool to more potential buyers. Some buyers who now are struggling to come up with funds for bigger down payments might be pursuaded to purchase a home that offers some closing cost assistance just to reduce the amount they have to pay out of pocket. As a seller, I see offering closing cost assistance as a way for me to sell my house faster...especially for my price range, which attracts first time home buyers, young families, etc.
3. Sometimes it would negate the possibility of negotiating the sale price of the home, exactly for the reason you mentioned. In the seller's eyes, the agreed sales price is actually LESS if seller is also paying closing costs. So if you have an accepted offer of 200,000 plus 5,000 in closing, the net sales price to the seller is actually 195000. Dependin on the seller's position and ability to take a lower price, this may reduce opportunity to negotiate lower sales price.

In a buyer's market a seller is much more likely to pick up closing costs for the buyer. Keep in mind that the seller has a bottom line, they'll come down on price and may even pay closing costs, but ultimately those closing costs are taking away from the seller's bottom line. So a seller will likely concede less on price if they're kicking in closing costs.

Way back in the 80's on a house we were selling in a buyer's market, we had an offer from buyers that qualified for the mortgage and had a down payment, but not enough for closing costs. They gave us a low offer, which we were able to negotiate up to over what we were asking for the home and we'd pick up their closing costs. (We were asking 64,000, buyer offered 60,000 and wanted us to pay $4,000 in closing costs --effectively making the offer $56,000-- we negotiated the offer to be $66,000 and we'd pay $4,000 in closing costs -- making our bottom line $62,000) Closing costs were pretty high back then because interest rates were crazy and buyers could pay "points" to buy down the interest rate.

You can make any offer you'd like, but be prepared to negotiate.

I think picking up closing costs is a way to free up cash flow for buyers, like in Cordovamom's example. If the price is $100,000 and they offer you 104,000 with $4000 cash back at closing, it's like the buyer paying 100,000 for the house and also paying 4,000 for the closing themselves. At least this is how I understand it.

we have sold three different homes in the last twelve years. all three times people asked us to cover closing costs. all three times we refused. had no problems finding buyers who came to the table with enough money to not ask us for it. i would never consider asking as a buyer, or accepting as a seller. there are entirely too many fish in the pool of buyers to get stuck with that request. i know it is harder to sell today, but we have sold in less than three months each time and the last time, we had two full price offers on our house in three days on the market.
ladybugbaby

Suppose your the buyer and aren't struggling for closing cost or down payments. Which is better, a lower negotiated sale price or closing costs? Why?

lower sales price - that has a 30 year effect. Closing costs can be tax deductible, but you lose that if the seller pays them. Most lenders want to see the buyer coming to the table with a contribution at this point - might as well lower the price thus lowering the mortgage amount thus lowering your monthly payment.

Allison, it has been very common in Oregon for the seller to pay costs. Most times the cost of the home was raised to cover that credit so the seller maintained the same net, but in the market we have now I am seeing sellers take lower offers and pay costs. Just depends on how badly they want to sell. You never know until you ask.

DO NOT let a lender push you into a higher cost loan "because the seller is paying for it." If the price is raised to cover the credit YOU are paying for it - for the next 30 years. Have lenders give you a GFE as if you were paying all costs - if you then ask for a credit and have money over what the GFE fees are you can use it to buy down your rate - commonly seen as discount points.

This is all very true and I won't argue that. Those small (compared to the size of the loan) closing costs can be pretty astronomical when you look at them over the increased house price for a thirty year mortgage. But, honestly, after reading all the posts on this forum about what remodels would bring in the most money at sale, and discussions about how personal would you get with your decorating, because you don't want to impact a sales price......then how many people anymore are looking for a "forever" house? Danged few, it seems.

They have no plans to pay off the closing costs over thirty years and the little extra they pay each month for the closing costs to be included in the sales price means money in their pockets. It's shortsighted, but not if you intend on selling in the short run.

It's an effective tool in the right market for the right type of housing, especially if you have a house suitable for a first time homeowner who (like we all know) sometimes go out on a limb and max themselves out with a house payment, assuming the home will appreciate and that five years down the road they'll be making oodles of money, but have very little cash in the bank for closing.

Any buyer not informed enough to know that a paid closing is not a free ride, should spend some time learning the ropes before they buy a home.

It's not done often in the very stagnant market in my area, with it's huge inventory.....and people who would rather sell settle for renting or any way of not having a dead outlay. But, you'd be surprised at how many people who can't even get credit make offers on houses. When one comes through who does have a steady job and a modicum of credit, if they don't haggle on a house's asking price, but want the seller to pay the closing, it can end up being a win/win situation for both parties.

The whole key is to know your bottom sales line, and if you still get it after paying the closing, why not?

Hi Allison,

1. Do seller's pick up the closing costs routinely?

When asked from the properly structured offer, almost 100% of the time, yes.

2. What's in it for the seller to do this?

Smoother sale with a buyer ready to buy today, at a mutually agreeable price.

3. Does this concession negate the possibility of negotiating the sale price of the home? (Lower sales price AND paying costs = much less $ to seller.)

It's not a seperate thing... its all part of the negotiations.

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Hi JustNotMartha,

Closing costs can be tax deductible, but you lose that if the seller pays them.

ACTUALLY... the truth is actually the complete opposite.

When the seller contributes to pay the buyer's closing costs, BOTH parties get to write off the costs against their taxable income.

For the buyer it writes off as purchase financing closing costs.
For the seller it writes off as a cost of sale.

One of the rare "double dip" tax deductions that remain.

Most lenders want to see the buyer coming to the table with a contribution at this point - might as well lower the price thus lowering the mortgage amount thus lowering your monthly payment.

Not really true at all. Lenders want the borrower to qualify according to the guidelines, and pay the risk-based pricing. The lenders are compensated for the riskier borrowers, so they are neutral in regards to 'preference.'

DO NOT let a lender push you into a higher cost loan "because the seller is paying for it."

USUALLY a buyer gets their Pre-Approval set up first, and helps the buyer sort out how to negotiate for seller's contributions to best-fit the buyer's cash position.

The only time a "lender can push" is when a buyer doesn't establish a good trustworthy lender relationship in advance, and gets trapped in a time crunch by getting under purchase contract first, and THEN tries to shop (and further, shops rates instead of quality.)

If the price is raised to cover the credit YOU are paying for it - for the next 30 years.

Same either way. If the closing costs are NOT financed into the price (by increasing it sufficiently to cover the seller's contributions,) then the buyer is paying for it FOREVER (not just 30 years) in lost interest growth on that cash.

There's no free ride for the money.

Have lenders give you a GFE as if you were paying all costs - if you then ask for a credit and have money over what the GFE fees are you can use it to buy down your rate - commonly seen as discount points.

This is exactly the same thing... agreeing to a high enough sale price such that the seller is willing to contribute back dollars (regardless whether they are called discount points, origination points, closing costs, etc.)

There's no free ride for the money.
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Hi Calliope,

Those small (compared to the size of the loan) closing costs can be pretty astronomical when you look at them over the increased house price for a thirty year mortgage.

Try paying them up front in cash... and then looking at how much earnings you've lost over the following 30+ years. It'll make a grown man cry!

There's no free ride for the money.

Cheers,
Dave Donhoff
Strategic Equity & Leverage Planner

I agree totally, Dave. I think you can tell by the tone of my post that I think it's a viable strategy. But, I've found the type of people who tend to "need" assistance from the seller to pay for closing costs are those who, even if they did have the money to pay closing, likely weren't the type to have invested it.

One thing about this strategy is that it typically results in a slightly higher sales price and it becomes just that much harder for the house to appraise for enough. If the sales price is already at about the max that the house could appraise for there may not be enough slack for the seller to be happy/cooperative with this approach.

Actually, we close on a house tomorrow where we asked the owners to pay closing costs. It has nothing to do with our ability to come up with the cash; it was just a part of the negotiations. Our accepted offer also was about 10% under the asking price. My husband and I are both accountants - I think we just like bargaining!
Diane

Diane, I hate to make sweeping statements like I did, and am sure that it is a strategy for some people who have no problems making the fees but use it for a tool. I am addressing the market in my area because it's the one with which I am familiar and I have been working to sell and sometimes buy.

There are many very modestly priced homes here, perfect for first time owners and the rents in this area are surprisingly high. Higher than mortgages for a comparable unit. What is stopping the typical buyer in what should be a very desirable situation is the ability to come up with a hefty down payment, or the closing costs, and the higher risk loans they'd be eligible to get often require heftier closing costs.

Myself, I like to get as much equity up front in a home as I can...but know that isn't the right way to do it across the board for everybody. Each situation is unique. If one expects a quick appreciation on a home and a rapid turnover, they may very well wish to amortise the closing costs with their loan because they expect it to be short term.

It has recently been brought to my attention by a broker who sat in on an industry training that if a home is listed at $400k and the price is then raised to $410k to cover costs that it is considered fraud. I know there is more to the story but haven't had time to research it.
Anyone hear that?

It has recently been brought to my attention by a broker who sat in on an industry training that if a home is listed at $400k and the price is then raised to $410k to cover costs that it is considered fraud. I know there is more to the story but haven't had time to research it.
Anyone hear that?

It could be. There are lots (probably most now) lenders that will not allow seller closing costs if it means increasing the price above the listing price.

honestly, if the cost of closing is added to the purchase amount and there fore to my mortgage amount, then the seller is not picking up the costs at all. i'm picking up the costs. this would only make sense to me if the seller was truly paying out of their pocket and not giving me back my own borrowed money

"It has recently been brought to my attention by a broker who sat in on an industry training that if a home is listed at $400k and the price is then raised to $410k to cover costs that it is considered fraud. I know there is more to the story but haven't had time to research it.
Anyone hear that? "

When we did this back in the 80's it wasn't considered fraud, it was common practice and acceptable at the time. Who knows now. We were told it would not be an issue as long as the home could appraise for the new agreed upon price. If the home would not have been able to appraise for the increased price, then the bank would not have financed the deal and we would have certainly had to go back to the table. We were "sweating bullets" for a while until the appraisal came in well over the agreed upon sales price.

Hi JustNotMartha,

It has recently been brought to my attention by a broker who sat in on an industry training that if a home is listed at $400k and the price is then raised to $410k to cover costs that it is considered fraud. I know there is more to the story but haven't had time to research it.
Anyone hear that?

Sounds like another real estate agent confused by the details (those gosh-darned inconvenient details!!!!)

As long as there is no hiding, lying, or misrepresentation among the parties to the deal (the buyer, seller, all agents, and especially the lender,) there is no fraud to be concerned with.

Lord knows, if selling above the listing price were fraud, most of California's sellers the last 4 years would be in prison by now!

Cheers,
Dave Donhoff
Strategic Equity & Leverage Planner

1. Do seller's pick up the closing costs routinely? This is common in our area, especially right now in this buyer's market. My husband and I sold two houses last year and paid the buyer's closing costs on both.

2. What's in it for the seller to do this? Sell their house! Some buyers, particularly first-time buyers, have put all their money into the down payment and really need help with the closing costs. I know this was the case for both sets of our buyers.

3. Does this concession negate the possibility of negotiating the sale price of the home? (Lower sales price AND paying costs = much less $ to seller.) I wouldn't say that. We still negotiated on price with our one set of buyers tho we'd already agreed to pay their closing costs.

Thank you everyone for the information here. I appreciate the assistance.

Interesting discussion. We have bought and sold 4 homes - in WY, CO and NM. Each time closing costs were split by both sellers and buyers. We assumed that was the norm everywhere.